With the implementation of the new UK rules proposed for summer 2022, businesses and consultants such as law firms should review the scope of the new rules and participate in the consultation. Following the autumn budget of 27 October 2021, the UK government released another series of tax policy documents on 30 November as part of its Tax Administration and Maintenance Day. One of these documents included the long-awaited consultation on the implementation of the OECD Model Disclosure Rules for Avoidance Agreements and Opaque Offshore Structures (SCAs), which had been promised since early 2021. Designing and implementing your long-term compliance program for EU mandatory disclosure rules (MDRs) (pdf) (January 2020) Given the similarities between the UK MDR and DAC6, HMRC proposes to take a similar approach to DAC6 to interpret the UK MDR. HMRC intends to publish guidance on the UK MDR once the regulations are finalised and before the rules come into force, but anticipates that the guidance will generally be consistent with the existing guidance currently included in its International Exchange of Information Manual. However, HMRC will make any necessary changes to ensure alignment with the rules and comments of the model or to fill gaps in existing guidelines. In the coming year, the UK intends to implement the OECD Mandatory Disclosure Rules (MDRs) to replace DAC6 and move from EU rules to international rules. In addition to restricting disclosure rules under the UK DAC6, HMRC said it would consult and implement the Model Rules as soon as possible to replace DAC6. We pointed out in our January this year Insight that the finalisation of Brexit deals after the transition resulted in an unexpected but welcome restriction in the application of DAC6 rules in the UK, which limited reporting under DAC6 to agreements meeting Category D labels. Category D deals with the weakening of reporting requirements, including CRS (identifier D1) and concealment of beneficial ownership (hallmark D2) and has important similarities with the Model Rules. DAC6 rules applied to agreements that “affect” the UK and any other jurisdiction (or that affect two or more EU Member States or one EU Member State and another jurisdiction).
Council Directive (EU) 2018/822 amending Directive 2011/16/EU, commonly known as DAC 6, requires EU-based intermediaries or taxpayers to report to tax authorities potentially aggressive tax planning arrangements that meet one or more specified characteristics (identifiers) and requires the automatic exchange of such information between EU Member States. Although the scope of agreements that should be declared under the UK MDR is broadly similar to that of agreements already declared under the DAC6, intermediaries still need to assess whether they have concluded agreements that fall within the scope of the new reporting requirements. In particular, project promoters will have to re-examine agreements concluded since 29 October 2014 to determine whether others (not declared under DAC6) are subject to reporting under the UK MDR. There are some proposed exemptions to reporting under the UK MDR, including an exemption for intermediaries if disclosure of the information in question would constitute a breach of solicitor-client privilege (BVG). If BVG applies, it is proposed that the lawyer inform his client in writing of his disclosure obligations. There was a similar exception in DAC6, but under DAC6, it was sufficient to inform another intermediary (or taxpayer) that the BVG was applied to the arrangement (so that reporting then fell on the other intermediary or customer). The Regulations contain (in section 7 of the Regulations) an enhanced exemption for an intermediary where the relevant information would be subject to the SPL. The government agreed with the Law Society and other stakeholders that the rules, as originally drafted, could cause difficulties in ensuring that the SPL is not violated. Another exception to the declaration applies if design information has already been made available to a tax authority in a “partner jurisdiction”. A partner country is defined in the Model Rules as a country that has essentially similar reporting requirements in place and has the necessary exchange of information arrangements in place to ensure the exchange of information between the competent tax authorities. A list of partner jurisdictions should be included in the new UK MDR rules for clarity. Although the United Kingdom has not transposed the MDR into national law at the end of the transition period, the provisions of the legal instrument “SI 2020/25” offer a “level of protection” that in some respects corresponds to that of the OECD MDR and, in other respects, goes beyond the MDR.