In a bid to crack down on the use of tax avoidance arrangements, the largest businesses will have to report the use of tax avoidance schemes used since 2018
The mandatory disclosure rules will require taxpayers and advisers to report information to the tax authorities on certain prescribed arrangements and structures which could facilitate tax evasion.
Tax authorities in implementing jurisdictions will then share this information with the tax authorities of the jurisdiction where the taxpayer is resident.
The original plan was to require reporting for any arrangements entered into since 2014. However, this met strong opposition from respondents to the original consultation.
The government has published its response to the consultation on the implementation of the OECD mandatory disclosure rules for common reporting standard (CRS) avoidance arrangements and has confirmed that the rules will come into effect from 25 June 2018 rather than the originally planned 2014 start date.
This will be welcomed by reporters, who were critical of the 2014 date as on the whole records are only kept for six years, and the amount of work required to review tens of thousands of files involved was described as ‘disproportionate to the potential benefit for HMRC in terms of reporting arrangements. Many businesses did not expect to uncover many, if any, of these arrangements’.
The reporting requirement will only be necessary where the value of the financial account that is subject to the CRS avoidance arrangement immediately prior to the implementation of the arrangement was more than $1,000,000 (or sterling equivalent).
The rules will require businesses to report to HMRC using XML software. The government said it had ‘to balance up the costs faced by business with the additional time and costs for government of providing a manual system’.
The later start date should reduce the administrative burden for companies, justifying the XML reporting requirement, the government claimed.
The time limit for reporting for intermediaries will be 30 days after the arrangement or structure is made available for implementation, or 30 days after the intermediary provides assistance or advice in relation to the design or implementation of the arrangement or structure.
There will be penalties of £5,000 for non-compliance, or a daily penalty of £600 for each day during the initial period.
The regulations will come into force in the first half of 2023. At the same time, the International Tax Enforcement (Disclosable Arrangements) Regulations 2020 (SI 2020/25) (the regulations implementing the EU’s DAC6 rules in the UK) will be repealed.