This article takes a look at the introduction of DAC6 and how this could impact you.
In recent years, countries within the OECD have agreed to bring in various measures to tackle tax avoidance. Some of these measures have led to legislation, for example, that which is aimed at ensuring that multi-national companies cannot avoid paying tax using so called hybrid vehicles. However, some other measures are aimed at a greater level of transparency through reporting – especially across borders. Many of you will be aware of CRS, or the common reporting standard, which is aimed at just this.
However, the EU have decided that CRS does not go far enough. They therefore introduced a directive known as DAC6. Broadly, this directive requires intermediaries or the taxpayer themselves to report to their relevant tax authority within a specific time frame cross border transactions that fall within the rules. The UK and EU tax authorities will then share this information with each other.
Even though the UK is leaving the EU, it has confirmed that it will be introducing the legislation. Last week, HMRC issued the final regulations to implement the directive following the consultation which closed on 11 October 2019. One of the changes we note is that the penalty for failure to make a report will now be a one off penalty of up to £5,000, with daily penalties only applying in more serious cases.
Somewhat confusingly, the law already applies as the legislation covers the period from when the first step of implementation was between 25 June 2018 and 30 June 2020 and the report needs to be submitted to HMRC between 1 July 2020 and August 2020. The full regime takes effect from 1 July 2020 and requires that arrangements are disclosed within 30 days of the earliest of a number of trigger events. There is a separate deadline for service providers of 30 days from the day after they are provided with the relevant aid, assistance or advice.
The directive is far reaching and it is not yet 100% clear as to how HMRC are going to operate the new legislation, as they are yet to release their guidance. However, this is an EU Directive and so we are working with DFK International, our international association, in tracking the implementation of DAC6 across the EU. Once we have all the information, we will release a more detailed guidance note to individuals and businesses to understand if they have a reporting obligation.
We can review your current activities and transactions, help you identify your obligations and how and when to report these. Please contact a member of our tax team for further assistance.