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The UK publishes draft regulations and launches consultation on the disclosure of certain cross-border arrangements

  • United Kingdom
  • Tax planning and consultancy - Briefings



Council Directive (EU) 2018/822, commonly known as DAC 6 (“the Directive”), was adopted by the Council of the EU in May 2018 and is directed at requiring taxpayers and advisors to report details of certain cross-border tax arrangements to tax authorities within the EU. On 22 July 2019, the UK Government published draft regulations for the implementation of the Directive into UK law, along with a consultation document inviting comments on the technical application of the new rules as well as on general policy questions on the regime.

While the regulations are only in draft form, some useful insights into the UK Government’s approach to the Directive, along with HMRC’s views on various elements of the Directive, can be gleaned from the published documentation.

The Directive

The Directive was published on 25 May 2018 and is directed at the mandatory exchange of information in tax in relation to reportable cross-border arrangements.

The Directive requires intermediaries or taxpayers to disclose cross-border arrangements when certain ‘hallmarks’ that point toward potential tax-avoidance are present. A cross-border arrangement is one that concerns more than one member state, or a member state and a third country, and meets one of the broadly drafted conditions which mostly involve a cross-border element, such as, for example, not all the participants being tax resident in the same jurisdiction. For a cross-border arrangement to be reportable, it must include one or more of the relevant ‘hallmarks’ (characteristics or features that indicate a risk of tax avoidance).


As expected, per the draft regulations, the commencement dates for the Directive rules are unchanged. Broadly, cross-border arrangements from 25 June 2018 are potentially within the scope of the regime and disclosure of any such arrangements may be required where they meet the necessary conditions for disclosure. In line with the terms of the Directive, the draft regulations provide for the general reporting requirement to go live on 1 July 2020 with the first reports required to be filed by 31 August 2020.

What is helpful is an explicit recognition of the difficulty in determining what is disclosable during the period from 25 June 2018 to the date of the publication of the draft implementing regulations and consultation document. In particular, where a person has a “reasonable excuse” for the failure under the regime then liability to a penalty for that failure may not arise.

In particular, HMRC acknowledge that where the failure 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, this may constitute a reasonable excuse. This is qualified however by the recognition that if obligations or interpretation could be reasonably inferred from the Directive itself then a reasonable excuse may not exist.

A further point worth noting, and this is confirmed in the consultation document, is that the implementation of the Directive will not be impacted by the UK’s exit from the EU and indeed there is a firm statement of the Government’s position that the UK is committed to international tax transparency and will continue to apply international standards on tax aimed at tackling avoidance and evasion.

Reporting triggers

Consideration should be given to the reporting triggers in the current draft regulations and the potentially broad reporting obligations that may result. There is a general requirement to make a report in respect of an arrangement within thirty days of the earliest of the following:

(a) the day after the reportable cross-border arrangement is made available for implementation; or

(b) the day after the reportable cross-border arrangement is ready for implementation; or

(c) when the first step in the implementation of the reportable cross-border arrangement has been made.

While the reporting triggers track the wording of the Directive, what is notable is that there is no specific exclusion from (a) or (b) for arrangements which do not end up actually being implemented and so a reporting obligation can arise even where no substantive steps are taken as part of an “arrangement”.

Reportable cross-border arrangement

Under the terms of the Directive, a “cross-border arrangement” means an arrangement concerning either more than one Member State or a Member State and a third country where at least one of a number of specified conditions are met. The consultation document provides some useful guidance on the scope of what this is expected to cover and states that HMRC is of the view that in order for the arrangement to ‘concern’ multiple jurisdictions, those jurisdictions must be of some material relevance to the arrangement. This should hopefully ensure that disclosure is only required when a jurisdiction is actually relevant to the arrangement in question and not, for example, where it is merely incidental to the transaction.


Promoters vs service providers

The consultation document draws a distinction between intermediaries who constitute “promoters” (i.e. those who design, market, organise, make available for implementation or management the implementation of a reportable cross-border arrangement) and those who are “service providers” (i.e. those who provide aid, assistance or advice in relation to the designing, marketing, organising or implementing of reportable cross-border arrangements).

