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DAC6: EU Mandatory Disclosure Regime

October 21, 2020

DAC6 was introduced to bring transparency to cross-border tax arrangements within the EU. Brexit has not affected this and the UK is part of the EU for DAC6.

Taxpayers and intermediaries entering into or advising on cross border arrangements involving EU jurisdictions will need to monitor where reporting will be required and disclose as necessary. Cross border arrangements which meet one or more specified “hallmarks” will need to be reported.

Failure to comply with DAC6 could result in significant penalties.

The first DAC6 report is due for the period 25 June 2018 to 30 June 2020. This report was due to be filed by 31 August 2020 but HMRC has extended the deadline by 6 months to give businesses dealing with the impacts of COVID-19 more time to meet their obligations. The new deadlines are as follows:

• Arrangements where the first step was implemented between 25 June 2018 and 30 June 2020 must now be reported by 28 February 2021 (originally 31 August 2020);

• For arrangements made available for implementation, ready for implementation, or where the first step in the implementation takes place between 1 July 2020 and 31 December 2020, reports must be made by 30 January 2021 (originally this was within 30 days of the relevant trigger point after 1 July 2020);

• Arrangements which become reportable on or after 1 January 2021 must be reported within the 30-day window as originally proposed.

Reportable arrangements are defined by five hallmarks, but some of these are subject to an additional test which requires the main benefit, or one of the main benefits of the arrangement to be to secure a tax advantage. So, what are the five hallmarks?

Category A
Transactions for which: the intermediary imposes a confidentiality requirement on the taxpayer; the intermediary’s fee is contingent on the tax benefit obtained by the taxpayer; and/or, the arrangements have a substantially standardised structure and/or documentation.

Category B
Transactions involving: loss buying; converting income receipts into capital receipts; and/or, circular flows of funds involving entities that have no primary commercial function or that cancel each other out or have similar features.

Category C
Specified cross border transactions which result in a tax mismatch outcome where either relief is given twice for the same item of expenditure or relief is given for expenditure but the corresponding income is not taxed.

Category D
Cross border transactions that are considered to undermine or circumvent existing reporting obligations and arrangements involving entities or structures with no substantive economic activity that are considered to obscure the beneficial ownership of assets.

Category E
Transfer pricing arrangements that involve: unilateral safe harbours; a transfer of ‘hard-to-value’ intangibles; and/or the cross border transfer of functions and/or risks that reduces the related projected annual earnings before interest and tax (EBIT) in the subsequent three year period by more than 50 per cent.

If you are involved with cross-border arrangements it is important that consideration is given to these reporting requirements and that any potential reportable transactions are identified in anticipation of the reporting deadlines early next year.

For further information on RMT Accountants & Business Advisors’ specialist tax services, please contact us.

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