The Government announced last week that the UK will now not implement the EU Mandatory reporting rules (‘DAC6’) in full. Instead the UK rules for the implementation of DAC 6 have been amended to require reporting of only a limited subset of the DAC6 list of reportable transactions. This subset broadly equates to the requirement in the OECD model for reporting, and HMRC have announced that the newly amended rules will, in due course, be superseded by a disclosure regime that fully complies with the OECD’s model Mandatory Disclosure Rules (MDR). The MDR rules are far less onerous than the DAC6 rules.
The DAC6 rules came into force on 1 July 2020 and required disclosure of certain transactions in 2021 and thereafter. The DAC6 rules had been criticised by many as creating an onerous administrative burden on businesses that was inconsistent with the additional information that tax authorities were expected to obtain.
The December 2020 Trade and Cooperation Agreement between the EU and the UK requires the UK to maintain a standard of reporting of transactions that is at least equivalent to OECD model reporting rules.
On 30 December 2020, the UK amended its DAC 6 domestic law so that, as an interim measure, only transactions that are of the type covered by the OECD model reporting rules will be subject to the UK DAC 6 reporting requirements.
The changes to the reporting requirements appear to apply to all transactions that are reportable under these rules and not merely to transactions that are implemented after 30 December 2020.
HMRC is expected to amend their guidance to set out their interpretation on this matter and the changes to these rules generally in due course.
Reportable transactions under the new rules
Only transactions that are included in Category D of the EU Hallmarks are required to be disclosed under the UK DAC 6 legislation as now amended. Category D transactions are:
- Arrangements which have the effect of undermining reporting requirements under agreements for the automatic exchange of information; and
- Arrangements which obscure beneficial ownership and involve the use of offshore entities and structures with no real substance.
Transactions that fall under Category D are not at all common in the oil and gas industry and therefore the changes represent a significant reduction in scope of the rules for that sector. Nevertheless, such Category D transactions are reportable; where the first step occurs
- between 25 June 2018 and 30 June 2020:- by 28 February 2021;
- in the period 1 July 2020 to 31 December 2020:- by 31 January; and
- after 31 December 2020:- within 30 days.
Consultation and introduction of new rules
HMRC has announced its intention to consult on the implementation of the OECD model reporting rules, with the expectation that what remains of the DAC6 UK domestic law is to be repealed and replaced by new legislation based on the OECD model.
The DAC6 rules required a lot of effort and indeed led to a degree of uncertainty, without seemingly providing EU tax authorities much by way of new or relevant information. Therefore, this is good news.
However, businesses should remember that EU Member States are implementing DAC6 rules in full and therefore there will be transactions for which there is no UK reporting requirement, but there may still be an EU reporting requirement. In addition, the DAC6 rules allowed businesses to rely on reporting transactions to one tax authority to satisfy their obligations in a different Member State. If there is now no UK reporting obligation, that may mean a reporting obligation in other EU jurisdictions is triggered if previously the UK entity was going to make the disclosure.
Companies are also reminded that the UK has an existing disclosure of tax avoidance schemes rules, the so called DOTAS rules, and these will continue to potentially apply.
CW Energy LLP
January 5 2021