Europe – DAC3: Exchange of Clearances

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Since 1 January 2015 tax authorities within the EU (under DAC3) and from 1 January 2016, tax authorities signed up to the OECD’s Inclusive Framework (under BEPS Action 5), have been exchanging clearances (or rulings to use the terminology of the EU and OECD) that relate to cross-border transactions.

In other words, if you ask HMRC to agree that the restructuring of your Irish and U.S. sub-groups is tax neutral in the UK, then HMRC will share that request and their answer with the U.S. under BEPS Action 5 and all EU Member States under DAC3.

You therefore have to be very careful what you say in the clearance. Andrew led on the implementation of these for HMRC and it was common to see requests for clearances saying that there was a tax avoidance motive, but it was not aimed at the UK. For instance, in the example above, the clearance would often say that the purpose of the transaction was to avoid U.S. tax, but clearance could be given in the UK as there was no UK tax avoidance motive.

DAC3 and BEPS Action 5 now ensure that these sorts of comments are brought to the attention of the targeted tax authorities.

For more information please contact Andrew Parkes on +44 20 7242 5000 or andrew.parkes@uk.Andersen.com

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