Out-Law News 2 min. read

UK adopts further international exchange of information on tax matters

Taxpayers should consider whether they should make a voluntary disclosure of their tax liabilities to HMRC in response to the UK’s signature of two tax treaties that will result in HMRC receiving more information from other tax authorities on income from digital platforms and certain offshore structuring, an expert has said.

The UK has signed up to two new multi-lateral competent authority agreements (MCAA) for the automatic exchange of information about two different categories of international activity.

The first relates to the automatic exchange of information under the OECD Model Rules for Reporting by Digital Platforms. The OECD published their model rules to collect uniform information on transactions and income for users of online platforms in July 2020 and the UK has committed to implementing this reporting, issuing draft regulations for consultation on 18 October 2022. These regulations are expected to come into force from 1 January 2024.

The UK is one of 22 signatories to this new MCAA. The full list includes a number of EU countries, such as Ireland, the Netherlands and Spain, but also global trading partners such as Canada and New Zealand.

The second relates to the automatic exchange of information about arrangements that attempt to either circumvent the Common Reporting Standard or prevent the identification of beneficial owners of entities and trusts. The OECD published the mandatory disclosure rules (MDRs) in 2018. The UK reduced the scope of reporting under the wider DAC6 rules post Brexit to cover the “D” hallmarks only, which cover similar ground to the MDRs and are interpreted in the UK in line with the MDRs. The UK government had already made it clear that DAC6 would be replaced with MDR in the UK, which has the effect that there will be a wider territorial application and exchange of information beyond the EU.

This new MCAA was signed by the UK and only 15 other countries. The list of signatories includes a number of countries that might be referred to as offshore tax havens, including Jersey, Guernsey, Isle of Man, Bermuda and the Cayman Islands.

These new arrangements will come into force between two signatories when they have made the necessary notifications to the OECD, which will maintain a list of the exchanging countries. The exchange of information will happen in both directions, so HMRC will disclose information it has obtained from UK reports to its fellow signatories as well as receive information from them.

Steven Porter, tax disputes expert at Pinsent Masons, said: “It is not surprising that the UK is an early adopter of automatic exchange of information on these matters, since it has committed to adopting both measures for some time. While we wait for implementation of the exchanges of information and for more countries to sign up, taxpayers with structures in place that may be affected by the MDRs or with income from a digital platform that has not been declared should use the time to regularise their tax affairs. A voluntary disclosure now is likely to be treated much more favourably by HMRC than after HMRC have obtained data from their fellow signatories and started enquiries.”

A voluntary disclosure can be made using HMRC’s Digital Disclosure Service (DDS) or, where the disclosure involves fraud, under HMRC’s Contractual Disclosure Facility. 

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