Important change to UK reporting of cross border arrangements under EU DAC6

Following the UK/EU Trade and Cooperation Agreement (see here), the UK has decided to devise its own reporting of cross border arrangements to conform with OECD agreed standards and rules, while retaining a requirement to report in line with its previous EU DAC6 rules only those arrangements where hallmarks D1 or D2 concerning the frustration of beneficial ownership reporting are present.  This has the following implications for UK intermediaries and UK relevant taxpayers:

• There is no requirement to make any reports to HMRC in respect of cross border arrangements where one or more of the hallmarks in categories A, B, C or E are relevant.  This applies to what might have been reportable arrangements for the periods (i) 25 June 2018 to 30 June 2020; (ii) 1 July 2020 to 31 December 2020 and (iii) from 1 January 2021 onwards.  This is particularly helpful as many normal commercial cross border reorganisation and transfer arrangements may have otherwise had to be reported.
• It is still necessary to consider whether any cross border arrangements are reportable to HMRC if hallmarks D1 (arrangements to undermine reporting or beneficial ownership using one or six characteristics) or D2 (arrangements to undermine reporting of beneficial ownership arrangements using non-transparent entities or ownership chains that, amongst other things, do not carry on substantive economic activity) are met.
• It is still necessary to consider whether there is any EU DAC6 reporting requirement in any other EU member state, according to the rules in that member state.  This will require the intermediary, or the taxpayer involved in the cross border arrangement, to either have some taxable presence in another EU member state, or to be governed in some way in another EU member state, or to receive income, generate profits or undertake an activity in another EU member state (whether tax resident there or not).

While this is a significant simplification for UK based ‘intermediaries’ and ‘relevant taxpayers’, HMRC has indicated it will be consulting soon on introducing other rules to align with OECD mandatory disclosure rules.  In relation to cross border arrangements, it is to be hoped that the focus will be on those arrangements where there is significant practical risk to tax revenues in line with the BEPS action 12 report and does not include normal commercial arrangements which are not tax motivated.

What should affected businesses be considering as a result of the changes?

• Do your internal tracking systems take account of the new UK EU DAC6 reporting requirements?
• Do your existing systems and processes efficiently identify potential reporting obligations in EU member states?
• Have the costs of compliance with existing and proposed rules been factored into business pricing?

How we can help 

Mazars is an international firm with a major presence in the UK, Europe and the rest of the world.  We are ideally placed to assist you in assessing how you can manage international tax and financial reporting obligations efficiently.  We also have also developed systems that can assist you in managing EU DAC6 reporting obligations.  Please get in touch us via the button below for a further discussion.

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