Unexpected scale-back of DAC6 tax reporting

United KingdomScotland

HMRC have announced that the UK has scaled back the application of the EU tax disclosure regime referred to as “DAC6” so that only one out of the five EU “hallmarks” believed to indicate tax avoidance will apply in the UK (hallmark D). This applies retrospectively including to earlier matters which were due to be reported in January or February 2021.

Arrangements within the DAC6 regime will therefore only need to be disclosed to HMRC if they include features falling within hallmark D. Hallmark D includes features which: (i) undermine, or take advantage of the absence of, certain tax reporting obligations (D1); or (ii) obscure legal or beneficial ownership (D2).

This change will significantly reduce the burden on UK-based taxpayers and intermediaries, such as lawyers, accountants, banks, investment managers and advisers, of analysing transactions and submitting reports to HMRC in accordance with DAC6. However those taxpayers and intermediaries with a presence in other EU member states should check whether they continue to have reporting obligations in those states, where the full list of DAC6 hallmarks still applies.

We understand that the UK intends to replace the EU DAC6 regime entirely in 2022 with a new Mandatory Disclosure Regime in line with the OECD BEPS project. This regime will, we believe, be similar in scope to the retained hallmark D.