New regulations for Cross Border Transactions under DAC 6 Reporting
EU Directive on the Mandatory Disclosure and Exchange of Cross Border Tax Arrangements.
Cross border transactions under DAC 6 reporting
From 1 July 2020, tax payers engaged in cross border transactions (“CBTs”) and their intermediaries will be required to disclose to HMRC details of these cross border arrangements where they meet one of the ‘hallmarks’ outlined under the EU directive. Due to the impact of Covid19 HMRC have deferred the first reporting date for these new measures until 2021.
The directive covers any cross border arrangements entered into after 25 June 2018.
Cross border arrangements entered into or aborted between 25 June 2018 and 30 June 2020 will need to be reported to HMRC by 28 February 2021, whereas arrangements entered into or aborted between 1 July 2020 and 31 December 2020) will need to be reported within 30 days from 1 January 2021.
Beyond 1 January 2021, any new arrangements entered into or aborted will need to be reported within 30 days of the arrangement being (i) made available or (ii) ready for implementation.
If you are:
- Currently undertaking any cross border transactions
(or did so any time after 25 June 2018); or
- Planning to set up new cross border arrangements.
Then you will need to consider this new directive carefully and ensure all of your reporting obligations have been met. It will be necessary to co-ordinate with any promoters or service providers to ensure they are correctly reporting the relevant arrangements.
Tax payers & intermediaries
Intermediaries acting on behalf of Individuals or corporations undertaking CBTs will need to report these transactions to the relevant EU tax authority. The term ‘intermediaries’ draw a very wide scope, (including but not being limited to lawyers, accountants, tax advisors) and generally includes any individual or firm that promotes certain cross border arrangements (“promoters”), or provides help, advice, and facilitation for the arrangements
The hallmarks used to determine if a cross border transaction is required to be reported. This means that not all transactions will need to be reported, but because of the wide scope of the hallmarks all cross border transactions will at least need to be scrutinised by a professional to determine if they do fall within these rules.
HMRC have confirmed that the directive will only capture direct taxes of EU member states, so it would not include any arrangements put in place for VAT purposes. Indeed, they have also clarified that a transaction would not be reportable where to file a report would infringe on legal professional privilege.
Penalties for failing to report
There is a fixed penalty of £5,000 for failure to comply in many cases, and daily penalties of £600 which should in principle only be charged in the instance of a serious failing, such as where the behaviour leading to the failure was deliberate. Penalties may be cancelled if there is a reasonable excuse. The possibility for the Tribunal to increase penalties up to £1 million remains.
Impact of Covid 19
HMRC announced in July 2020 that the original reporting deadlines for the new measures would be deferred until at least January 2021, giving businesses and advisors a much needed chance to breathe during the current situation.
|A – commercial characteristics (including|
marketed tax avoidance schemes)
|• Confidentiality agreement in place as to how the scheme operates;
• Conditional fee for intermediary based on success of scheme; and
• Standardised structure or documentation
|B – Structures indicative of avoidance|
|• Converting income streams into capital;
• Loss-buying; and
• Circular transactions (with no commercial basis).
|C – Cross Border payments||• Payments to related parties subject to zero/low tax jurisdictions or not resident in any
• Double claim of deductions and/or reliefs over multiple jurisdictions; and
• Transfers of assets where recorded value is not consistent between the transferor and
|D – Arrangements designed to|
circumvent tax reporting
|• Arrangements that undermine transparency reporting / automatic exchange of
information between different jurisdictions.
|E – Transactions:|
• Not made at arms-length;
• Where the value transferred cannot
• Which result in base erosion
|• Arrangements designed to hide beneficial ownership and involve overseas
structures with no real commercial function;
• Use of ‘safe-harbours’;
• Transfer of intangible assets overseas where a comparable benchmark of value is
hard to obtain/uncertain; and
• Cross border transactions which greatly reduce projected profits of the transferee
It remains to be seen if the EU as a whole can agree to defer the introduction of the directive, but time is running short for them to confirm this.
Until the UK has ceased to be a member state of the EU it is legally obligated to implement the directive and ensure it is adhered to. We do not know if the UK will continue this legislation after we leave the EU and ultimately it may depend on the nature of our relationship with Brussels in the future.