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Changes to UK DAC 6 Reporting Requirements

January 05, 2021

Coinciding with the end of the UK-EU Brexit transition period, the United Kingdom has dramatically reduced the scope of DAC 6 reporting obligations in the United Kingdom.

What Is DAC 6?

The EU’s sixth amendment to the directive on administrative cooperation (DAC 6) introduced a requirement for EU “intermediaries” to report details of certain tax-motivated transactions and other arrangements to EU tax authorities. Reporting is required where the transaction or arrangement satisfies one of a number of “hallmarks,” some of which also require that the arrangements have a main benefit of obtaining a tax advantage. DAC 6 was implemented in the United Kingdom shortly before the UK’s departure from the European Union, taking effect during the UK’s “Brexit” transition period and with the first reports being due to HMRC by the end of January 2021.

Changes to UK Reporting Requirements

Following the end of the Brexit transition period, the United Kingdom is no longer required to implement DAC 6. However, Article 5 of Part 2, Heading One, Title XI of the EU-UK Trade and Cooperation Agreement provides (among other things) that in relation to taxation neither party shall weaken their implementation of Organisation of Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) minimum standards in relation to the exchange of information sharing and country-by-country reporting. To that end, the UK government has confirmed that DAC 6 reporting will continue but will only be required in the United Kingdom for a limited period of time, and only to the extent that an arrangement is reportable by reason of a “Category D” hallmark. In broad terms Category D hallmarks implement the OECD BEPS minimum standards, and apply in respect of arrangements which are designed either to circumvent the OECD common reporting standard or to obscure beneficial ownership of assets.

The UK government has indicated that it will shortly consult on a new UK-specific regime implementing OECD minimum standards, following which the UK’s DAC 6 implementing regulations will be repealed.

Practical Implications

The change should significantly reduce the scope of DAC 6 reporting for many UK intermediaries. However, UK intermediaries which have a branch or agency in an EU jurisdiction or have employees or partners who are registered with professional bodies in EU jurisdictions many still be within the scope of DAC 6 elsewhere in Europe and so should carefully consider the impact this change will have on their DAC 6 reporting requirements.

Read the text of the EU-UK Trade and Cooperation Agreement.

Read the text of the UK’s regulations implementing this change.

Contacts

If you would like to discuss DAC 6 and the issues raised in this Lawflash, please contact the lawyers below or your usual Morgan Lewis contact:

London
Kate Habershon
Neil McKnight