“Right now…”
With effect from the 28th March 2023, the United Kingdom has implemented the mandatory cross-border tax avoidance arrangements disclosure rules (MDR).
This regime is based on guidelines published by the Organisation for Economic Co-operation and Development (OECD).
The primary goal of MDR is to ensure that tax authorities are informed about Common Reporting Standard (CRS) avoidance arrangements and opaque offshore structures.
Is this all leaving you feeling ‘pretty vacant?’
If so, let’s look at these rules in a bit more detail.
The great rock and roll swindle?
The MDR regime replaces the EU’s Mandatory Disclosure Regime (DAC6), which had been in force in the UK since January 2021.
Post-Brexit, the reporting requirements were streamlined, limiting reporting only to Hallmark D of DAC6.
However, with the introduction of MDR, the UK now follows international rules rather than EU-specific regulations after a thorough consultation period.
So, for those who seem to think that Brexit was an ‘establishment’ swindle to avoid EU anti-avoidance rules….
…”Never Mind the B@llocks”
Mandatory in the UK… and elsewhere
One significant change with MDR is the extension of the reporting regime’s territorial scope.
While DAC6 focused on “cross-border arrangements” involving the UK or an EU member state and another country, MDR eliminates this restriction.
Now, any arrangement connected to the UK, where the intermediary is incorporated, resident, or has a place of management, falls under the reporting obligation.
This means UK-based intermediaries may need to report on arrangements wholly outside the UK or EU, which would not have been required under DAC6.
“Your future dream is a… CRS Circumvention Scheme”
MDR covers two types of arrangements that tax authorities are keen to monitor closely:
- Circumventing Reporting Obligations: Any arrangement designed to undermine or avoid reporting obligations under agreements on the automatic exchange of financial account information, including CRS, comes under MDR scrutiny. Examples include moving funds between countries to evade reporting requirements or hiding funds in offshore accounts to bypass reporting obligations elsewhere.
- Obscuring Beneficial Ownership: Arrangements that obscure legal or beneficial ownership through the use of offshore entities and structures with no substantial economic activity fall under MDR. This includes scenarios where control of a company is exercised indirectly or choosing a jurisdiction solely for its minimal reporting requirements on beneficial ownership.
“The Fascist Regime” – Reporting Obligations
MDR reporting requirements are similar to those of DAC6, involving intermediaries, reportable taxpayers, and certain timeframes:
- Intermediaries: UK-based intermediaries, promoters, or service providers involved in cross-border arrangements must report within 30 days of making the arrangement available or providing assistance.
- Reportable Taxpayers: If there is no intermediary, or an intermediary is exempt due to legal professional privilege, the reporting obligation shifts to the UK resident taxpayer within 30 days of implementing the arrangement.
Sid Vicious Penalties?
Non-compliance with MDR reporting can lead to financial penalties.
HM Revenue & Customs (HMRC) assesses penalties based on the procedures in place for identifying reportable arrangements. Adequate training for employees in relation to MDR can be a mitigating factor.
HMRC will update its guidance to reflect the MDR in due course, and it is likely to align with the OECD’s commentary on the Model Mandatory Disclosure Rules (MMDR).
“The filth and the fury”: MDR vs. DAC6
Johnny Rotten didn’t ‘wanna be L7’.
But, I can’t even think what his views of MDR and DAC6 might have been?
Overall, the transition from DAC6 to MDR brings minimal changes, mainly expanding the territorial scope. The reporting rules and obligations remain largely the same.
The reduction of the look-back period from 2014 to 2018 further eases the reporting burden on taxpayers.
“Out to lunch”
The introduction of MDR in the UK demonstrates the government’s commitment to tackle cross-border tax avoidance.
With more robust disclosure rules and wider territorial coverage, tax authorities ought to be better equipped to detect and address instances of offshore tax evasion and obscure ownership structures.
It is essential for intermediaries and taxpayers to understand and comply with the MDR requirements to avoid potential penalties and ensure transparency in cross-border tax arrangements.
If you have any queries about this article on the Mandatory Disclosure Rules or tax matters in general, then please get in touch.