UK consults on implementation of DAC 6

HMRC has published draft legislation and guidance on the implementation in the UK of the EU Directive commonly referred to as DAC 6, which requires the reporting of certain cross-border tax arrangements.

  • Enviado 29 julio 2019
  • Legislación aplicable Unión Europea , Reino Unido
  • Tema Impuestos

HMRC has released a consultation document and draft legislation for the implementation of EU Directive 2018/822 (commonly referred to as DAC 6) requiring promotors and intermediaries to report details of certain cross-border tax arrangements. The consultation sets out HMRC’s views on the various elements of DAC 6 and seeks views from affected stakeholders by 11 October 2019. The legislation will come into force on 01 July 2020, but will affect certain arrangements where the first implementation step was made on or after from 25 June 2018.

There is now an opportunity for affected taxpayers and intermediaries to feedback on the consultation so as to impact the final guidance to be released by HMRC. This opportunity should be taken as the consultation is noticeably short of real-world examples of how the rules should be applied to intermediaries and, in particular, service providers other than promotors of the arrangements. Expanded and strengthened guidance, with many more relevant examples, may go some way to ensuring that the rules are workable in the long run.


Action 12 of the OECD’s base erosion and profit shifting (BEPS) project recommended that jurisdictions should introduce a regime for the mandatory disclosure of aggressive tax planning arrangements. Whilst the report did not set minimum standards and did not require implementation, it was no surprise that the EU Commission and Member States decided to introduce a disclosure regime, regarding sharing information on cross-border tax planning as consistent with a general trend of increasing tax transparency.

The EU Commission proposed a Directive to amend the existing Directive on Administrative Cooperation (DAC) in June 2017, building on other recent tax transparency developments, including those requiring exchange of information concerning tax rulings and proposals for public disclosure of tax information on a country-by-country basis. This Directive (DAC6) was subsequently approved and adopted and provides for Member States to transpose the Directive into domestic law by 31 December 2019.

The consultation document and draft legislation are the first stage in the UK’s implementation of the Directive. Indeed, the consultation makes clear that the Government’s resolve to support efforts to tackle avoidance and evasion will not be affected by Brexit and the UK will remain committed to “international tax transparency”.


DAC 6 applies to “reportable cross-border arrangements” and requires Member States to introduce rules to provide that “intermediaries” (or, failing which, taxpayers) must provide information to the competent tax authority on such reportable cross-border arrangements within a set time period. Where a member state receives information concerning a cross-border reportable arrangement from an intermediary or taxpayer, that member state will then need to exchange that information automatically with other Member States, including a range of details concerning the arrangements (such as summary of the arrangements, their value, identification of persons in other member state involved, details of the hallmarks, implementation dates etc). It is intended that the Commission will set up a “central directory” where the information can be communicated to satisfy this requirement. For more details on the provisions of the Directive, see “Mandatory Disclosure of EU cross-border tax planning arrangements”.

HMRC consultation

The consultation document sets out HMRC’s understanding of the requirements of DAC 6, requesting comments on HMRC’s interpretation of the various elements in the consultation document and which will be used as the basis for eventual guidance to be published by HMRC. It considers the main concepts of the Directive and the expected scope and application of the rules.

Reportable cross-border arrangements

A reportable cross-border arrangement is one that concerns either more than Member State or a Member State and a third country, and contains at least one “hallmark”. The consultation considers in what circumstances an arrangement might “concern” more than one jurisdiction (as required by DAC 6), pointing out that the mere fact that a company is resident in a jurisdiction will not result in the arrangement concerning that jurisdiction if, for example, the arrangements concern only a PE of that company in another jurisdiction.


The consultation points out that there are two types of intermediary potentially affected by DAC 6, promotors (ie those who design, market, organise, make available for implementation or manage the implementation of a reportable cross border arrangement) and service providers (ie those who provide aid, assistance or advice in relation to the designing, marketing, organising or implementing of reportable cross border arrangements). In particular, a service provider can argue that they are not an “intermediary” where they did not know and could not reasonably be expected to know that they were involved in a reportable arrangement. The guidance makes it clear that a service provider will not be expected to do extra due diligence to establish whether or not there is a reportable arrangement.

In order to be an intermediary, a person also needs to be: tax resident in a Member State; providing services relating to the arrangement through a permanent establishment in a Member State; incorporated in, or governed by the laws of, a Member State; or be registered with a professional association relating to legal, taxation or consultancy services in a Member State.

Lawyers may be prevented from disclosing certain information due to legal professional privilege (LPP). However, HMRC take the view that this will not remove a lawyer’s responsibility to report other information. Lawyers will be expected to report information that is not subject to LPP, for example information that is purely factual (such as the names of taxpayers and a description of the transaction).

