Final regulations implementing the EU directive commonly known as DAC 6 have now been made and come into force on 1 July, looking back as required to reportable arrangements entered into from 25 June 2018. HMRC has published a response document detailing the changes which have been made to the regulations as a result of the public consultation and highlighting areas to be covered in guidance.

Although the regulations have been amended in places to make them more proportionate, HMRC intends to use guidance (which is still being prepared and is promised before 1 July) to tackle many of the concerns raised in the consultation rather than dealing with them in the regulations directly. This is because HMRC is restricted by the legal obligation to implement DAC 6 faithfully and the desire to avoid potential differences in the approaches of the UK and other countries.

Legal Professional Privilege (LPP)

HMRC acknowledges that the rules as originally drafted could cause difficulties in ensuring that LPP was not breached and have amended the regulations accordingly. The final regulations do not include, as was suggested, a DOTAS-style exclusion from the definition of intermediary for persons asserting LPP, presumably as HMRC felt unable to deviate from the definition of intermediary in DAC 6. Instead, in addition to providing that nothing in the regulations requires the disclosure of privileged information, the final regulations clarify that there is no obligation to notify another intermediary or a relevant taxpayer of an obligation to report if this would itself require the disclosure of privileged information. HMRC intends to work with the legal sector to provide guidance on how the regulations will operate in line with LPP.

Other improvements to the regulations include:

• Limiting “tax advantage” to direct taxes arising in EU member states (and not extending it, as the draft regulations did, to include third country taxes)
• New definitions of “UK intermediary” and “UK resident taxpayer” to limit the territorial scope of the regulations
• Making the penalty regime more proportionate and flexible, including clarifying in the legislation that the existence of reasonable procedures to ensure compliance with the regime must be considered in determining whether a reasonable excuse exists for a failure to report
• Ensuring the same intermediary does not have to report in multiple jurisdictions
• Amending the ongoing reporting requirement for a taxpayer so that reporting is required only in the first year that the taxpayer participates in the arrangements and any year where there is a tax advantage for that taxpayer

It is never ideal to have broadly drafted legislation and then apply guidance to narrow the scope but it is apparent that the UK’s hands are tied, for now, to DAC 6. It is clear that the UK’s commitment to tax transparency will remain after leaving the EU, but, once any transition period is over and the UK is no longer constrained by EU directives, HMRC will consider amending the rules if necessary to ensure they work as planned.