In light of Brexit, the U.K. government has made the unexpected announcement that it will limit DAC6 (Directive 2018/822) reporting in the U.K. to matters involving arrangements with the effect of concealing the ultimate beneficial owners of such arrangements, or of avoiding the application of information exchange regimes. While this will come as a welcome relief to many, businesses should consider how this could impact their DAC6 reporting obligations in European Union member states.
Following the agreement of the U.K./EU Free Trade Agreement (FTA), the U.K. government made the surprise announcement that the U.K. legislation on DAC6 will be limited to reporting on Hallmark D with effect from January 1, 2021. This means that U.K. reporting will only be required where matters involve arrangements which have the effect of concealing the ultimate beneficial owners of such arrangements, or of avoiding the application of information exchange regimes (such as the Common Reporting Standard (CRS)).
The FTA provides that the U.K. must not "weaken or reduce" the level of legislative protection below the standards and rules agreed in the Organisation for Economic Co-operation and Development (OECD) at the end of the transition period in relation to exchange of information concerning potential cross-border tax planning arrangements. These "standards and rules" refer to the OECD's model Mandatory Disclosure Rules (MDR), meaning that the FTA only requires the U.K. to implement rules equivalent to the MDR. In practice, Hallmark D of DAC6 provides a level of protection that is at least equivalent to the MDR, and so reporting in respect of Hallmark D of DAC6 will remain in force in the U.K. until the government replaces what is left of the DAC6 legislation with legislation to introduce MDR in the U.K.
In practice, these changes mean that far fewer reports are likely to be required to be made to the U.K. government under DAC6. While this will come as a welcome relief to many, intermediaries will still need to consider how this impacts their DAC6 reporting obligations in EU member states, as many may have been relying on the fact that reports made in the U.K. would satisfy their obligation to report elsewhere. Businesses should also note that their EU counterparties may still need to report transactions that they are involved in under the DAC6 rules.
Additional DAC6 client alerts can be found here:
https://www.akingump.com/en/news-insights/european-tax-update-january-2019.html
https://www.akingump.com/a/web/4UR85FJtMh33m22UtEuce5/2epcN3/tax-alert.pdf
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