(c) Institute of Chartered Accountants of Scotland. Contact ICAS for permission to reproduce this article., Financial Reporting

Mandatory reporting of cross-border arrangements

By Susan Cattell

Susan Cattell explains why tax advisers and accountants should consider whether they will need to report certain cross border arrangements, as the UK implements the EU Directive (DAC 6) on mandatory reporting.


The Panama Papers gave increased impetus internationally to measures to improve tax transparency. 
The UK government consulted on UK proposals for a requirement to notify HMRC of offshore structures (consultation published December 2016). However, in its response at the end of the consultation, the government stated that rather than proceeding unilaterally it would work with international partners (the OECD and the EU) on the development of appropriate multinational rules.

The G7 Finance Ministers asked the OECD to look at ways to address arrangements that circumvent reporting under the Common Reporting Standard (CRS) and the use of non-transparent structures. This resulted in the publication of “Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures” (MDR) in March 2018; jurisdictions can choose whether to implement these rules.

The EU directive known as DAC 6 (it is the sixth update of the Directive on Administrative Cooperation) also imposes disclosure requirements – but applies to a wider set of arrangements than MDR; the rest of this article concentrates on DAC 6. EU members must implement DAC 6: Brexit is discussed below.

UK Implementation

The recent Finance Act included enabling legislation to allow the government to introduce secondary legislation to give effect to DAC 6/MDR. The details of who is required to report (and what they will have to report) will be set out in the regulations.


DAC 6 imposes a requirement on intermediaries to report information on certain cross-border tax arrangements sold to clients, to the tax authorities in their home member state.

‘Intermediary’ includes any person that designs, markets, organises or makes available for implementation (or manages the implementation of) a reportable cross-border arrangement. Intermediaries can be individuals or companies (i.e. accountants, advisers, lawyers, banks, etc). In certain circumstances the reporting requirement shifts to the taxpayer i.e.:

  • Where the intermediary is a non-EU intermediary;
  • Where there is no intermediary (ie it is an in-house arrangement); or
  • Where the taxpayer is notified that the intermediary has the right to a waiver due to legal professional privilege.

The directive entered into force on 25 June 2018. UK legislation giving effect to it must be applicable from 1 July 2020 and intermediaries will have to file their first report by 31 August 2020. It is important to realise that this first report must include details of any arrangements where the first step is undertaken between 25 June 2018 and 1 July 2020, so records need to be kept – even though regulations setting out the details are not currently available. Reports will be shared between EU member state tax administrations via a database.

DAC 6 Hallmarks

Draft regulations for implementing DAC 6 in the UK are expected to be published in the early part of 2019 but the ‘hallmarks’ to be used to identify reportable transactions are already available; they are set out in the directive. One of the concerns arising from the hallmarks is that they are likely to generate many reports of routine, legitimate arrangements.

A cross border arrangement will be reportable if it meets at least one hallmark.  There are five hallmark categories as outlined briefly below. For categories A, B and certain elements of category C, an arrangement will only be reportable if it is also caught by a main benefit test (MBT) ie 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.

  • Category A (subject to the MBT) – generic hallmarks covering arrangements that give rise to performance fees (linked to the tax advantage), include confidentiality conditions or involve standardised schemes available to more than one taxpayer.
  • Category B (subject to the MBT) – specific hallmarks including certain tax planning features: certain loss buying schemes; arrangements aimed at converting income into capital/other types of income taxed at a lower level or exempt from tax; circular transactions, without any commercial purpose.
  • Category C – specific hallmarks related to cross-border transactions. Examples include: claiming deductions for depreciation of an asset in more than one jurisdiction and claiming double tax relief in respect of the same item of income or capital in more than one jurisdiction.

Some of the category C hallmarks are also subject to the MBT, for example, deductible cross-border payments between associated enterprises where the recipient is essentially subject to no tax, zero or almost zero tax.

  • Category D – arrangements which may have the effect of undermining agreements/legislation for automatic exchange of financial account information, or which take advantage of the absence of such legislation or agreements.  Also, opaque offshore structures involving a non-transparent legal or beneficial ownership chain with the use of persons, legal arrangements or structures.
  • Category E – specific hallmarks concerning transfer pricing: these include the use of unilateral safe harbours; the transfer of hard-to-value intangible assets when no reliable comparables exist and the projection of future cash flows or income are highly uncertain.


HMRC and HM Treasury expect that the UK will implement the Directive, in spite of Brexit (because of the anticipated transitional period), and are planning on that basis. It is not clear what would happen if negotiations break down and the UK leaves the EU without any agreement/transitional period.

Consultation and input to HMRC

ICAS met with HMRC to discuss the original UK proposals and responded to the UK consultation. Subsequently, ICAS has attended a series of meetings with HMRC on MDR and DAC 6 – where issues and concerns have been discussed and HMRC provided updates on progress.

HMRC intends to hold a formal consultation on draft regulations to implement DAC 6. In the meantime, discussions with stakeholders, including ICAS, are continuing through a working group.

This article was originally published by ICAS.