DAC6: HMRC guidance on its way

EU Directive 2018/822 (known as DAC6) requires certain transactions from 25 June 2018 onwards with a connection to two or more one EU member states (or with one of those (including the UK) and a non-EU jurisdiction) to be disclosed to a national tax authority.  

Both DAC6 and national (including UK) implementing regulations omit much of the key detail taxpayers and their advisors need to decide if a transaction is reportable and if so what must be reported, what must report and to which national tax authority that report must be made.    

Many EU states have still not finalised domestic implementing rules implementing and accompanying guidance.  The French tax authority has just issued its guidance.  HMRC did consult on draft guidance with certain stakeholders only with that process ending on 15 May.  That draft guidance was incomplete, and the final version may differ from it in key respects.   HMRC’s online reporting portal is still in development.

The first reporting deadline under DAC6 (1 July 2020) is now less than a month away.  Whilst the EU has proposed a delay until 1 October, we don’t yet know if that will happen.  

We summarise the main points of the draft guidance with which those advising and providing services to clients who have (or will) set-up arrangements potentially caught by DAC6 will need to become familiar.

Who has to report?

This is primarily the responsibility of what are called “intermediaries”, of which there are two sorts: promoters and service providers. 

If no intermediary has a reporting obligation (for example non-EU ones do not or if like lawyers they are prevented from doing so by legal professional privilege), then the taxpayer must do so instead.  

The guidance covers situations such as where there is more than one intermediary involved and if so, which of them should be the one reporting, depending on their role and degree of knowledge.  

Scenarios such as where a non-EU intermediary may have a “EU nexus” and those not assisting/ advising with implementation are also commented upon.  

What is reportable?

There has to be a cross-border transaction which is an “arrangement” as defined by the Directive as implemented by the UK Regulations supplemented by HMRC guidance.

That arrangement must also meet at least one hallmarks.  Some, but not all of these, require a tax-based “main benefit test” (MBT) to be met as well to trigger a reporting obligation.  

Some hallmarks do not include a MBT.  For example, if certain jurisdictions are involved, especially if on a blacklist, reporting is required regardless of any tax-related motive.  

Reporting triggers and obligations 

The UK reporting deadlines align with those currently in the DAC6 Directive (i.e. reporting from 1 July 2020 and exchanges between jurisdictions from 31 October 2020).  

The trigger for reporting is the earliest to occur of the reportable arrangement being “made available for implementation”, “ready for implementation” or “the first step of implementation has been made.”

The draft guidance contains some examples of all three types of first step.  It is beyond the scope of this article to comment further on this part of the draft guidance.

There will normally be a 30 day period for reporting once the reporting first step has occurred.  Reporting is also required where a first step occurred between 25 June 2018 and 1 July 2020.

The EU Commission has proposed extending the current reporting deadlines by 3 months.  If that happens, HMRC has stated it will publish its proposed response.

The guidance gives more detail on what to be reported on HMRC’s online portal when that is operational. Again, it is beyond the scope of this article to comment further.

Penalties

The guidance contains a list of things which potentially result in penalties but states these will not be charged where there is a reasonable excuse.  Further guidance on the intended application of the penalty regime is expected.  HMRC has already issued separate guidance that difficulties caused by Covid-19 could constitute a reasonable excuse for missing a reporting deadline.

Commencement

As mentioned above, reporting is also required where a reporting “trigger event” first step occurred between 25 June 2018 and 1 July 2020, not just those from the 1 July 2020 commencement date.