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UK tax authorities issue draft guidance on DAC6 amidst further calls for postponement of measures

  • United Kingdom
  • Tax planning and consultancy - DAC6


As part of the EU’s general clampdown on certain forms of aggressive tax planning, Directive 2011/16/EU (commonly known as DAC6) will soon require taxpayers and intermediaries across the EU to start reporting information in relation to certain cross-border arrangements to their respective tax authorities. 

For further detail on the background of DAC6, please see our previous briefings.

While DAC6 has been in the pipeline now for quite some time, the rules were only formally implemented into UK law in January 2020 and HMRC have finally now shared draft guidance on how the rules are expected to be interpreted in the UK context.  While the guidance is still very much in draft form, and HMRC are still in the process of liaising with various stakeholders on the final content, the draft gives some indication of how the rules will be applied by HMRC, and in some cases, offers a pragmatic approach to what will and will not be reportable under the Directive.

While much of the draft guidance reiterates comments already made by HMRC at the time of the government’s consultation on DAC6, this note will summarise the key developments which have come out of the draft and comment on the likely practical impact for both taxpayers and intermediaries as they continue to try and get to grips with the new reporting regime.

Although there have been increasing calls for DAC6 to be delayed across Europe in light of the COVID-19 situation, recent reports suggest that even if a delay were to be granted, this would only extend to the filing deadline for the first reports and that relevant arrangements dating back to June 2018 would ultimately still need to be reporting when reporting does go live.



Exclusions from reporting

Reporting triggers

Cross-border arrangement




DAC6 imposes a reporting obligation on “intermediaries”, broadly covering those who are “promoters” of cross-border arrangements as well as “service providers” who provide aid, assistance or advice in relation to such arrangements. 

The draft guidance refers to the distinction between the two forms of intermediary and notes that a promoter will almost invariably have a full understanding of the material aspects of the arrangement, including such details of how a tax benefit is realised and what legislation it relies on.  The corollary of this is that an individual without knowledge of all material aspects of an arrangement is more likely to be considered a service provider, and therefore subject to slightly less stringent reporting requirements in that they will have a defence from reporting to the extent that they did not know, nor could be reasonably expected to know, that they were involved in a reportable arrangement.  

Knowledge test

Service providers are required to report under DAC6 where they “know or could be reasonably expected to know” that they have provided aid, assistance or advice with respect to a designing, marketing, organising, making available for implementation or managing the implementation of a reportable cross-border arrangement.  Accordingly, to the extent that a service provider is only involved in a particular aspect of an arrangement, then they may not be required to file a report.

HMRC have expanded on what is meant by an intermediary being “reasonably expected to know” that they are providing aid, assistance or advice in connection with a reportable arrangement.  The example is given of a service provider who, though they may have access to information which may indicate that an arrangement is reportable, would not read or examine that information in the ordinary course of business.  This could be the case where, for example, a lawyer might receive a large volume of documents, but would only be expected to read an executive summary to do their job.  In this scenario, such an intermediary would not necessarily be assumed to have knowledge sufficient to require them to file a report.

Unsurprisingly, the artificial fragmenting of information in order to circumvent reporting obligations is specifically mentioned as a tactic that would not be successful in preventing a report from having to be filed. 

Employees, partnerships and groups

The draft guidance provides some clarity on the interpretation of intermediary and various practical situations, such as how the rules work in the context of groups of companies and partnerships as well as how the rules operate in situations where employees are engaged by a single group entity.

For groups of companies, HMRC accept that reporting may be centralised and carried out by a nominated reporting company, notwithstanding that that entity may not be the intermediary in relation to a particular arrangement.  However, caution should be exercised in this regard as HMRC would still seek to charge any penalties for failure to report on the actual intermediary entity rather than the company taking responsibility for reporting. 

