20 October 2020
Recently introduced EU rules impose mandatory reporting obligations on advisers, and in some cases taxpayers, regarding certain cross-border arrangements.
Potentially catching transactions dating back to June 2018, and with penalties of up to £1 million for non-compliance, we explain what DAC 6 is and how we can assist you with it.
The sixth version of the Directive on Administrative Co-operation – or DAC 6, as it is more commonly known – is an EU directive that aims to tackle tax avoidance, increase tax transparency and improve information sharing between the EU member states (each of which has implemented its own rules).
It introduces new obligations on intermediaries such as lawyers, accountants, tax advisers and banks to report details of certain cross-border arrangements to their local tax authority. This information will then be exchanged with other tax authorities implementing equivalent rules.
In the absence of a reporting intermediary – for instance, where a transaction is carried out in-house, or where legal professional privilege prevents disclosure – the reporting obligation will fall on the taxpayer to whom the cross-border arrangement is made available. This can apply to any taxpayer, including companies, individuals and trustees.
A cross-border arrangement is a scheme, transaction or series of transactions that concerns more than one EU member state, or an EU member state and a third country. The UK is treated as an EU member state until the end of the transition period (31 December 2020), although the UK's DAC 6 regime is expected to survive Brexit.
To be reportable, the cross-border arrangement must display one or more 'hallmarks' – features commonly seen in tax avoidance or evasion arrangements. Although certain hallmarks require a tax advantage to be obtained, some arrangements will be reportable despite having no tax motive.
The questions in the flowchart below will help determine whether there is a reportable cross-border arrangement:
* The only Category C hallmarks which require the main benefit test to be met are deductible cross-border payments where the recipient is tax resident in a low or zero corporate tax rate jurisdiction, or where the payment is exempt from tax, or benefits from a preferential tax regime, in the recipient's tax jurisdiction.
Where a cross-border arrangement is reportable, various details must be disclosed:
In the UK, the intermediary or taxpayer must report the above information via HMRC's online portal.
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