Regulations implementing DAC6 were laid before the House of Commons on 13 January 2020 and, accordingly, this new requirement for intermediaries and/or taxpayers to report certain cross-border tax planning arrangements is now part of UK law and must be complied with. The UK was not the only jurisdiction to miss the 31 December 2019 deadline set by the EU, and indeed some EU member states are still to produce their final legislation.
The delay in the UK - largely due to the general election in December - caused some speculation that the UK might decide not to implement the Directive or may choose to re-cast it for the post-Brexit era. However, in the event, the final regulations closely follow the initial draft, with a few clarifying amendments (such as its territorial scope and the operation of the penalty provisions).
Indeed, had the UK decided to re-cast the scope of the disclosure requirement it would have created further complexity where a counterparty to any arrangement concerning the UK is in any of the remaining 27 EU member states and therefore obliged to disclose in line with the Directive. It remains that the five hallmarks make for an onerous reporting obligation - and the main benefits test, where it applies, in practice may not take many arrangements out of scope. The hoped-for direction of travel was simplification, but countries cannot unilaterally water down the impact of an EU Directive.
Implementation in other jurisdictions
Some countries had made noises about extending the obligation - and some have gone ahead. Poland and Portugal have both broadened reporting to domestic transactions as well as cross border arrangements – both, in doing so, have extended the scope to domestic VAT which, along with social security, is outside the scope of the Directive. Germany and Sweden looked like they may extend their regimes to domestic reporting but in the event implemented laws more closely in line with the Directive, although Germany is apparently still looking at domestic reporting. Some countries, that from experience may be expected to make the obligation more onerous, are yet to publish their draft laws.
The reporting mechanism will vary between countries - Poland has specified a quite lengthy questionnaire, but for others the obligation is based on the minimum information required by the Directive. HMRC has yet to design the UK online reporting service and is consulting on the technology required. It is notable that different countries have chosen different dates upon which the Directive comes into force - most commonly either 1 January 2020 (the day after the Directive was required to be incorporated into domestic law) or 1 July 2020 (the first day when a reporting obligation must arise under the Directive, and the end of the catch up reporting period from 25 June 2018). Whether there is any practical difference in the choice of these dates may only become obvious as each country's reporting obligations are faced in practice - again Poland is an exception as its mandatory reporting obligation has already commenced.
There is great diversity in the penalty provisions. The amounts potentially chargeable vary from a few hundred Euros up to the maximum penalty in Poland of PLN21m (about €4.9m) and imprisonment of up to 8 years. The UK's maximum of £1m is towards the top end of the penalty range. It remains to be seen how penalties for repeated or sustained failures are compounded within jurisdictions, or the willingness of different jurisdictions to penalise the same offence. Germany has specified its maximum penalty of €25k can be charged per event, but unlike other countries has explicitly said that there will be no retrospection - it will only apply to arrangements set up after 30 June 2020.
The initial reporting obligation falls to intermediaries, and it is notable that the Directive afforded a carve out for legal privilege, but many states have only included privilege for litigation, not for advice. Determining who does and who does not need to report may be problematic and taxpayers must take a close interest in this as the reporting obligation falls back to them if no one else makes a report. Apparently in some jurisdictions there was discussion over penalties for over-reporting, but the practicalities of this seem to be better reflected in the penalties for a failure to make the arrangement reference number (ARN) obtained from having made a report available to other interested parties. However, given the 30 day deadline for making a report, it seems that there needs to be efficient sharing of information amongst parties more used to exercising strict confidentiality in order for intermediaries to rely on reports made by others. On a practical basis, taxpayers need to take a role in organising their intermediaries’ reporting - it may not be in a taxpayer's best interests to have multiple reports from different advisers’ perspectives of the same arrangement, or to bear duplicated reporting costs.
The final UK Regulations clarify factors taken into account in setting penalties - an important addition is mitigation based on the processes maintained by a person to secure that reportable items are identified and reported. Practical difficulties include the fact that jurisdictions may have slightly different obligations or may interpret the same facts differently, based their own filter of the workings of local tax law or company law. This is illustrated in the practical examples given in our recent webinar. It is all the more important that taxpayers have processes for dealing with DAC6 – RSM’s online reporting management tool, also described in the webinar, is designed to do exactly this.
For more information please get in touch with Andrew Seidler.