UK and International Tax news
UK Mandatory Disclosure Regulations For Intermediaries
Thursday 20th February 2020
Final UK regulations have recently been issued to implement the EU Directive designed to enable EU tax authorities exchange information about cross border tax schemes.
The International Tax Enforcement (Disclosable Arrangements) Regulations, SI 2020/25, were laid before Parliament last month and take effect from 1 July 2020.
The EU Directive 2018/822 [known as DAC 6], which amends the EU Directive 2011/16 (on Administrative Cooperation in the field of taxation), targets intermediaries, such as tax advisors, accountants and lawyers that design and/or promote tax planning schemes, who will be obliged to report these structures to their tax authorities. In turn, EU member states will exchange this information with each other, further increasing scrutiny around the activities of tax planners and advisers.
Cross border tax planning schemes can bear certain characteristics or ‘hallmarks’ that indicate a risk of tax avoidance or evasion. Such hallmarks can include the use of cross border losses to reduce tax liability, the use of special preferential tax regimes, or arrangements through countries that do not meet international good governance standards. Intermediaries that design or provide schemes bearing any one of these key hallmarks will now have to report these schemes to the tax authorities before they are used.
Member states will automatically exchange the information they receive on the tax planning schemes through a centralised database, giving them early warning on new risks of avoidance and enabling them to take measures to block harmful arrangements and carry out audits more effectively. The requirement to report a scheme does not necessarily imply that it is harmful, only that it merits scrutiny by the tax authorities.
The new UK reporting requirements will enter into force on 1 July 2020 and will cover arrangements entered into since 25 June 2018. Reports for this first period to 30 June 2020 will be due by 31 August 2020.
The final regulations include changes arising from the 2019 consultation on the draft regulations issued in July 2019 and these include:
- amendments to the penalty regime for non compliance with reduced penalties for genuine mistakes,
- limiting the scope of ‘tax advantage’ to only EU taxes,
- limiting the obligation for intermediaries to report in multiple jurisdictions,
- limiting the scope of the UK rules to UK intermediaries and those with a UK connection,
- compatibility with legal professional privilege.
The final regulations do not address the position when the UK leaves the EU, however HMRC stated in last year’s consultation document that the UK is legally obliged to transpose DAC 6 before the UK leaves the EU and that obligation will continue during the implementation period under the terms of the Withdrawal Agreement.
HMRC will issue guidance before the regulations come into force in July 2020.
If you would like more details on the new disclosure requirements, please contact Keith Rushen on 0207 486 2378.