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Significant development in UK implementation of DAC6

05 January, 2021

While most of us were enjoying a little R&R over the festive period, HMRC were evidently particularly hard at work amending their approach to DAC6 in light of the concluded negotiations between the UK and the EU on the Trade and Cooperation Agreement (TCA).

Issuing a letter to professional bodies on 31 December 2020, HMRC advised that: 

  • Reporting under DAC6 will still be required for a limited time, but only for arrangementswhich meet hallmarks under category D ; and 
  • in the coming year, the UK will consult on and implement the OECD’s MandatoryDisclosure Rules (MDR) as soon as practicable, to replace DAC6 and transition fromEuropean to international rules. 

The category D hallmarks are those aligned to the OECD’s MDR, applying to CRS avoidancearrangements and opaque ownership structures. With Guernsey and Jersey having adopted theOECD’s MDR, this should be a welcome development for CI-based businesses in providinggreater scope to align policies and procedures to ensure compliance with both local MDR andEU DAC6. 

Additionally, we've confirmed with HMRC that, for the transition period between 25 June 2018 and 30 June 2020, and the period from 1 July to 31 December 2020, reporting will only berequired for those arrangements meeting a category D hallmark.

However, there remain some challenges which require consideration:

  • The interim UK rules will not be fully aligned with OECD MDR or the CI regimes, at leastfor the time being. For that reason, one should not assume that local MDR procedureswill meet the UK requirements. A hybrid approach may be required at least until the UKrepeals the current regulations and more exactly implements the OECD model. 
  • Consideration must still be given to whether one may have reportable arrangements inother EU Member States under ‘full fat’ DAC6 either as an intermediary or a relevanttaxpayer. Although the UK is the largest trading partner for CI firms, many will beentering into transactions across the EU and may still require appropriate DAC6procedures to ensure reportable arrangements are identified and disclosed. 
  • For multinational groups, the falling away of a UK reporting obligation may result inanother group entity having a reporting obligation elsewhere in the EU, so it is importantto also revisit any arrangements which would have been reportable in the UK and whichother EU intermediaries/ taxpayers would have relied upon.

More broadly, it is interesting to note that the TCA requires that:

“[a] Party shall not weaken or reduce the level of protection provided for in its legislation at theend of the transition period below the level provided for by the standards and rules which havebeen agreed in the OECD at the end of the transition period, in relation to ... the exchange ofinformation [or] … rules on interest limitation, controlled foreign companies and hybridmismatches”.

Further information

Should you require any more information or assistance, please get in touch with any of the individuals listed below, or your normal PwC contact in our Channel Islands tax team.

Contact us

David Waldron

David Waldron

Partner, PwC Channel Islands

Tel: +44 7781 138617

Tom Cowsill

Tom Cowsill

Tax Director, PwC Channel Islands

Tel: +44 7797 710529

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