DAC6: largely repealed (in the UK) before it even began

Overview of the changes 

The year 2020 was really a year full of surprises and in a huge turn of events, on 31 December 2020, in a letter sent to stakeholders, HMRC announced that it will repeal the DAC6 reporting requirement in 2021 and replace it with the OECD’s mandatory disclosure rules (MDR). The announcement came following the negotiations between the UK and the EU on a Free Trade Agreement (FTA).

Reporting under DAC6 will still be required for a limited time, but only for arrangements which meet hallmarks under Category D. This is in line with the UK’s obligations under the FTA.

Category D sets out specific hallmarks concerning automatic exchange of information and beneficial ownership and for many this was not one of the hallmarks that has been creating the most concern. However, despite reducing the scope of reporting of the DAC6 regime by removing hallmarks A, B, C and E, if the non UK side of any cross-border arrangement is or was within the EU, then potentially there may still be DAC6 reporting on any intermediary in that other EU country.

As for the UK, in the coming year, HMRC will consult on and implement the OECD’s MDR, to replace DAC6 and transition from European to international rules so watch this space.

What does this now mean?

For the past, the present and the future, only cross-border arrangements that fall within hallmark D have to be reported to HMRC. Whilst this may be great news from a compliance perspective, for any cases that you were ready to report under Hallmarks A, B, C and E, intermediaries will now need to consider if the reporting burden shifts to another EU intermediary.

There is no change to the reporting deadlines and the same deadlines apply to the scaled back reporting obligation if hallmark D applies. 

Conclusion

This is a surprising move given that the Chancellor of the Exchequer’s January 2020 report confirmed the governments’ stance to remain committed to implementing the DAC6 rules as intended even after Brexit. It is not entirely clearly what brought about this shift in focus, but it is no doubt a welcome and admirable change for many as it reduces the administrative burden from a compliance perspective and removes some of the uncertainty and confusion arising from the rules.

As the final Brexit legislation was published last week, an unexpected but welcome surprise for many tax advisers was discovered....”