Following the UK’s Free Trade Agreement with the EU, DAC 6 ceased to apply from 11pm on 31st December 2020. However, certain hallmarks under category D will still need to be reported under DAC 6 for a limited time, in line with the OECD’s Mandatory Disclosure Rules.
DAC 6 is the EU Council Directive 2011/16. Where there are cross-border tax arrangements that meet certain hallmarks and concern more than one EU country or an EU country and non-EU country, the directive would apply.
Under the Free Trade Agreement between the UK and the EU, it has been agreed that DAC 6 will no longer apply, instead OECD Mandatory Disclosure Rules will apply. The difference between OECD’s MDR and DAC 6 is that only hallmarks that would have fallen under category D of DAC 6 need to be reported.
UK regulations are being amended as a stop gap measure to ensure that arrangements falling under category D are reported. These are arrangements typically designed to undermine tax reporting with two common types of arrangements:
- Arrangements which conceal beneficial ownership and involve offshore entities and non-substantial structures.
- Arrangements which undermine reporting requirements under agreements for the automatic exchange of information.
The change from DAC 6 to OECD’s MDR will significantly reduce the number of arrangements reported to HMRC under international reporting standards. The UK’s disclosure of tax avoidance schemes (DOTAS) rules will still apply.
To transition from European rules to international rules, the UK government will replace the DAC 6 legislation and implement the OECD’s Mandatory Disclosure Rules as soon as possible.