HMRC have done their best Santa impression over the festive period and delivered a surprise package of their own.
The key impact is the removal of 4 out of 5 hallmarks. This will result in a much narrower implementation than previously envisaged and one that was not expected.
Reporting under UK DAC6 rules will only be required for arrangements falling under hallmark D, i.e. hallmarks A-C and E are no longer relevant. Hallmark D is concerned with the circumvention of reporting under the OECD Common Reporting Standard and/or obscuring beneficial ownership. Thus, intragroup payments, cross-border restructurings, transfer pricing arrangements, etc. should generally not be of concern under the UK DAC6 implementation.
This change is understood to also apply retroactively to historic arrangements from 25 June 2018 and thus also the reporting for historic arrangements should be limited to hallmark D.
Whilst on the surface this looks like good news for UK businesses already struggling to implement broad rules on a short timeline, we do advise some caution. For example:
- If a UK intermediary promoted a reportable arrangement under hallmark A-C or E to an EU taxpayer, the reporting obligation will fall on the taxpayer (unless there is another EU intermediary),
- If an EU intermediary planned to benefit from an exception from reporting as a result of another involved intermediary reporting the arrangement in the UK, this may no longer be feasible,
- For UK HQs that had planned to control reporting centrally, reporting will now be a more localised affair, possibly with less clear guidance and exposure to jurisdictional variance, and
- UK businesses could remain liable to report in jurisdictions that have implemented rules with an extra-territorial element, e.g. Poland.
Everyone who was or is involved in a reportable arrangement with a UK nexus, e.g. is or works with/for a UK intermediary/taxpayer, should carefully analyse the impact of the new rules. Some may be happy and find themselves in a non-reporting situation as a result of the changes. Others may need to find a last minute solution to comply with the January/February 2021 reporting deadline (see previous blog post) where it was originally planned to report in the UK but reports must now be submitted to another EU country.
If you would like to discuss this topic further, please reach out to our key contacts below