A similar principle is applied in the case of partnerships such that one partner, or the partnership itself, can take responsibility for making reports on behalf of all partners, albeit that the actual intermediary (i.e. being the individual partner involved in giving the relevant advice) may still be held responsible for any penalties.  In determining whether a partner is liable for a penalty however, HMRC will take into account any processes and procedures the partnership has in place in applying the rules in order to determine whether the partner has a reasonable excuse for the failure.

This approach is mirrored in relation to limited liability partnership and will be of interest to the many UK law firms established in this way.  Reports may be submitted by the LLP itself and the LLP’s processes and procedures will be taken into account by HMRC in considering any penalties which might be levied on an individual member.  What is worth mentioning however is that, as an LLP has separate legal personality, the intermediary in relation to a particular arrangement may be either the LLP or the actual member themselves.  This distinction may not however ultimately change the approach of large firms which are set up as LLPs as they are still likely for practical reasons to seek to deal with DAC6 at organisational, rather than at the individual member level. Employees are treated slightly differently by DAC6 and are specifically excluded from the definition of intermediary to the extent that they are an employee of an entity which is itself an intermediary or a taxpayer (or an entity which is “connected” to such intermediary or taxpayer).  In a corporate group scenario, where one group company is the intermediary but all of its workers are employed by a group employing company, the draft guidance suggests that the connection test will mean that such employees will not be intermediaries by virtue of the connection between their employer and the other group company. 

Exclusions from reporting

An exclusion from reporting under DAC6 in the UK exists where an intermediary has a reporting obligation in another Member State in respect of an arrangement and that Member State features before the UK in the reporting hierarchy (broadly, the nexus with the other Member State is closer than that with the UK) or where another intermediary has reported the same information in relation to the arrangement. 

The draft guidance acknowledges that in some situations where there are multiple intermediaries, difficulties may arise where one intermediary is expected to make a report but does not do so within the 30 day reporting period.  In certain circumstances, HMRC accept that intermediaries may have a reasonable excuse for a failure to report, and therefore no penalty will be applicable, where they are relying on another to do so but that other report is not made for some reason. 

It is positive that a pragmatic approach seems to be being taken by HMRC in this scenario where ultimately the relevant information is expected to be filed.  The position is slightly less helpful however when it comes to relying on reports filed by other intermediaries.

While intermediaries may generally rely on a report reference number provided by a promoter of an arrangement as evidence of a report having been filed, they will not be able to rely in the same way on a report being filed by another service provider, unless they can somehow assure themselves that the information reported by that service provider is complete.

Given the potential scope for parties to rely on other parties in meeting their DAC6 obligations, contractual protections are likely to be a key consideration in the context of dealings between intermediaries and taxpayers.  This could be relevant, for example, for lenders providing finance in the context of a reportable arrangement and who could therefore be considered service providers with their own reporting obligations.  Transferring the onus on making any DAC6 determinations and/or filings to a counterparty may be a helpful aspect of a party’s approach to DAC6 compliance and intermediaries and taxpayers should consider with their legal advisors the extent this approach may be suitable for their own purposes. 

Reporting triggers

Reporting obligations under DAC6 are broadly triggered at the earliest of when a reportable arrangement is (i) made available for implementation, (ii) ready for implementation or (iii) when the first step in implementation has been made.

Some of the more useful sections of the draft guidance relate to the question of when an arrangement can be said to have been made available (and thus, when this reporting trigger is activated).  The guidance notes that the design of an arrangement will usually need to be final before it can be said to be available for implementation.  By way of example, where an intermediary provides a number of different solutions to a problem to a taxpayer, an arrangement should not be considered to have been “made available” on the basis that they could not reasonably be implemented at that point.  This is helpful in that it means that early stage discussions where material changes to an arrangement may still be made, should not result in unnecessary reporting, particularly useful in scenarios where an arrangement does not ultimately end up being implemented.

Similarly, taking an initial step in an arrangement may not trigger the third reporting trigger if the initial steps relates to an arrangement which has not been sufficiently finalised and/or where the details of the arrangement have yet to be worked out.

