In the short term, however, there is likely to be some additional compliance burden in adapting existing DAC6 reporting processes for bank lending transactions which also involve the EU. This is especially so given the last-minute and unexpected nature of the changes.
A reminder of how DAC6 could apply to bank lending transactions
By way of recap, DAC6 is an EU Directive which can require “intermediaries” (or, in certain cases, “relevant taxpayers”) to file with a specified tax authority in the EU information that is within their knowledge, possession or control about:
- “cross-border arrangements”
- that contain at least one of certain “hallmarks”.
Any arrangement or series of arrangements concerning both (i) an EU Member State; and (ii) another jurisdiction (whether an EU Member State or not), will be a cross-border arrangement for these purposes. Prior to these changes and the end of the Brexit transition period, references to an EU Member State also included the UK for these purposes.
Professional advisers such as law firms and accountants, as well as others such as lenders and fund managers are all likely to qualify as intermediaries.
Many cross-border bank lending transactions will therefore involve at least one cross-border arrangement. Where this is the case, the key ‘filter’ for DAC6 reporting will be whether one or more of the hallmarks are present. It is this aspect of the UK rules which has changed.
What has changed in the UK and how does it affect bank lending transactions?
The UK has repealed its implementation of the substantial majority of the DAC6 “hallmarks”. This has effect immediately before 1 January 2021, when the obligation to make DAC6 reports in the UK was due to come into effect.
The only two hallmarks which will continue to apply in the UK relate to cross-border arrangements which (i) may have the effect of undermining reporting under the Organisation for Economic Co-operation and Development’s Common Reporting Standard or a similar exchange of information regime, or (ii) involve non-transparent beneficial ownership structures where the beneficial owners are made unidentifiable for Anti-Money Laundering purposes. In our experience, it is likely to be rare that either of these hallmarks would apply to a typical bank lending transaction.
This is an interim measure pending the replacement of these rules in their entirety with new legislation for reporting based on OECD standards. Consultation on this is expected in the course of 2021.
Does this affect the application of DAC6 in the EU?
No, this change to the UK rules does not directly affect the application of DAC6 more generally in the EU. Reports may therefore still be required in the EU.
Authored by Philip Harle and Adam Parry.