TAMD: Proposed implementation of the OECD’s Model Mandatory Disclosure Rules

HMRC launch a consultation to implement the OECD’s Model Mandatory Disclosure Rules (MDR), which will replace the current DAC 6 regime.

HMRC launch a consultation to implement the OECD’s Model Mandatory Disclosure.....

In 2018 the OECD published its Model Mandatory Disclosure Rules (MDR), a template for a regime broadly designed to ensure that tax authorities would receive details of certain arrangements which might otherwise restrict their visibility of taxpayers’ assets. Those rules were then incorporated into a much broader disclosure regime (DAC 6) introduced by the EU. The UK’s implementation of DAC 6 was a late casualty of Brexit, with a significant scaling back of the UK rules being announced shortly before reporting had been due to start on 1 January 2021. That last minute pruning, which essentially discarded those elements of the UK’s implementation of DAC 6 which hadn’t been included in the original OECD Model MDR, was always stated to be a temporary measure. HMRC have now published a consultation (until 8 February 2022) on a replacement set of rules directly based on the OECD’s Model.

The UK and the EU had agreed to keep in place disclosure regimes post-Brexit, with the OECD’s Model MDR effectively being a ‘minimum standard’. The decision to more clearly align the UK’s implementation of DAC 6 with that minimum standard was broadly welcomed by UK businesses, as existing UK regimes (e.g. DOTAS) fulfilling a similar role had cast doubt over the ‘added value’ in the UK from the other aspects of DAC 6 rules.

The fact that (as anticipated) the proposed new regime similarly does not seek to go beyond the OECD Model MDR will therefore be a cause for relief, as will be the repeated emphasis in the consultation on continuity with the existing rules. This is reflected in a number of references to HMRC’s guidance on the existing rules as being indicative of the planned approach to interpreting their replacement – good news for businesses which built processes relying on the current guidance.

Less good news will be the fact that, as expected, the closer alignment of the UK regime with the OECD’s Model MDR, has resulted in a planned expansion of its scope in two key areas where DAC 6 (atypically) had taken a narrower approach than originally proposed by the OECD:

  • Firstly, it is now proposed to require ‘catch up’ reporting of certain arrangements entered into since 29 October 2014 (likely within 180 days of the new rules coming into force in mid-2022). It is recognised that this is a potentially onerous and unwelcome administrative burden (by comparison, DAC 6 only required a look back to June 2018) and it is proposed to introduce a number of measures to mitigate the impact of this. These include limiting the scope of any catch up reporting to the reporting of ‘CRS avoidance arrangements’ by the ‘promoters’ of those arrangements and introducing a de minimis exclusion.
  • Secondly, the current regime only requires the reporting of arrangements which, in particular, ‘concern’ either the UK or an EU Member State. It is proposed that this territorial restriction should be abolished, and whilst a reporting obligation should only arise to a person with a relevant link to the UK, this does potentially significantly expand the population of arrangements which those persons will need to consider from a MDR perspective.

The anticipated Exchequer benefit from the scope changes is modest (c. £5 million p.a.) - consistent with anecdotal evidence that the volume of disclosures relating to the arrangements targeted (very broadly those circumventing the automatic exchange of information between tax authorities or concealing the beneficial ownership of offshore assets) has been low. Given that context, there will be some disappointment at the need for businesses to revisit existing processes.

Nonetheless, the organisations most affected by the rules (typically professional advisers and businesses in the financial sector) will need to ensure that their processes are consistent with the revised scope and will also want to take the opportunity afforded by the re-write to address issues that have arisen during the existing regime’s initial year of operation.