Some helpful guidance is also provided in the context of when a “service provider” will be considered to have provided aid, assistance or advice in connection with a reportable arrangement.  Again, the emphasis is on the aid, assistance or advice being sufficiently finalised in order come within the scope of the Directive.  For example, a lawyer providing advice on a complex arrangement over a period of time where the arrangement is continually evolving may not be considered to have provided their advice for the purposes of DAC6 until the final written advice is sent, provided that this is done without undue delay.

While it may be difficult for intermediaries to adopt a strategy which involves avoiding giving sufficiently “final” or “complete” advice in order to delay reporting obligations under DAC6, especially where timely advice is sought by a client, HMRC’s stated approach on the timing of when aid, assistance or advice is treated as “provided” will still be helpful in certain circumstances to prevent reporting obligations being triggered at an unduly early stage.

Cross-border arrangement

One of the more significant aspects covered by the draft guidance is the question of when an arrangement is considered to a cross-border arrangement.  From the Directive, it was already clear that an arrangement will be a cross-border arrangement if it concerns either more than one EU Member State or an EU Member State and a third country.  The question however of what it means to “concern” a country was not elaborated on.  HMRC had previously indicated that their view was that in order for an arrangement to “concern” multiple jurisdictions, those jurisdictions need to be   “of some material relevance” to the arrangement. 

The draft guidance goes further in attempting to describe when this test may or may not be met, noting that this will ultimately be a question of fact and degree.

HMRC note that if there are tax consequences in a particular jurisdiction as a result of the arrangement, then that arrangement would normally be considered to concern that jurisdiction, save for in certain circumstances where the tax effect is more removed.  By way of example, an arrangement involving a permanent establishment in country A of a company resident in country B, should not, in itself, materially concern country B and should not therefore be a cross-border arrangement. 

Basing the judgment of whether or not there is a cross-border arrangement on the presence or absence of a tax effect can however occasionally lead to false negatives given that a tax advantage is not a prerequisite for all of the hallmarks.  In the draft guidance, HMRC give the example of an arrangement which involves the transfer of funds from an account in one country to an account in another.  Notwithstanding the lack of a direct tax effect, the jurisdiction receiving the funds could be of material relevance to the arrangement where, for example, it had not implemented the Common Reporting Standard and the effect of the arrangement was to undermine the CRS by ensuring the funds would not be reported. 

Other examples given by HMRC are as follows:

  • Company A in jurisdiction A sells shares it holds in company B, resident in jurisdiction B, to company C, also resident in jurisdiction A.  As there are no tax consequences in jurisdiction B directly as a result of the transaction, this transaction would not be considered to “concern” jurisdiction B.  While this is a useful clarification, the question still remains as to whether the analysis would be different if Company A were selling a real estate asset located in jurisdiction B, an arrangement which might be more likely to have tax consequences in that territory as well as in the territory of the buying or selling entities.
  • A collective investment vehicle is established in jurisdiction D and is open to retail investors in any jurisdiction.  The fact that investors could be from different jurisdictions does not inherently make this a cross-border arrangement as the location of the investors is not material to the establishment of the vehicle.  Similarly, if it is the case that the “promoter” does not know the residence of the investors, it is unlikely that the location of the investors can be said to be material to the arrangement.  The analysis would likely be different if the jurisdiction of the vehicle were chosen based on the location of the investors and the availability of a resulting tax benefit.  Also important to bear in mind is while there may not be a “cross-border arrangement” from the perspective of an intermediary, this may not be the case from the perspective of a taxpayer, for whom, their jurisdiction of residence will more likely be material.
  • Company E, resident in jurisdiction E, makes a loan to company F, resident in jurisdiction F, and F pays interest to company E in return.  This arrangement is considered by HMRC to be clearly cross-border. 

A point to note in relation to the territorial scope of DAC6 is that although an intermediary may be within the Directive by virtue of having a branch or some other nexus with a Member State, unless the actual arrangement itself concerns a Member State, no reporting obligation should arise.  This could be particularly relevant, for example, for EU-based intermediaries such as advisors, banks and underwriters who are regularly involved in cross-border transactions which are based outside their own jurisdiction of establishment. 


