Cross-border tax disclosure rules limited in UK post-Brexit

The UK government laid regulations on 30 December 2020 to amend the UK's rules implementing an EU Directive, known as 'DAC6' so that they will only require the reporting of arrangements covered by 'Hallmark D' – namely arrangements that undermine reporting obligations under the common reporting standard (CRS) or which disguise beneficial ownership. 

The 30 December regulations confirm that the UK will not participate in the rest of DAC6, which is designed to give EU tax authorities early warning of potential 'aggressive cross-border tax planning.

DAC 6 has created an EU-wide system which requires member states to gather information about reportable cross-border arrangements and to share what they received with each other.  Member states have been required to make 'intermediaries' primarily liable to report, although the obligation falls on the user of arrangements where no obligation to report falls on an EU intermediary. An intermediary is widely drafted and catches professional advisers, banks and others providing assistance or advice in relation to a reportable arrangement as well as those actually designing or selling the arrangements.

Catherine Robins, a tax expert at Pinsent Masons, the law firm behind Out-Law, said: "The government had said previously that DAC6 reporting obligations would continue notwithstanding the end of the Brexit transition period. However, there were question marks over how the regime could operate when the UK was no longer party to EU-wide information sharing arrangements."

DAC6 was implemented into UK law in 2020 and applies to arrangements from 25 June 2018, although the first reporting obligations were deferred from July 2020 to January 2021 because of the coronavirus pandemic.

"DAC6 is widely drafted and in some instances requires reporting of arrangements which are not designed to avoid tax. It is welcome news that it is not proceeding in the UK other than in a very limited form," Robins said.

"Advisers, banks and other intermediaries have already incurred large amounts of time in reviewing past arrangements to work out whether they may have a reporting obligation and training UK staff to comply with their obligations under DAC6. Many will be wishing they had known before the 11th hour that the full blown regime was not going ahead in the UK," she said.

However, Robins said that there will be arrangements which, although no longer reportable in the UK, still need to be reported in the EU, either by an EU based intermediary or, where there are no EU-based intermediaries, by the taxpayer itself, because the arrangements 'concern' an EU member state as well as the UK.

In the Trade and Cooperation Agreement entered into between the EU and the UK, the parties agreed not to weaken or reduce the level of protection provided for in their legislation at the end of the transition period below the level provided for by Organisation for Economic Cooperation and Development (OECD) standards and rules in relation to a number of tax issues, including potential cross-border tax planning arrangements.

"DAC6 was the EU's response to the OECD's BEPS 12 set of principles around 'mandatory disclosure regimes'. However, the only policy area for which the OECD has to date developed model rules is CRS avoidance/opaque structures – which marries up to Hallmark D of DAC6. So, to respect its obligation not to lessen any legislation which implements OECD rules, as a quick fix the UK has decided to continue to require Hallmark D reporting for now," said Jason Collins, who is also a tax expert at Pinsent Masons.

HM Revenue & Customs (HMRC) has said that during 2021 the UK will repeal the remainder of the legislation implementing DAC6 in the UK and consult on altogether new legislation to implement the model rules in respect of CRS and opaque structures to move from "EU to international rules".

Editor's note 19/01/21: This story was updated to reflect additional information obtained from HMRC.