Mandatory disclosure of cross-border tax arrangements – reporting deadlines deferred
The first DAC 6 reports on cross-border tax arrangements would have been due by 31 August 2020, but the reporting deadlines have been deferred due to coronavirus.
What are DAC 6 reports?
The EU directive known as DAC 6 (it is the sixth update of the Directive on Administrative Cooperation) imposes a requirement on intermediaries (and in some cases taxpayers) to report information on certain cross-border tax arrangements, to the tax authorities in their home member state. The UK has implemented the Directive through regulations.
The basic requirements – who needs to report and what constitutes a reportable arrangement – were outlined in an earlier article. It is important to recognise that because some of the hallmarks are widely drawn, they may catch arrangements where there is no avoidance intention. Accountants, tax advisers, lawyers, and financial advisers could all fall within the definition of an intermediary, so will need to look at the detailed rules and consider whether arrangements they advise on or promote could be reportable. Some problematic areas were highlighted in the ICAS response to the formal consultation.
There have been two significant recent developments: publication of HMRC’s guidance and the deferral of the initial reporting deadlines. There is also a question mark over what will happen after the end of the Brexit implementation period, but it would be unwise to stop preparing for DAC 6 reporting.
HMRC has recently published its guidance in the International Exchange of Information Manual. ICAS took part in HMRC working group discussions about draft versions of the guidance, although not all issues raised have been addressed to date. We understand that there will be further updates and that HMRC would welcome additional feedback: if you have any comments on the guidance please let us know by emailing email@example.com.
The usual reporting deadline is 30 days after the relevant reporting trigger point (this could often be the first step in implementing the arrangement – but there are other triggers, some of which could be earlier).
However, the first report under the DAC 6 regime must include details of any arrangements where the first step was undertaken from 25 June 2018 (the date the EU directive entered into force) – it therefore requires a look back. This first report would originally have been due by 31 August 2020. However, due to coronavirus the deadlines have been deferred.
The following deadlines for reporting will now apply:
- For arrangements where the first step in the implementation took place between 25 June 2018 and 30 June 2020, reports must be made by 28 February 2021, instead of by 31 August as originally required.
- For arrangements which were made available for implementation, or which were ready for implementation, or where the first step in the implementation took place between 1 July 2020, and 31 December 2020, reports must be made within the period of 30 days beginning on 1 January 2021. Under the original rules, such arrangements would have had to be reported within 30 days of the reporting trigger point being reached.
- For arrangements in respect of which a UK intermediary provided aid, assistance or advice between 1 July 2020 and 31 December 2020, reports must be made within the period of 30 days beginning on 1 January 2021. Again, under the original rules, such arrangements would have had to be reported within 30 days of the aid, assistance or advice being provided.
- Arrangements which become reportable on or after 1 January 2021 must be reported as normal.
- Where periodic reports are required in relation to marketable arrangements, the first such report must be made by 30 April 2021.
In view of the deferral, HMRC has not switched on the IT system which will be used for reporting. It will be made available ahead of the new deadlines and HMRC will use the additional time to carry out further work.
Impact of Brexit
DAC 6 reports will be shared between EU member state tax administrations via a database. It is not currently clear whether the UK will still have access to this database after 31 December 2020.
The Financial Secretary to the Treasury recently responded to a parliamentary question asking whether the UK Regulations would be repealed after the end of the transition period. He confirmed that the government remained committed to tax transparency and will continue to apply international standards on transparency and exchange of information. He also said that the Government would keep the Regulations under review – and that further legislative action may be appropriate in the light of the outcome of negotiations with the EU on the future relationship between the UK and the EU.