How have the UK’s tax transparency reporting regulations changed since Brexit?

How have the UK’s tax transparency reporting regulations changed since Brexit?

In 2018 the EU imposed a new directive known as DAC6 in an effort to promote tax transparency. The UK transposed DAC6 into national legislation in 2020 even though Brexit plans were well underway and implemented DAC6 regulations into their cross-border tax reporting regime. However, since Brexit and the global pandemic, reporting deadlines in regards to this legislation were delayed, and now in a surprising turn of events, at the end of 2020, the UK decided to make some changes to their legislation, aligning it instead to closely follow the Organisation for Economic Cooperation and Development’s Mandatory Disclosure Rules (OECD MDR).

What does DAC6 enforce?

DAC6 (Directive 2018/2022) is an EU Mandatory disclosure regime that imposes mandatory reporting of cross-border arrangements. It requires taxpayers to report against certain cross-border transactions with the hopes of increasing international tax transparency. DAC6 is primarily designed to give tax authorities early warning of new cross-border tax schemes. It requires tax authorities to be notified of cross-border tax arrangements which satisfy certain ‘hallmarks’. The tax authorities will then have the opportunity to exchange this information with other relevant EU tax authorities.

The specific Hallmarks of DAC6 are loosely categorised as;

  1. Generic hallmarks linked to the primary benefit test
  2. Specific hallmarks linked to the main benefit test
  3. Specific hallmarks related to cross-border transactions
  4. Specific hallmarks concerning automatic exchange of information and beneficial ownership
  5. Specific hallmarks concerning transfer pricing

For a transaction to meet the disclosure requirements, it must be considered a ‘reportable arrangement’ and fall into at least one of the hallmarks mentioned above.

The rules set out by DAC6 have been in force throughout EU member states since 1st July 2020; however, due to the Corona Virus Pandemic, the first reporting obligations were deferred until 2021 by most EU countries. The UK was one of the noted EU countries that enacted DAC6 rules, and this was expected to continue even following Brexit, which finally came into force at the beginning of 2021. However, it was announced at the end of 2020 that the UK rules on international tax transparency would be amended so that reporting requirements would only be required against Hallmark D of DAC6, meaning that now regulations instead emulate those of the OECD’s Mandatory Disclosure Rules.

How do the OECD’s Mandatory Disclosure Rules differ?

The OECD rules require reporting of arrangements designed to undermine tax reporting under the common reporting standard (CRS) and transparency rules, especially in regards to:

  1. Arrangements that have the effect of undermining reporting requirements for the automatic exchange of information
  2. Arrangements that obscure beneficial ownership and involve the use of offshore entities and structures with no commercial substance.

How does the change affect the UK’s reporting regime?

By migrating over towards the OECD’s legislative reporting regime, the UK elevates reporting procedures on hallmarks A, B, C, and E, considerably reducing the number of arrangements necessary when reporting to HMRC.

However, for UK intermediaries and their clients, reporting must still happen for arrangements initiated retrospectively since 25 June 2018, keeping in line with a vigilant reporting timeline.

UK Businesses that operate internationally will still need to be aware and plan for DAC6 reporting for any subsidiaries companies, or other associated entities located in EU territories.

How can Animo help?

With offices located throughout both the UK and Europe, we have an extensive understanding of compliance following both reporting regimes – DAC6 and OECD MDR. Get in touch with one of our expert consultants to discuss your business’s necessary requirements, including critical dates for your reports! Contact us today to find out more on the above, or for any other relevant business queries by calling +44 (0)20 060 0835, emailing, or filling out a contact form below, and a member of our knowledgeable team will be in touch soon!

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