The EU Directive on Administrative Cooperation (DAC6) deadline is fast approaching – time to disclose?

The European Commission published in May 2018 regulations referred to as Directive on Administrative Cooperation or DAC6 for short. These regulations were incorporated in UK law by the International Tax Enforcement (Disclosable Arrangements) Regulations SI2020/25. DAC6 is a new EU disclosure regime that requires a legal reporting requirement of certain cross-border arrangements to HMRC. The rules apply to “aggressive tax avoidance” within the EU but has also been adopted by the UK. The rules require the reporting to be done by “UK intermediaries” in a similar way to the UK Disclosure of Tax Avoidance Schemes or DOTAS.

EU Directive on Administrative Cooperation

DAC6 applies to any person including individuals, partnerships, companies and other legal entities. Intermediaries include law firms, accountancy firms and financial advisors. DAC6 will still apply to the UK even though it will not be a Member State of the EU following Brexit.

The rules come into force on 1 July 2020 with a 30 day reporting time limit but the European Commission have proposed deferral of the reporting deadlines due to Covid-19 but this has not been confirmed by HMRC yet. The rules apply not only to future cross border transactions but also transactions that have been undertaken in the past two years from 25 June 2018 to 30 June 2020 ( “past transactions”). The deadlines for reporting as proposed by the EC are as follows:

  • Revising the date for commencing the 30 day reporting from 1 July 2020 to 1 October 2020
  • Revising the date for reporting past transactions from 31 August 2020 to 30 November 2020
  • Revising the date for first exchange of information on reportable transactions from 31 October 2020 to 31 January 2021.

In view of the uncertainty due to Covid-19, the proposed dates from the EC include the possibility of a further 3 month extension to the above dates.

What must be reported?

DAC6 will imposes reporting of cross-border arrangements involving at least one EU Member State or a Member State and a third country which satisfy one or more of a number of “Hallmarks”.

The Hallmarks (defined further below) under DAC6 are broad and the reporting obligations will have far-reaching consequences for intermediaries and taxpayers due to the increased level of transparency surrounding loopholes and harmful tax practices. For example, they cover transfer pricing arrangements.

The rules are detailed and this article is intended to highlight why those advisors with clients that have overseas interests should be aware of DAC6 reporting.

Who does the reporting?

Reporting will be primarily carried out by intermediaries who are involved with the arrangements.

In principle, there are two types of intermediaries:

  1. Promoters – Normally designs, markets, organises or makes available for implementation or manages the implementation of a Reportable Cross-Border Arrangements (RCBA); or
  2. Service providers – They will know or could be reasonably expected to know that they have undertaken to provide, directly or indirectly, aid, assistance or advice with respect to designing, marketing, organising, making available for implementation or managing the implementation of a RCBA.

To qualify as an intermediary a person must also have an EU connection. This can include if they are resident in an EU Member State or have a permanent establishment in a Member State through which the relevant services are provided or they are incorporated in or governed by the laws of a Member State or registered with a professional association.

The relevant taxpayer must report an arrangement if there is no intermediary or if the intermediary does not have to report certain information due to legal professional privilege ( for example solicitors). The taxpayers will also have an ongoing obligation to disclose the arrangements on their tax returns. This will be by means of an Arrangement Reference Number (ARN) entered on the tax return.

What are the Hallmarks?

There are two categories of Hallmarks:

  1. Where the arrangement is required to have a Main Benefit Test (“MBT”) before it is deemed reportable. The MBT is fulfilled when one of the main benefits from the arrangement has a tax advantage. It is worth noting that the MBT is broader than the existing general anti-avoidance rules that currently exist in EU legislation; and
  2. Those which are reportable even if there is not a tax advantage.

There will be some variation in how each domestic tax authority interprets the MBT in practice. We are aware of different interpretations across the EU which will further complicate this Directive.

There are five Hallmark categories, some of which must meet the MBT of obtaining a tax advantage:









Main benefit test (MBT)



Category A
Generic characteristics seen in marketed tax avoidance scheme.


1. Confidentiality condition in respect of how the arrangements secure a tax advantage such as a Non Disclosure Agreement.


2. Fixed fee paid to intermediary by reference to a tax advantage.


3. Substantially standardised documentation and/or structure.


Category B
Specific tax structured arrangements seen in avoidance planning.


1. Acquisition of a loss making company.


2. Converting income into lower taxed or exempt categories of income.


3. Circular transactions with no primary commercial function.

Category C
Cross-border payments and transfers broadly drafted to capture innovative planning but may pick up many ordinary commercial transactions where there is no main tax benefit.




1. Deductible cross-border payment between associated persons where the recipient is:

  • Not resident for tax purposes in any jurisdiction.
  • Resident in OECD blacklisted countries.
  • Resident in a 0% or near 0% tax jurisdiction.
  • Tax exempt from the receipt.
  • Benefitting from a preferential tax regime in the recipient jurisdiction.






2. Deductions for depreciation claimed in more than one jurisdiction.



3. Relief from double taxation in respect of the same item of income or capital in more than one jurisdiction.



4. Transfer of assets with materially different valuations.


Category D
Arrangements which undermine tax reporting/transparency.


1. Arrangements which have the effect of undermining reporting requirements under agreements for the Automatic Exchange of Information and beneficial ownership.


Category E
Transfer pricing: non-arm’s length or highly uncertain pricing or base erosive transfers.


1. Use of unilateral transfer pricing safe harbour rules.



2. Transfers of hard to value intangibles for which no reliable comparables exist



3. Cross-border transfer of functions/risks/assets causing a more than 50% decrease in earnings before interest and tax



When is the deadline to report?

Due to the challenges regulators and business are facing with COVID-19, the European Commission announced on 8 May 2020 its proposal to provide an extension to certain information exchange and key filing dates.

This proposal will not stop DAC6 coming into force on 1 July 2020, but the implementation of the extension (subject to HMRC accepting it) means:

  • The deadline for historical reporting covering cross boarder arrangements in the period from 25 June 2018 to 30 June 2020 will be postponed from 31 August 2020 to 30 November 2020.
  • Obligations for reporting of post 1 July 2020 arrangements will be postponed from 1 July 2020 to 1 October 2020.

This will mark the start of the need to file within 30 days of the earlier of:

  1. the day on which the arrangement is made available for implementation;
  2. the day it is ready for implementation; and
  3. the day the first step of implementation is made.

An online portal for reporting is being created by HMRC.

  • Information exchanged between Member States will be deferred from 31 October 2020 until 31 January 2021.


In the UK, failure to comply with the provisions of DAC6 will result in a fixed penalty of £5,000 for failure to comply in several cases, and daily penalties of £600 in the instance of a serious failing, such as where the behaviour leading to the failure was deliberate.

Penalties may be cancelled if there is a reasonable excuse. The possibility for the First-tier Tribunal to increase penalties up to £1 million remains if normal penalties appear ‘inappropriately low’.

Next steps

Many intermediaries and taxpayers will understandably be preoccupied with the disruptive impact of COVID-19. However, they should act now to ensure that they are prepared for the additional compliance of DAC6 reporting or they may become subject to substantial penalties. Checking whether there is a reportable cross border arrangement raises complex technical and procedural issues for taxpayers and intermediaries. They should review the rules and guidance from HMRC and their own policies and strategies to ensure compliance with these new requirements within the strict deadlines.

This blog was written by Jay Sanghrajka, International Tax Partner at Price Bailey. For information please contact Jay on the form below.


We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.


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