Multiple reports by separate intermediaries are not required. However, an intermediary will need evidence that the reportable arrangement has been reported by another intermediary or the taxpayer. HMRC consider that it will be sufficient for an intermediary to be provided with a correct arrangement reference number for them to have sufficient evidence that a report has been made. However, HMRC also make the point that an intermediary will need to be satisfied that the report covers the information that they would have been required to report (so that a report by an intermediary dealing only with a part of the arrangements may not remove the need for an intermediary involved in the whole of the wider arrangements from making a separate report.


The consultation makes the point that the trigger date for reporting is based on the earlier of when the arrangements are “made available for implementation” or the arrangement is “ready for implementation” or “when the first step in the implementation” has been made. As such, the relevant taxpayer does not need to have implemented or even started to implement the arrangements. Simply having an arrangement made available to them for implementation is sufficient. However, regard does need to be had to the documents and information in the knowledge, possession or control of anyone working at the intermediary to identify if the arrangement is reportable.

Moreover, the consultation takes the line that the full details of the arrangement do not need to be finalised in order for the arrangement to be made available, as long as the essence of the arrangement is identifiable. “For example, if an arrangement has been developed and is offered to a client, but the client backs out of implementing it, the arrangement has still been made available and so is reportable.”

The consultation also notes that a continuing obligation to report applies to taxpayers for each accounting period that the taxpayer “participates” in the reportable arrangements. HMRC take the view that a taxpayer will be “participating” in an arrangement in any year where there is a “tax effect” as a result of the arrangement. HMRC envisage that a white space disclosure with a reference number will be appropriate for income and corporation tax returns but is seeking feedback for the process in relation to other taxes such as IHT.


In order for a cross-border arrangement to be reportable, one or more of the hallmarks in DAC 6 must be present.

Certain of the hallmarks require the “main benefit or one of the main benefits” of the arrangements to be the obtaining of the tax advantage. On this issue, HMRC confirm that the main benefit of an arrangement will therefore not be to obtain a tax advantage if the tax consequences of the arrangement are entirely in line with the policy intent of the legislation upon which the arrangement relies. Therefore, the use of certain products which are designed and intended to generate a certain beneficial tax outcome, such as ISAs or pensions will not inherently mean that the main benefit test is met.

The DAC applies to all taxes of any kind levied by a member state apart from VAT, customs duties, excise duties and social security contributions. However, HMRC point out that, for the purposes of defining tax advantage, tax is defined more broadly, and does not only include taxes levied by EU member states, but also equivalent taxes levied in other jurisdictions. This means that the tax advantage derived from any arrangement does not have to be realised in the EU, and so an arrangement could still generate a tax advantage, and meet the main benefit test even if the tax advantage arises in a non-EU member state.

Category A hallmarks: confidentiality, remuneration related to tax advantage and standardised documentation

The draft guidance suggests that, whilst any confidentiality provision would need to be relevant to how the arrangements secure a tax advantage (as opposed to general commercial confidentiality), evidence of such a provision may be “more circumstantial”, including discouraging users from retaining marketing material or taking external advice, requiring correspondence to be directed to the promotor or prohibitions on disclosure to HMRC unless made under a statutory notice. As regards standardised documentation, HMRC make the point that many situations in which standardised documentation is used (such as ISAs) will not be caught because Category A is subject to the main benefit test.

Category B hallmarks: loss buying, income into capital, circular transactions

In relation to income into capital schemes, HMRC accept that there must be a “conversion” of income into capital. As such, simply being given share options as part of a remuneration package (potentially taxable as capital) there is no “conversion” of income into capital, there “has simply been a choice made between different options, which are widely used and have an underlying commercial rationale”.

Category C hallmarks: specific cross-border transactions

HMRC acknowledge that intermediaries may have insufficient information in relation to these hallmarks, which depend for example on cross-border payments between associated enterprises being deductible. Accordingly, if an intermediary does not know, and could not reasonably be expected to know, what the effect of a payment will be, then it will not be required to make a report. This may be exacerbated by tax transparent entities. HMRC take the view that the recipient will, in the case of transparent vehicles such general partnerships, be the partners, rather than the partnership, and so it will be the partners who are the recipients for the purposes of judging whether the hallmark is met. For widely held partnerships, there may be situations where the tax residence of all the partners is not known to an intermediary. Where an intermediary does not know the residence of the partners who are party to the arrangement, it is unlikely that the arrangement can be said to concern other jurisdictions.

Category D hallmarks: undermining reporting obligations or obscuring beneficial ownership

The draft guidance makes it clear that a promotor advising clients to move funds from a jurisdiction where the Common Reporting Standard (CRS) is in force to one which has not implemented CRS in order to ensure that funds are not reported would be caught by these reporting obligations. However, a bank simply processing such an arrangement would not normally have sufficient insight into the arrangements as a whole and so would not normally be expected to report.

