As has now been widely reported, the UK Government has laid regulations that significantly reduce the scope of the UK implementation of DAC 6 affecting UK intermediaries in the Crown Dependencies (“CDs”).

What is changing?

Following Brexit, the UK Government has announced that it will repeal DAC6 legislation in full following the conclusion of the Free Trade Agreement with the EU. In the meantime, the only arrangements that fall within Hallmark category D (those concerning automatic exchange of information and beneficial ownership) will need to be reported.  These are similar to the OECD’s model Mandatory Disclosure Rules (“MDR”).

Once the Free Trade Agreement with the EU has been concluded, the UK will adopt the OECD model MDR approach similar to that due to be implemented in the CDs. Although this will significantly reduce the obligation on UK intermediaries, in the short term prior to the full repeal of DAC6, consideration should still be given to the application of the restricted reporting requirement.

What are the impacts for reporting in other jurisdictions?

All organisations with an ongoing EU presence which had been anticipating reporting in the UK, or which were involved in arrangements where it was anticipated another party would report in the UK, should consider whether additional EU reporting may be required and ensure that the necessary processes are in place to do this.

Our view

When the UK repeals the existing rules, it is our understanding that HMRC would generally seek to interpret hallmark D in line with the OECD’s MDR proposals and the impact of these changes are likely to be limited. Therefore, the focus of the consultation on the new rules may be on areas where these potentially extend the scope of the existing regime. For example, 

  •   the OECD MDR rules do not contain a requirement that an arrangement “concern” an EU Member State in order to be reportable, and
  •  Rule 2.7 of the OECD MDR provides for disclosure of arrangements implemented on or after 29 October 2014 – a distinctly longer ‘look back’ period than that provided for under DAC 6.

The first of these possible extensions seems likely whereas the second could be rather contentious.

More speculatively, in the medium term we may see a revival of previous proposals requiring HMRC to be notified of certain offshore finance structures.  These proposals were the subject of a consultation in 2016/17.  The Government decided not to proceed because DAC 6 (then under discussion) was regarded as achieving the same objectives.  With the UK’s involvement in DAC 6 now much reduced, and some political pressure on the current Government by stakeholders perceiving this to be a lowering of UK standards around tax governance, we may see some appetite to revisit some aspects of these earlier ideas.

Jersey, Guernsey and the Isle of Man

The CDs have enacted the necessary laws in relation to the MDR.  However, the regulations are yet to be brought into effect as the international framework to enable the exchange of information has not yet been agreed by the OECD. Once the framework has been approved, the CDs will be in a position to enact the regulations and provide a commencement date.  This is not expected to be within Q1 of 2021.

When the UK introduce the OECD MDR Rules, it will be interesting to see if the definition of UK intermediaries is revised so that it has less scope in the CDs. In addition to this, if reporting is being performed in the CDs, this should prevent any duplication of reporting in the UK.

Our KPMG staff are available to discuss the implications this may have for your business as the UK transitions from DAC6 to the OECD model MDR approach.

If you have any questions or concerns, please contact our team.