UK Reports On Adoption Of EU's DAC6 Tax Scheme Reporting Rules

Jan 21 2020

On January 8, 2020, the UK Government released a policy paper setting out how the UK will temporarily adopt the "DAC 6" EU disclosure requirements on intermediaries that design or sell potentially harmful tax schemes.

The document has been prepared owing to uncertainty as to how the UK will leave the European Union - that is, whether there will be a "no-deal" exit, or (as expected) an orderly exit with a transitional period agreed with the European Union.

Directive 2018/822

On May 25, 2018, the EU's Economic and Financial Affairs Council (ECOFIN) adopted the European Commission's proposal from June 2017 on new transparency rules for intermediaries (known as "DAC 6"). These were included in Council Directive (EU) 2018/822, which member states were required to tranpose into their domestic laws by December 31, 2019.

The UK is set to leave the EU by January 31, 2020, based on the deal put forward by the UK Prime Minister Boris Johnson, which was passed by the House of Commons on January 9, 2020.

However, the UK is legally obligated to transpose this Directive before the UK ceases to be a member of the European Union and during any implementation period.

DAC 6 obligations

The directive requires intermediaries such as tax advisors, accountants, and lawyers that design and/or promote tax planning schemes to report schemes that are considered potentially aggressive. EU member states are required to automatically exchange the information they receive through a centralized database.

The new reporting requirements will apply from July 1, 2020, and member states will be obligated to exchange information every three months, within one month from the end of the quarter in which the information was filed. The first exchanges should therefore be completed by October 31, 2020.

UK policy paper

The UK introduced powers in section 84 of the Finance Act 2019 to enable it to make regulations to implement Council Directive (EU) 2018/822.

However, Section 84(8) of the Finance Act 2019 provides that no regulations may be made under that section unless the Chancellor of the Exchequer has laid before the House of Commons a report on how the powers in that section are to be exercised in each of the following scenarios: first, in the "unlikely" event of a no-deal Brexit, wherein the UK leaves the European Union and the Withdrawal Agreement has not been ratified; and, second, if the UK leaves after the withdrawal agreement has been ratified.

The report sets out the planned approach to both of the scenarios, as per the requirement of the legislation.

Essentially, the report says that under a no-deal scenario, the UK may decide not to adopt the DAC6 framework, as it would no longer be bound by the requirement to transpose the Directive into UK law. If an orderly exit is agreed, as expected, the UK would implement the Directive, at least for as long as it is bound by EU law.

The report says: "If, at the date the UK leaves the EU, a negotiated withdrawal agreement and a framework for the future relationship with the European Union, has been ratified under section 13 of the European Union (Withdrawal) Act 2018, the UK will implement the Directive by exercising the powers provided for by section 84 and the regulations made under it."

"The Government may make consequential, supplementary, incidental, transitional, or saving provision and may do so by amending, repealing, or revoking the Regulations in order to ensure that the rules work as intended after the UK leaves the EU."

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