As regards obscuring beneficial ownership, HMRC specifically mention the use of nominee arrangements or arrangements involving jurisdictions where there is no requirement to keep such information or method to obtain it. However, institutional investors (and entities owned by them) are not considered to be structures which obscure beneficial ownership for these purposes.

Category E hallmarks: transfer pricing arrangements

The guidance highlights the point that the obligation to report in relation to arrangements which are contrary to the OECD transfer pricing (TP) guidelines are not tied specifically to the UK TP rules. As such, even if arrangements are outside the UK rules (because, for example, the participation condition is not met), the reporting requirement can still apply as DAC 6 uses different tests to the UK TP rules. As regards the requirement to report the use of “safe harbour” rules, HMRC confirm that merely entering into an APA is not the use of a safe harbour – rather it is an agreement as to the correct TP treatment. Further clarity regarding the application of this treatment to Advance Thin Capitalisation Agreements (ATCAs) needs to be confirmed as well as other types of rules which could be considered within the definition of safe harbours eg low value-adding services guidance.

Hallmark E(2) concerns hard-to-value intangibles. The guidance makes the point that the important point in time for determining whether “projections of cash flow and income where highly uncertain” in relation to the intangible transferred to an associated company is the time of the transfer. The mere fact that the projections or comparables that were used to determine that no report was necessary subsequently turn out to have been incorrect will not necessarily mean that the decision not to report was incorrect.

Hallmark E(3) applies to cross-border transfers of functions and/or risks and/or assets which has a significant negative impact on the projected earnings before interest and taxes (EBIT) of the transferor. HMRC confirm that they regard this test as applying to the individual company making the transfer from a UK perspective, but will take into account consolidation rules in other jurisdictions and “consider the extent to which the rules in the UK can and should mirror those of other jurisdictions”. HMRC also confirm that the reduction of a loss (even to nil) is not caught by the rules (since £0 is not less than 50% of a negative number), but does not comment on the position where a transfer increases the losses expected by a transferor.

The guidance on Hallmark E particularly recognises the difficulties faced by an intermediary in determining whether the conditions are met where they relate to the (predicted) financial position of a taxpayer entering into arrangements. The guidance suggests that an intermediary must consider the arrangement from the point of view of a hypothetical informed observer and take account of all the facts and circumstances (or at least those known to the intermediary, though this point is not explicitly made). In particular, HMRC consider that taxpayers would be expected to produce projections of the financial impact of transfers of assets etc in the normal course, and these (rather than any specifically generated for DAC 6 purposes) should be relied on in determining any reporting liability.


The draft regulations published by HMRC will come into force on 01 July 2020 and will apply to reportable cross-border arrangements:

  • which are made available for implementation on or after 01 July 2020
  • which are ready for implementation on or after 01 July 2020
  • in respect of which an intermediary provides aid, advice or assistance on or after 01 July 2020, in relation to designing, marketing, organising, making available for implementation or managing the implementation of the arrangements, or
  • the first step in the implementation of which took place on or after 25 June 2018.

In relation to the transitional period from 25 June 2018, the guidance recognises that this reporting requirement poses challenges for intermediaries and taxpayers, particularly where the first step was taken prior to the publication of these regulations and guidance. Where a failure to make a report relates to an arrangement where the first step of the implementation predates the publication of the consultation document and the draft regulations, and the failure was due to a lack of clarity around the obligations or interpretation of the rules, which could not reasonably have been inferred from the DAC itself, HMRC accept that it is likely that the person will have a reasonable excuse for the failure and no penalty will be due.


The consultation document is open for comments until 11 October 2019 and intermediaries and taxpayers likely to be affected by the new reporting obligation should take the opportunity to raise concerns at this stage.

It is notable that the draft guidance in the consultation document is very generic at this stage and there is a marked lack of any real world examples. Whilst disappointing, this is perhaps not particularly surprising given other situations where HMRC’s practical guidance on avoidance has failed to address all but the most obvious examples. However, the position of “service providers” as intermediaries is a particular concern in DAC 6 and more detailed guidance on the steps expected of such service providers in a range of situations would be helpful.

In addition, whilst there is some recognition that reporting in relation to historic situations may be compromised by the lack of HMRC guidance or draft regulations, clearly HMRC consider that penalties may still be imposed unless the affected intermediary had a reasonable excuse for being unclear as to the scope of its obligations based on ambiguity in the original Directive.

Whilst the UK intends to implement international tax transparency measures following Brexit, it is not clear how the UK would share or receive information collected under domestic DAC 6 implementation provisions with EU member states following Brexit. This issue would need clarification.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.