Following the agreement of the EU/UK Trade and Cooperation Agreement (TCA) on Christmas Eve, to great surprise HMRC laid some amending regulations on 29 December 2020 which fundamentally change the application of EU MDR/DAC6 in the UK.
Put simply, HMRC has removed the obligation to make disclosures of cross-border arrangements unless these relate to the ‘D hallmarks’ (i.e. the ones which relate to CRS avoidance and opaque ownership structures). This is very significant, as it removes all of the hallmarks which typically impact on normal commercial transactions.
As the change came into force before 1 January 2021, this means that any transitional period arrangements (i.e. between 25 June 2018 and 31 December 2020) will only be disclosable in the UK in January/February 2021 to the extent that they satisfied the D hallmarks.
Where no disclosure is now required in the UK, this of course means that no reliance can be placed on a UK disclosure to satisfy any disclosure obligation in one or more EU Member States.
Whilst this will remove most of the burden of having to comply with the rules in the UK going forward, please bear in mind that:
The rules are now fully live in all EU Member States.
Many EU territories are taking a broad approach to implementation and interpretation. Many ordinary transactions will continue to be disclosable in EU Member States.
Due to the wide scope of professional secrecy/LPP in many EU Member States, it is frequently a taxpayer obligation to make disclosures.
The key developments are:
The TCA requires that “[a] Party shall not weaken or reduce the level of protection provided for in its legislation at the end of the transition period below the level provided for by the standards and rules which have been agreed in the OECD at the end of the transition period, in relation to ... the exchange of information … concerning … potential cross-border tax planning arrangements”.
As you may be aware, following on from the OECD BEPS Action 12 Final Report, the OECD subsequently agreed and published model MDR rules equivalent to the D hallmarks.
HMRC have accordingly issued Regulations which, in addition to fixing some of the problems with the existing SI 2020/25 arising from the UK not being a Member State, have removed the reporting obligation for all hallmarks other than the D hallmarks.
Also see this PwC EU Direct Tax Group newsalert that has been produced.