The UK will no longer be fully implementing the EU’s Mandatory Disclosure Regime (‘DAC 6’) reporting requirements. Under the Trade and Cooperation Agreement between the UK and EU signed 30 December 2020 (the ‘Free Trade Agreement’), the UK will look to implement legislation to apply the OECD mandatory disclosure rules (‘MDR’) instead of DAC 6, marking a significant reduction in the potential UK tax reporting requirements which would otherwise apply. Until such time as the MDR is implemented in the UK the DAC 6 rules will continue to apply in the UK, but in a much reduced form. Now, the scope of DAC6 reporting requirements in the UK is limited to arrangements that would have fallen within Category D of Part II of DAC 6 (the ‘Category D Hallmark’): generally, those arrangements that undermine reporting obligations or involve non-transparent legal or beneficial ownership, offshore entities, or structures with no economic substance. This is in line with the types of transactions that will be reportable under the MDR once those rules are implemented in the UK.
This limited application applies both in respect of historic transactions (that occurred before 11pm on 30 December 2020) and new transactions, all of which are required to be reported from the end of this month. This will likely come as a relief to many, as it means that the UK reporting obligation that intermediaries were expecting to have to report in relation to a number of historic arrangements which fall into one of the other hallmarks set out in DAC 6 has now fallen away. Of course, those transactions caught by the Category D Hallmark remain reportable by the applicable deadlines (being 30 January 2021 for transactions occurring during the second half of 2020, and 28 February 2021 for those between 25 June 2020 and 30 June 2020, and within 30 days for matters arising on or after 1 January 2021).
In this regard, it is worth noting that the Category D Hallmark that continues to apply is perhaps the hallmark that was most likely to be relevant for private clients and their intermediaries. Therefore, on a practical note, for some the risk of a reporting obligation arising will remain similar.
It should also be noted that to the extent a UK business or individual is involved in a cross-border transaction in respect of which an EU intermediary is involved, that transaction may still need to be reported under the application DAC 6 rules in the relevant Member State (and in consideration of the full suite of hallmarks).