The European Commission has approved a three-month extension to the deadlines for filing and exchanging information on cross border arrangements under DAC6 due to the coronavirus pandemic.
DAC6 requires intermediaries to report on cross-border transactions meeting certain hallmarks. The hallmarks include the following:
- The taxpayer or participant is under a confidentiality condition in respect of how the arrangements secure a tax advantage.
- The fee receivable by the intermediary is success-based or calculated by reference to the tax advantage gained from using the arrangements.
- The arrangement 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”.
- The arrangements involve taking contrived steps, consisting of acquiring a loss-making company, discontinuing its main activity and using the losses to reduce its tax liability, including by transferring losses or accelerating the use of losses.
- The arrangements result in income being converted to capital/gifts/other amounts, which are exempt or taxed at a lower level than income.
- The arrangements involve circular transactions resulting in the “round-tripping” of funds (eg using transactions that cancel each other out).
- The arrangements involve deductible cross-border payments between two or more associated companies where at least one of the following conditions are met:
- The recipient is not tax resident in any jurisdiction;
- The recipient is tax resident in a jurisdiction that either:
– Has no corporate tax, or where the rate of corporate tax is zero or close to zero, or
– Is included in an EU or OECD list of non-cooperative jurisdictions;
- The payment is exempted from tax in the recipient’s jurisdiction of residence;
- The payment is subject to a preferential tax regime in the recipient’s jurisdiction of residence.
- The arrangements result in deductions for tax depreciation (which would include capital allowances) on the same asset in more than one jurisdiction.
- Double tax relief is claimed in more than one jurisdiction in respect of the same item of income or capital.
- The arrangements include a transfer of assets where there is a material difference in the amount treated as consideration for the assets in the relevant jurisdictions.
- The arrangements have the effect of undermining the reporting obligations under an agreement for the automatic exchange of information.
- Arrangements which involve a non-transparent legal or beneficial ownership chain where the persons/structures used:
- Do not carry on a “substantive economic activity supported by adequate staff, equipment, assets and premises”; and
- Are incorporated/managed/resident/controlled/established in a jurisdiction other than the jurisdiction of residence of one or more of the beneficial owners of the assets they hold; and
- Where the beneficial owners are made unidentifiable.
The EU’s deadline for submitting the first reports under DAC6 has been deferred by three months from 31 August to 30 November 2020 for ‘historic’ pre-existing transactions (where the first step of implementation was from 25 June 2018 to 30 June 2020) and to 31 October 2020 for reporting new transactions (from 1 July 2020 to 1 October 2020). The period of 30 days for filing such information would then start from 1 October 2020.
Following a number of other EU jurisdictions, HM Revenue & Customs (HMRC) has announced that the UK will also be implementing a deferral to the deadlines for reporting under DAC. For arrangements where the first step of implementation is between 25 June 2018 and 30 June 2020, reports must now be made by 28 February 2021. Transactions taking place between 1 July 2020 and 31 December 2020 must be reported within the 30-day period beginning on 1 January. The usual 30-day filing deadline for reportable arrangements will then begin from 1 January.
DAC6 has a very broad scope, and even with the deadlines being extended, time should be taken now to collate the information needed on historic transactions to ensure readiness for reporting.
We previously understood that HMRC would be launching the reporting platform from 1 July for uploads in the electronic XML format, with a manual reporting platform thereafter. However, the announcement of the deferral now states that it will be available ahead of the new reporting deadlines, which suggests we may also see a delay in the launch.