By David Cairns
Hawsons Chartered Accountants
A NEW regime comes into force on 1 July 2020 called DAC6. What is DAC6? What do you report?
The new DAC6 regime, Disclosure of Cross-Border Tax Arrangements, is a new EU directive which can be used to avoid or evade tax. The directive requires reporting of certain cross-border arrangements and structures.
What must be reported?
Reportable cross-border arrangements from 25 June 2018 to 1 July 2020 must be reported when the legislation becomes effective.
In a nutshell, the relevant UK intermediary or taxpayer is required to make a report; the reported arrangement must contain a prescribed 'hallmark'. To ensure that all potential tax risks can be identified, the information will be exchanged with tax authorities in EU member states. When the arrangement is ready or made available for implementation, the report should be made within 30 days.
What hallmarks should you look out for?
If an arrangement has at least one of the prescribed hallmarks it is reportable. There are five broad hallmark categories, as follows:
* Category A - The generic hallmarks linked to the main benefit test: arrangements that give rise to performance fees or involve mass-marketed schemes.
* Category B - Buying a loss-making company to exploit its losses, arrangements aimed to converting income into capital and circular transactions.
* Category C - Deductible cross-border payments between associated enterprises where the recipient is essentially subject to no tax, zero or almost zero tax, deductions for the same depreciation on an asset claimed in more than one jurisdiction, relief from double taxation and transfer of assets.
* Category D - Undermining reporting obligations and obscuring beneficial ownerships.
* Category E - The use of unilateral safe harbours, the transfer of hard-to-value intangible assets when no reliable comparable exists and cross-bored transfers.
Category A, B and certain elements of C can only be reported, if the main objective is obtaining tax advantage.
Who should make the report?
An intermediary or taxpayer, the taxpayer only makes a report if there's no intermediary or the intermediary doesn't have to, due to legal professional privilege.
What is the penalty for non-compliance?
The proposed penalty is an amount of up to £250,000.
How can Hawsons help?
HMRC will publish a detailed guidance before DAC6 becomes effective.
If you need advice for a particular area, get in touch with David Cairns at Hawsons, Northampton, on 01604 645600 or email firstname.lastname@example.org