Main benefit test

In order for a cross-border arrangement to be reportable under DAC6, it must contain one or more of the hallmarks set out in the Directive.  For more detail on the relevant hallmarks, please see our hub.

For certain of these hallmarks to apply, the so-called main benefit test must be met which requires 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 the arrangement is the obtaining of a tax advantage.  A tax advantage will only be relevant to the extent that it cannot reasonably regarded as consistent with the principles on which the relevant provisions are based and their policy objectives.  For further detail on the various hallmarks under DAC6 can be seen here.

HMRC have provided in the draft guidance some indication of how the main benefit test is likely to be applied in practice.  One of the key points is that, rather unsurprisingly, the arrangement must be looked at as a whole.  Accordingly, while certain arrangements which take advantage of cross-border tax mismatches may not contravene or be contrary to the spirit of local rules, the arrangement as a whole may produce a result that was not intended.

In determining whether or not a tax advantage is the main benefit or one of the main benefits of an arrangement, the draft guidance states that it should be a significant or important element, rather than incidental or insubstantial, and that the test will objectively consider the value of the expected tax advantage as compared with the value of other benefits likely to be enjoyed. 

The objective nature of the test as set out in the Directive means that there is limited scope for a party to assert that an arrangement was not pursued to obtain a tax advantage, however the draft guidance does indicate that the purpose of an arrangement may be informative, albeit not determinative of whether the main benefit test is met. 


While the draft guidance provides some useful detail on some of the more general and procedural aspects of DAC6, unfortunately little new guidance is provided in relation to the hallmarks themselves, either in the form of guidelines to assist in interpreting the conditions or examples of types of arrangement which could be expected to be caught by the regime.  Some of the more substantive updates are summarised below.

Hallmark A1 – Confidentiality

This hallmark concerns arrangements which include a condition of confidentiality which may require participants “not to disclose how the arrangement could secure a tax advantage vis-à-vis other intermediaries or the tax authorities”.

While HMRC state that commercial confidentiality conditions that do not relate to how the arrangement secures a tax advantage will not be caught, this appears to be the case only to the extent that any such confidentiality conditions are not so broad as to generally prevent disclosure. 

Accordingly, as a practical point it appears that parties will need to exercise care in relation to any broadly-drafted confidentiality provisions in order to ensure that this hallmark is not unexpectedly triggered and any such provisions should allow for parties to meet any DAC6 obligations as necessary.

Hallmark A3 – Standardised documentation and structures

An arrangement triggers Hallmark A3 where it has “substantially standardised documentation and/or structure and is available to more than one relevant taxpayer without a need to be substantially customised for implementation”.

A key question in considering whether this hallmark is applicable is the extent to which it can be said that the relevant documentation and/or structure is standardised and not substantially customised.  Helpful in this regard is the example from HMRC of the ISDA master agreement used in the financial services sector for derivate contracts.  Given that this is commonly subject to “considerable amendment as a result of commercial negotiations between parties”, it is considered that this would not trigger Hallmark A3.  Central to the analysis of whether this hallmark will be applicable in a particular scenario would therefore appear to be the level of customisation inherent in an arrangement which could otherwise be considered “standardised”.

Hallmark B2 – Conversion of income into capital

This hallmark is intended to capture arrangements which have the effect or converting income into capital, gifts or other categories of revenue which is taxed at a lower level or exempt from tax.

As to what constitutes a “conversion” of income, the draft guidance refers to “contrived” arrangements and those which are “not normal practices” as being those likely to be caught by this hallmark.  This is distinguished from more typical commercial arrangements such as rewarding employees via shares rather than additional salary, which is seen as a legitimate commercial choice despite the lower rate of tax applicable to the capital return from shares.

An interesting point to note which is clarified in the draft guidance is that this hallmark can apply where one form of income is converted into another form of income, such as a conversion from employment income into dividend income, which is subject to a lower rate of tax.

