The UK has published its draft version of the EU's rules on reportable cross-border arrangements. The UK reporting obligation will begin on 1 July 2020 but also applies to in-scope transactions whose first step was put in place on or after 25 June 2018. The UK tax authorities will have to exchange information reported with other EU tax authorities every 3 months following the first reporting period.


The EU rules (known as "DAC 6") require intermediaries (such as tax advisers, accountants and lawyers) to report details of cross-border transactions that contain certain specified "hallmarks" that are potentially indicative of aggressive tax planning. Not every hallmark requires there to be a main purpose of obtaining a tax advantage, although some of them do. In some cases (for example where information is protected by legal professional privilege, or there is no intermediary involved), the taxpayer might have to make the report itself.

In order to be reportable, an arrangement must involve more than one EU Member State or a Member State and a third country. An intermediary falls within the rules if it is resident in a Member State or is incorporated; has a permanent establishment, or is a registered member of a legal, tax or consultancy professional association there.

The UK has recently launched a consultation and published draft legislation to introduce the EU rules. The UK's commitment to introducing these rules will not be affected by leaving the EU.

There is no doubt that these rules will create a major new compliance burden for intermediaries. Their wide scope (going well beyond the UK's existing domestic disclosure regime) means that many transactions will need to be promptly notified to HM Revenue & Customs, with details exchanged automatically with other EU tax authorities.

The UK rules

These follow the EU Directive closely, but the following points are worth noting:

Scope: in order to be reportable, an arrangement must "concern" multiple jurisdictions. This means that a jurisdiction must have some material relevance to the arrangement. For example, if a company is tax resident in one country and has a permanent establishment (PE) in another, and the PE enters into arrangements with other entities in the same country where the PE is located, the country where the company is tax resident will not be of material relevance to the arrangement.

Hallmarks: neither the UK legislative proposal nor the consultation document provides any guidance on the interpretation of the so-called “hallmarks”, which are in essence key indicators for a potentially reportable arrangement. The consultation document does however indicate that there will be times when intermediaries must make informed judgements as to whether an arrangement contains a particular hallmark, such as whether a transferred asset is a "hard-to-value intangible".

Service providers: a service provider is not an intermediary for DAC 6 purposes but provides aid, assistance or advice. Service providers nonetheless have an obligation to report an arrangement, but if they can show that they did not know and could not reasonably be expected to know that they were involved in a reportable arrangement, this can be a defence to failure to report. The example given is a bank providing finance. There is no equivalent defence for "promoters" of arrangements who design, market, organise or make arrangements available for implementation.

No multiple reporting: if an intermediary has connections with a number of Member States, it should make the report where it is tax resident. There is an exemption from reporting where another intermediary has made a report, if the second intermediary (or taxpayer where relevant) is satisfied that the information they would have to report has been captured in the report made. A reference number (supplied by the relevant tax authority) would normally be sufficient evidence.

Privilege: legal privilege does not provide a blanket exemption from reporting. The UK draft rules suggest that it might still be necessary to disclose non-privileged information such as the taxpayer's name. Where privilege applies, the intermediary must inform other intermediaries or relevant taxpayers that the reporting obligation has shifted to them. The protection given by privilege will vary considerably between Member States, with some Member States not appearing to allow any protection for privilege at all. In the UK we are aware that HMRC has historically taken a narrow view on what legal advice to clients is subject to legal privilege

Commencement: where the first step of a reportable arrangement is implemented on or after 25 June 2018 and before 1 July 2020, the report must be submitted by 31 August 2020. This would seem to rule out arrangements that began before and were completed after 25 June 2018, although it is not currently clear exactly what might constitute a "first step" for these purposes. Arrangements made available for implementation on or after 1 July 2020 must be reported within 30 days.

Tax advantage: an arrangement could still generate a tax advantage, and thus meet the main benefit test, even if the advantage arises in a non-EU Member State.

Penalties: the penalty is £600 per day in the case of failure to meet most obligations (e.g. to make a report) and £5,000 in certain other cases (e.g. failure to make a return of new reportable information such as additional taxpayers to whom a marketed scheme has been made available, or failure to notify a reference number). These penalty levels are significantly lower than those introduced/proposed in some other Member States, but are broadly consistent with those that apply for the UK's existing domestic disclosure regime. For example, the Polish regulations which were implemented at the end of last year provide penalties in the range of up to PLN 10 million for promoters and up to PLN 21.6 million for individuals responsible for non-compliance.

The consultation is open until 11 October 2019. For more information on the UK rules, or on the EU Directive itself, and their implications, please contact Patrick O'Gara or Oliver Pendred.

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