DAC6 – A Welcome Break
When most people were curled up in front of the TV after overeating Christmas leftovers, HMRC were proving that they can and do sterling work throughout the year, by giving most, if not all, UK advisers a very welcome present for the start of the New Year.
Member States of the EU have been helping each other with cross-border tax demands, service of notices and exchange of information since the 1970s but recently they have supercharged what they expect each country to exchange with each other, whether it is useful information or not.
The latest expansion was in respect of certain cross-border advice given to EU residents. If the advice fell within the requirements, known as “DAC6” (aptly named because it is obviously the 5th amendment to the Directive for Administrative Co-operation), then the adviser has to make a report to their tax authority, giving details such as what the advice was about and who it was given to.
DAC6 required details of transactions that were implemented on or after 25 June 2018 and although the date that the first reports had to be made had been delayed due to Covid, the fateful day was fast approaching – 30 January 2021!
However, for UK advisers, Brexit came to the rescue – not often you will see that phrase. With the UK’s withdrawal from the EU, it was no longer a party to the DAC and although the legislation already enacted by the UK was sufficient to allow HMRC to collect the information, it was not enough to allow HMRC to send it to the EU’s database, post Brexit. Plus, the EU would not allow HMRC access to any other countries’ information on the database.
Further, due to the volume of reports, it would be impossible for HMRC to use the usual exchange of information routes to send the information to other countries. Therefore, on 29 December 2020 regulations were made that reduced the scope of the UK’s domestic legislation to only cover the part of DAC6 that overlapped with the OECD’s Mandatory Disclosure Rules (MDR). The UK DAC6 rules will eventually be replaced with ones specifically for the MDR. These rules cover the potentially more serious transactions within DAC6, those where a person is trying to hide their identity or their funds. Both are hallmarks of money laundering and areas where there will be sufficiently low enough numbers for HMRC’s Exchange of Information Team to deal with them on a bilateral basis.
The reason for the rejoicing is that the way the amendment to the regulations was done, it actually removed the need to make any disclosures under DAC6 for the other areas. These can now be quietly forgotten about, or some of them can. Before anyone gets the idea that advisers are celebrating some sort of reprieve for tax avoiders, it is worth pointing out that this is the removal of an extra unnecessary administrative burden. The UK’s DOTAS rules overlap with DAC6 and disclosures will still rightly be needed for avoidance schemes, where DOTAS is well understood and these disclosures can already be shared with other countries. Also, for DAC6, HMRC’s guidance is somewhat vague and unhelpful, although that does reflect the fact that the terms used in the DAC itself are themselves vague, undefined and open to different interpretation by different Member States, so any guidance is going to be difficult to write.
However, there is one category of advisers who may now be faced with a headache. Although with Brexit, UK advisers are no longer within the scope of the DAC their EU clients are, and under DAC6 the UK adviser’s responsibilities now fall on those clients if no EU adviser is involved. For example, if a UK firm has a client in, say, France and was originally going to make a report under DAC6, that responsibility now falls on their French client.
If you have any queries regarding the DAC or the UK’s ability to exchange information, please contact Andrew Parkes who was one of the UK’s Delegated Competent Authorities (and has the certificate to prove it).