Hallmark C1 – Cross-border transactions

Hallmark C1 encompasses a number of scenarios involving deductible cross-border payments between associated enterprises and where one of a number of other conditions are met. 

One of the conditions in Hallmark C1 is where the recipient of a deductible cross-border payment is resident in a territory on the OECD blacklist.  In light of the fact that the blacklist is subject to change, HMRC have included some helpful clarificatory remarks in the draft guidance about how this interacts with the obligations under DAC6.  Broadly, in order for an arrangement to be caught by this hallmark, the condition must be met at the time the reporting trigger point is met.  For arrangements between 25 June 2018 and 1 July 2020, the hallmark must apply both on the date that the trigger point is met and the date the reporting obligation arises (i.e. 1 July 2020).

This will be useful for intermediaries considering legacy structures involving territories which suddenly find themselves on the blacklist, such as the Cayman Islands which was added earlier this year, and should mean that, in many cases where the implementation of the arrangement pre-dates the blacklisting, reporting should not be required.   

With regards Hallmark C1(d) which concerns payments which benefit from a preferential tax regime where the recipient is resident, the draft guidance notes that a regime that meets the criteria of the Forum on Harmful Tax Practices (FHTP) will be considered a preferential tax regime for the purposes of DAC6.  While the FHTP has identified a limited number of such regimes to date (Jordan is one of the few examples of a jurisdiction with a specifically-identified “harmful tax regime”), a number of countries, including the US, are currently still under investigation and so it will be important to monitor the position going forward.

Hallmark D – Automatic exchange of information and beneficial ownership

The hallmarks under this category relate generally to the automatic exchange of information and identification of beneficial ownership and share substantial common ground with the OECD Mandatory Disclosure Rules (MDR) such that HMRC have acknowledged that they will interpret Hallmark D in line with the MDR where applicable.

Arrangements will be caught by Hallmark D1 if they have the effect of undermining or circumventing reporting obligations under DAC2 or equivalent agreements on the automatic exchange of financial account information, or which take advantage of the absence of same.  This includes reporting obligations under the Common Reporting Standard (CRS).  The guidance does note however that the UK’s agreement with the US to implement the Foreign Account Tax Compliance Act is not an equivalent agreement since it does not provide for the same reciprocal level of reporting as DAC2 and the CRS.

Hallmark E – Transfer pricing

Hallmark E generally covers certain arrangements which relate to transfer pricing.

Hallmark E1 applies where an arrangement involves the use of so-called “unilateral safe harbour rules”.  In addition to advanced pricing agreements, which HMRC had previously clarified as not constituting such a safe harbour, the draft guidance also notes that advanced thin capitalisation agreements will similarly not be caught by this hallmark.  What is less useful however is that the draft guidance does not go into any significant detail as to the what “safe harbours” may in fact be caught.

Similarly, Hallmark E2 concerns the transfer of “hard-to-value intangibles”.  While HMRC note that the question of what constitutes a hard-to-value intangible is based on an objective test, the draft guidance fails to give any sort of practical examples of the types of transactions which it might be expected would be caught by this hallmark. 


The general direction of travel is that a sensible and pragmatic approach appears to be being taken by HMRC on the interpretation of some of the broadly-drafted provisions of DAC6.  While the additional clarity included within the draft guidance is certainly welcome, significant ambiguity continues to persist in relation to exactly how DAC6 will apply in the UK and the approach to be taken in respect of some of the reporting triggers and hallmarks. 

Fortunately, HMRC continues to liaise with stakeholders and the hope is that the final guidance will offer more useful practical direction to taxpayers and intermediaries on the scope of their obligations. 

In the meantime, given that the first reporting deadline is creeping ever closer, interested parties would be well advised to start considering existing arrangements and the extent to which a view can be taken on reporting obligations before the final guidance is published and on the expectation that DAC6 will continue to progress as planned.

For more information on DAC6, visit our dedicated hub