Disclosure of Cross Border Arrangements

In one of the first examples of the 'Brexit effect' in operation, there was an unexpected, last-minute change of UK law on 30 December 2020 to limit the UK's adoption of EU Directive 'DAC6'.

This requires advisers to report certain cross-border schemes to tax authorities, to be shared with other EU member states. The rules have been in the pipeline for a long time and involved a lot of planning. But just before 30-day reporting was due to commence on 1 January 2021, the UK dramatically cut back its obligations to the bare essentials. This late reprieve is welcome as DAC6 required advisers to implement some challenging compliance procedures. However, the obligations have not gone away completely.

Advisers still need to report cross-border arrangements that obscure beneficial ownership or undermine automatic exchange of information (e.g. CRS reporting). These provisions remain because the UK/EU free trade agreement requires the OECD’s Mandatory Disclosure Rules (MDR) to be maintained. Later this year, the UK will introduce its own MDRs to replace what remains of the UK’s DAC6 Regulations. Meanwhile, disclosable arrangements will need to be reported within 30 days so it is important to consider the requirements and responsibilities right at the start of any matter. It is also worth remembering that an arrangement could still be reportable under the wider rules in another EU country by an EU intermediary or relevant taxpayer.

This last-minute change also offers an insight into the government’s approach to tax compliance post-Brexit. It indicates that they are keen to move away from EU led rules and to align more closely with international standards. Interestingly Gibraltar, which unlike the other British Overseas Territories was part of the EU, has now followed suit on DAC6.