Communication about DAC6 and MDR
All KH Entities: To individuals and Entity clients
Following recommendations by the Organisation for Economic Co-operation and Development (“OECD”) the European Union (“EU”) has introduced new mandatory disclosure rules by means of a modification to the Directive on Administrative Cooperation in direct taxation in the EU (“DAC”).
The European Directive 2018/822 of 25 May 2018 (hereinafter "DAC 6"), that came into force on 25 June 2018, aims to enable tax authorities of the EU member states to obtain information on arrangements or operations that provide unfair fiscal advantages and thus assist such authorities to fight against harmful and aggressive tax practices.
To help achieve these goals, DAC 6 imposes a new reporting obligation on providers classed as intermediaries such as banks, lawyers, accountants and tax advisers.
These providers are classed as intermediaries when they are situated in an EU member state and design, promote, implement or are aware of, cross border operations or arrangements creating a potential tax advantage.
Although the UK has officially left the EU, the DAC 6 provisions has been enacted into UK legislation, therefore Kleinwort Hambros (“KH”) Entities in the UK and Gibraltar are subject to the DAC 6 regulations.
The KH entities based in the Chanel Islands are not part of the EU, and as a result will not be subject the reporting obligations under DAC 6. Both Jersey and Guernsey have nonetheless enacted their own legislation based on the Mandatory Disclosure Rules (“MDR”), which has a more limited remit than DAC 6.
In certain specific circumstances, individual taxpayers may be liable to report cross border arrangements or operations with a tax advantage that they are involved in, part of, or benefiting from. For example, this may be the case if an individual is a tax resident of an EU Member state and/or they receive a service from another bank located within the EU that failed to report the arrangements or operations under DAC 6.
Information to be provided to the tax authorities of the country of tax residence includes:
• the taxpayer’s identity;
• their country of tax residence; and
• a description of the reportable arrangements or operations.
To comply with the reporting obligations, transactions will need to be reported in line with the following timeline:
- Reportable arrangements or operations from 25 of June 2018 must be reported in August 2020.
- Reportable arrangements or operations provided as from 1 July 2020 must be reported within 30 days from when the arrangement is first provided.
If you have questions regarding the application of DAC 6, we recommend you contact your personal tax adviser.