Six month delay to cross border tax UK disclosure obligation

Out-Law News | 25 Jun 2020 | 11:48 am | 2 min. read

The first disclosures in the UK under a new EU regime requiring the disclosure of cross-border tax schemes will be delayed by six months to January 2021 as a result of the coronavirus pandemic, the UK government has announced.

The UK regulations implementing the EU directive known as DAC6 come into force on 1 July and would have required the first disclosures to be made at the end of July.

"This deferral is good news for the many businesses and professional advisers who were struggling to get to grips with their obligations under this complex new regime, even before coronavirus struck," said Catherine Robins, a tax expert at Pinsent Masons, the law firm behind Out-Law.

DAC6 is designed to enable EU tax authorities to share information about cross-border tax schemes. The UK regulations require UK 'intermediaries' to report to HM Revenue & Customs (HMRC) cross border tax arrangements which contain a prescribed ‘hallmark’. The information received from these reports will be shared with tax authorities in EU member states so that they can identify any potential tax risks in their jurisdictions. EU tax authorities will in turn share the information they receive about arrangements involving the UK with HMRC.

The primary reporting obligation will fall on ‘intermediaries’. This is very widely defined and includes those who design and market cross-border arrangements as well as those who provide aid, assistance or advice in respect of such arrangements. The taxpayer itself will be obliged to make the report if there is no EU intermediary or if the intermediary is prevented from making the disclosure by legal privilege.

HMRC said it will be issuing guidance on the new rules "shortly".

Robins said: "DAC6 is widely drafted and potentially catches some arrangements with no tax avoidance motive. HMRC guidance will be important in ensuring that reporting does not become too burdensome for intermediaries and only requires disclosure of arrangements of some real interest to the tax authorities."

"Those who may have DAC6 reporting obligations should use the delay to get their procedures and policies in place to ensure they will be able to comply with their obligations in 2021. If they have not done so already, they will need to look back two years at arrangements they have been involved in since 25 June 2018. The longer this is left, the harder it will be," she said.

Although the regulations only come into force on 1 July 2020, cross border arrangements entered into since 25 June 2018 will need to be reported. Reports for arrangements entered into from 25 June 2018 to 30 June 2020 were originally due by 31 August 2020. They must now be made by 28 February 2021.

Arrangements which are entered into between 1 July 2020, and 31 December 2020 must now be reported within the period of 30 days beginning on 1 January 2021. Under the original rules, such arrangements would have had to be reported within 30 days of the reporting trigger point being reached.

Arrangements which become reportable on or after 1 January 2021 must be reported as normal, within 30 days.

In May the European Commission published proposals to amend DAC6 to postpone the reporting obligations by three months. However, earlier this month representatives from EU member states reached agreement on a proposal to give member states the option to postpone the deadlines for six months.

The UK government will need to amend the UK's regulations to give effect to this deferral. It said that the amended regulations may not be in force by 1 July 2020, but no action will be taken for non-reporting during the period between 1 July and the date the amended regulations come into force.

While the UK is within the Brexit transition period, due to end at the end of this year, it is treated as an EU member state for the purposes of DAC6. Further changes to the UK's regulations will be needed once the transition period ends.