While both types of intermediary will have obligations to report, an important difference exists in that service provides may not be obliged to do so where they did not know and could not reasonably have been expected to know that they were involved in a reportable arrangement.

Key to this test is that while HMRC will not expect service provides to do significant extra due diligence to establish whether there is a reportable arrangement, if for example they were wilfully ignorant and failed to ask particular questions, they may still be required to report.

Legal professional privilege

A general exemption exists under the Directive for legal professional privilege and can mean that legal advisors may be partly relieved of their obligations under the Directive and the obligation to report may shift to other intermediaries or to the taxpayer themselves.

The consultation document makes it clear however that this is unlikely to totally discharge lawyers from their obligations. Not only will legal advisors be expected to report any non-privileged information (such as the names of relevant taxpayers and other intermediaries), but they will also be obliged to inform other intermediaries and taxpayers of their own reporting obligations.


As noted above, for a cross-border arrangement to be reportable, it must include one or more of the relevant ‘hallmarks’. The hallmarks are widely drafted but generally can be divided between those that require the main benefit (or one of the main benefits) of the arrangement to be the obtaining of a tax advantage, and those that do not.

A number of key takeaways can be observed in the draft regulations and the consultation document in relation to the particular hallmarks, some of which are of general application and some of which are likely to only be of concern in specific cases. Of particular note are the following:

  • Commercial confidentiality conditions that do not relate to how an arrangement secures a tax advantage will not be caught by the confidentiality hallmark.
  • The income into capital hallmark should not be applicable where the conversion of income into capital is entirely consistent with the underlying intent of the relevant legislation.
  • For the purposes of the deductible cross-border payments hallmark, a tax rate is “almost zero” if it is less than 1%.
  • For the purposes of the transfer of assets hallmark, it is considered that the amount “treated as payable in consideration” is the amount treated as payable for tax purposes (rather than for accounting purposes).
  • The transfer pricing hallmark should not apply where the small and medium enterprise exemption applies.

Tax advantage

As noted above, for a cross-border arrangement to be reportable, it must include one or more of the relevant “hallmarks”. For these purposes, certain hallmarks will only be taken into account where they fulfil the “main benefit test” – i.e. if it can be established that that the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement is the obtaining of a tax advantage.

Helpfully, the draft regulations provide some clarity on what is a tax advantage and states that this includes circumstances where the obtaining of the tax advantage cannot reasonably be regarded as consistent with the principles on which the relevant provisions that are relevant to the reportable cross-border arrangement are based and the policy objectives of those provisions.

The consultation document elaborates on this and states that the main benefit of an arrangement will 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. This will mean that 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 draft regulations provide guidance on the expected penalty position where there is a failure to comply with the various reporting requirements.

In accordance with the draft regulations, depending on the nature of the failure a fixed penalty of £5,000, or in most cases, a per diem penalty of £600 (based on the number of days during which the failure continues) may be applicable.

Since the per diem penalty applies broadly from the first day of the relevant failure until the earlier of when the penalty is determined or the failure ceases, this could result in potentially significant penalties for intermediaries and taxpayers, in particular where there is a failure in more than one area.

Important to also bear in mind for intermediaries however is that where the per diem penalty is considered inappropriately low, the draft regulations provide that a penalty of up to £1 million may be levied, taking into account such considerations as the amount of the tax advantage in question.


While the draft regulations and the consultation document provide some useful insights into how the Directive will be implemented in the UK and how reporting is expected to operate in practice, ultimately the final regulations along with accompanying HMRC guidance will need to be consulted and considered in light of any cross-border arrangements which might be considered to be caught by the Directive.

The deadline for responding to the consultation is 11 October 2019 and HMRC will be accepting responses to specific questions raised in the consultation document as well as views on the draft regulations. Please contact your usual Eversheds Sutherland tax contact if you would like assistance in responding to the consultation or making a submission, or if you would like to discuss any other aspect of the Directive.

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