The International Tax Enforcement (Disclosable Arrangements) Regulations 2020 No 25 are the final regulations implementing an EU directive allowing EU tax authorities to share information about cross border arrangements. These rules come into force on 1 July 2020 and carry an onerous reporting obligation which will also apply to cross border arrangements entered into from 25 June 2018. While we have known these were coming, not everyone will have kept the necessary records.
HMRC has seemingly recognised that there are concerns about the penalty regime, the risk of over-reporting, and the interaction of the rules with legal professional privilege. We note that a number of changes have been made to the draft legislation, making the rules more proportionate, amending the penalty regime and limiting the scope of ‘tax advantage’ to just EU tax advantages.
Further amendments ensure that the same intermediary does not have an obligation to report in multiple jurisdictions, that the scope of the rules is limited to UK intermediaries only and does not apply to those without a UK connection.
The examples provided during the consultation together with other evidence from the consultation itself will be used to help inform the detailed additional guidance HMRC is currently preparing and this guidance, will be published before the regulations come into force on 1 July 2020.
In the summary of responses also published, HMRC has said
'While the UK is an EU Member State, and during any implementation period, under the terms of the Withdrawal Agreement, the UK is obliged to implement this Directive. It is also important to note that leaving the EU will not diminish the UK’s resolve to tackle tax avoidance and evasion, and we will continue to work internationally to improve tax transparency.'
DAC 6 imposes mandatory reporting of cross-border arrangements involving at least one EU member state where these fall within one of a number of hallmarks. There has been concern that because intermediaries are also affected, the reporting obligation extends more widely than the existing rules governing those classed as promoters under DOTAS rules, and DAC 6 could potentially affect standard transactions which do not have a tax motive, so creating an unduly wieldly compliance cost.
It is important to note that reports for cross border arrangements entered into between 25 June 2018 and 30 June 2020 will have to be made by 31 August 2020. This does not leave long to gather the necessary evidence and those affected need to be prepared.