The UK government has released the latest guidelines to implement the Council Directive EU 2018/822 (DAC6) requirements on the necessary exposure of international tax structures.
Adopted in the UK since May 2018, the Directive requires service providers and intermediaries to report to their national tax authority any cross-border tax planning schemes they are involved in, if the plan bears ‘trademarks’ demonstrating it to be possibly ‘aggressive evasion’. EU Member States will store and use this data to trade.
UK tax authority HMRC published draft guidance and legislation for DAC6 implementation on 22 July 2019, but professional bodies criticised the proposals as too broad.
On the 22nd July 2019, the HMRC distributed draft directions and legislation for DAC6 usage, however officials criticised them as being excessively broad. There were concerns about the penalty regime, in particular, the danger of over-reporting and the interaction of the rules with legal professional privilege.
STEP, the Institute of Chartered Accountants in England and Wales (ICAEW) and the Chartered Institute of Taxation (CIOT) also raised concerns stating that the definitions were a lot more extensive than the UK’s current exposure of duty evasion plans (DOTAS) regulations, a portion of the trademark definitions don’t contain a ‘tax benefit’ motivation requirement.
The UK government has now distributed changed guidelines that HMRC has assessed them, and other professional opinions to make the guidelines progressively proportionate, inside the limits imposed by the lawful necessity to implement DAC6.
The key changes include:
Limiting the scope of the term ‘tax advantage’ only to taxes covered by the Directive.
Amending the standards to guarantee that a similar intermediary does not have an obligation to report in multiple jurisdictions.
Limiting the extent of the standards to UK intermediaries so they don’t apply to those without a UK association.
Ensuring that the standards are perfect with legal professional privilege.
Increasing the adaptability of the punishment system to evade ‘unduly punishing the individuals who commit certified negligence’.
Penalties for Non-Compliance
If an intermediary has reasonable procedures in place to secure compliance with these rules, this will be considered in determining whether they have a reasonable excuse for a failure. The default position will be a one-off penalty of up to GBP £5,000, with daily penalties applying only in more serious cases, and subject to review by an independent tribunal.
The detailing prerequisites apply from 1 July 2020, albeit review announcing of memorable courses of action as far back as June 2018 will likewise be required. Member States must exchange information within one month from the end of the quarter in which the information was filed. The first exchanges should therefore happen by 31 October 2020.