Please be aware that the UK has issued a statement regarding changes to the DAC 6 reporting as a consequence of Brexit. You probably know that negotiations between the UK and the EU on a Free Trade Agreement (FTA) have now concluded. Here follows an update on what it means for the EU Mandatory Disclosure Regime, DAC 6.
- Reporting under DAC 6 will still be required for a limited time, but only for arrangements which meet hallmarks under category D, in line with the UK’s obligations under the FTA.
- In the coming year, the UK will consult on and implement the OECD´s MDR as soon as practicable, to replace DAC 6 and transition from European to international rules.
The text of the FTA, which is available here states that “A Party shall not weaken or reduce the level of protection provided for in its legislation at the end of the transition period below the level provided for by the standards and rules which have been agreed in the OECD at the end of the transition period, in relation to (a) the exchange of information…concerning… potential cross-border tax planning arrangements”.
The reference to OECD rules on exchange of information on cross-border arrangements is a reference to the OECD’s model Mandatory Disclosure Rules (MDR). Therefore, under the terms of the FTA, the UK must not reduce the level of protection in its legislation below the level of protection afforded by the OECD’s MDR.
While the UK has not implemented MDR in its domestic legislation as at the end of the transition period, the rules in SI 2020/25 provide a ‘level of protection’ which in certain respects is equivalent to that in the OECD’s MDR, and in other respects goes beyond the MDR.
As you will be aware, SI 2020/25 was drafted to transpose Council Directive (EU) 2018/822 more commonly known as DAC 6. DAC 6 will cease to apply to the UK at the end of the transition period (11pm GMT on 31 December 2020). After that point, the UK will no longer be obliged to implement DAC 6.
Consequently, the Government has decided to legislate for changes to SI 2020/25, to restrict reporting only to those arrangements, which would be reportable under the OECD’s MDR. This means that only those arrangements which meet hallmarks under Category D of DAC 6 will need to be reported in the UK after the end of the transition period.
The Government has also amended the regulations to ensure the rules work correctly after the end of the transition period, this includes ensuring that references to EU member States refer to the UK or an EU member State after the end of the transition period.
The regulations have now been laid before Parliament and you can find them here. The changes will come into effect from December 31, 2020. While this gives limited time for businesses to prepare for and implement these changes, as the amendments maintain the effect of the rules as they were during the transition period but narrow the scope of what must be reported, Blika anticipate that these changes will be manageable.
In the coming year, the government will repeal the legislation implementing DAC 6 in the UK and implement the OECD’s MDR as soon as practicable, to transition to international, rather than EU standards on tax transparency. The government will consult on draft legislation to introduce MDR in due course.
Blika provides a Mandatory Disclosure Reporting solution that supports multinational companies in managing the MDR reporting within the EU. If you would like to discuss your specific challenges and make sure that local reporters bring arrangements to the tax department’s attention in time, please do not hesitate to get in touch.
Mandatory Disclosure Reporting (DAC 6) – the new rules from the EU
Mandatory Disclosure Reporting (DAC 6) – a guide on practical challenges in your daily operations
Intermediaries’ challenges with Mandatory Disclosure Reporting (DAC 6)
Guide: Control of arrangements subject to mandatory disclosure reporting
Mandatory Disclosure Reporting (DAC 6) – why it matters for multinationals
A guide for implementing an MDR (DAC6) solution
Why it is important to keep control of Mandatory Disclosure (DAC-6) in-house
Lessons learned from implementing a process for MDR reporting