Consultation outcome

Mandatory Disclosure Rules: summary of responses

Updated 24 November 2022

1. Introduction

This document summarises responses to the consultation document Mandatory Disclosure Rules (MDR). The consultation sought views on the implementation of the Organisation for Economic Cooperation and Development (OECD) model MDR, after the government announced at Spring Budget 2021 that the UK would adopt those rules.

The consultation document was published on 30 November 2021 and the consultation period closed on 8 February 2022. The government is grateful to those who responded in writing and those who participated in meetings.

Background to the consultation

The UK has long been at the forefront of global efforts to combat tax evasion and is a leader in international tax transparency and exchange of information. The UK was one of the first jurisdictions to implement the Common Reporting Standard (CRS) for automatic exchange of financial account information and has exchange relationships with well over 100 jurisdictions worldwide.

Despite the efforts of the international community to tackle offshore tax evasion, tax authorities have continued to find evidence of arrangements and structures being designed to facilitate non-compliance, including through the use of opaque offshore structures, and through arrangements designed to circumvent transparency initiatives such as the CRS.

In response to this, the OECD developed model MDR for CRS Avoidance Arrangements and Opaque Offshore Structures, published in 2018. These rules 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 in other implementing jurisdictions where the taxpayer is resident.

At Spring Budget 2021, the government announced that it would implement these model rules in the UK. The rules are intended to replace similar EU rules, known as DAC6 (DAC6 is an EU directive on administrative cooperation), which were implemented in the UK prior to EU Exit through the International Tax Enforcement (Disclosable Arrangements) Regulations 2020 (SI 2020/25).

MDR requires promoters, service providers and taxpayers to send information to HMRC about reportable arrangements and structures. The regulations are designed to provide HMRC with early information about these arrangements and structures. This will help to deter non-compliance, assist HMRC in identifying and challenging evasion, and support HMRC and other tax authorities in developing policies and tools to address loopholes.

The consultation process

The government published a draft version of The International Tax Enforcement (Disclosable Arrangements) Regulations 2022 on 30 November 2021 alongside a consultation document setting out details of the government’s proposed approach to implementation. The consultation closed on 8 February 2022. In total 20 written responses were received primarily from industry representative bodies, accountancy firms and law firms. Alongside the written responses, officials held meetings with businesses and representative bodies to discuss the draft regulations.

Summary of the responses

Many of the responses received provided general comments on the draft regulations and the approach set out in the consultation document, before responding to specific questions raised in the consultation. These general comments addressed the 2 key areas of stakeholder interest set out below. Some only provided responses to specific questions which dealt with areas of particular relevance to the respondent’s business while others addressed all or almost all of the questions.

Two key areas of stakeholder interest emerged from the consultation meetings and written responses:

1. the period for reporting of pre-existing arrangements entered into since 29 October 2014
2. the availability of an online reporting system

Reporting of pre-existing arrangements entered into since 29 October 2014

Eighteen of the twenty respondents were opposed to the requirement for promoters to report pre-existing arrangements that dated from 29 October 2014 onwards. These views are summarised below:

• the amount of work required to review tens of thousands of files involved is 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

• many businesses only keep records for 6 years. In this case they could only check information from 2016

• there was a large turnover of staff in this reporting period and some people would not still be in the business. This would create further obstacles in reviewing any historic arrangements

• it not possible to comply with the requirement fully. Any review would be partial, and businesses were worried about receiving penalties in such difficult circumstances

• DAC6 required reporting of pre-existing arrangements from 25 June 2018. Businesses considered that an MDR lookback period longer than that included in DAC6 would be inconsistent with previous government policy

The consultation offered a series of mitigations to the burden of reporting of pre-existing arrangements. These were that reporting would be limited to promoters, schemes that look to avoid CRS reporting and schemes where the value of the financial account subject to the CRS avoidance is above $1 million (US dollars). In general, these mitigations were welcomed but were seen as insufficient to reduce the large administrative burden. Businesses who were confident they were not promoters still considered that they would need to review their files and each arrangement would still need to be checked for the value of the financial account before the $1 million exemption could apply.

Five respondents requested that all reporting of pre-existing arrangements should be scrapped completely because files checked from 25 June 2018 under the DAC6 regime would need to be re-examined.

Government response

As outlined in the consultation document, the incentive to enter into a CRS avoidance arrangement was arguably greatest in the period immediately after the publication of the CRS. However, the government also notes the strong views from nearly all respondents in this matter and their concerns around the potential limited benefits of an extended lookback period.

Having considered the balance between burdens on business and the likely compliance benefits to HMRC and the taxpayer, the government has decided that reporting pre-existing arrangements should only be required from 25 June 2018. This will significantly reduce the burdens faced by businesses and help to address concerns around record retention and staff turnover. However, it does provide HMRC with reports on any pre-existing arrangements that were in place back to 25 June 2018. Information on such CRS avoidance arrangements will be useful in HMRC understanding wider trends in tax evasion.

The government appreciates that some respondents wanted to remove the requirement to report pre-existing arrangements completely. However, the government considers that there is merit in requiring reporting of some pre-existing arrangements to support work to tackle offshore tax evasion.

Providing an online manual reporting system

HMRC requires reporting under these regulations to be done online, using an Extensible Markup Language (XML) file format, to facilitate effective exchange of information with other tax authorities. This is the commonly agreed method for international automatic exchanges of information including the Common Reporting Standard. The government considered providing alternative facilities for intermediaries and taxpayers to report through manual data entry online and sought views in the consultation as to whether this was necessary and appropriate.

Eleven of the respondents stated that such a manual system should be available. They noted that because so few reports would be submitted by businesses it was not cost effective to build IT systems themselves or buy the necessary software package to generate the XML files. They considered that if such a manual system was available then their costs in this area would be much reduced. They considered that MDR was different to other types of exchange of information measures because the volumes of reporting would be low. If businesses did not already have the necessary software that was compatible with XML schema uploading, it would be unlikely that they would incur costs on such software if a manual entry system was available.

Due to uncertainty over the reporting system and the need to get staff trained for this new measure, 2 respondents asked that MDR should not come into force until 2023. One respondent suggested that MDR should not be implemented but the DAC6 rules should remain. This would keep the UK in an MDR type reporting agreement without the difficulties of introducing a new regime.

Government response

The government understands the concerns raised by businesses over the costs of buying and developing software. The upload portal is available, as it is with other exchange of information regimes, so intermediaries will be familiar with this. The government has to balance up the costs faced by business with the additional time and costs of providing a manual system. The government has decided that it is not able to provide a manual system. However, it is hoped that businesses will recognise that the government has significantly reduced the burden of reporting pre-existing arrangements (reporting those entered into from 25 June 2018, instead of 29 October 2014). If businesses are unable to build systems themselves then there may be third party software providers who are able to provide a solution. HMRC will discuss with businesses how it can support them with this reporting method.

On balance the government considers that it does not need to significantly delay the introduction of MDR. The rules are well understood in the existing DAC6 regulations that MDR will replace. The government has committed to transitioning away from EU rules to global rules, including rules to discourage cross border tax avoidance and tax evasion. This measure was announced in Spring Budget 2021 and the model rules, which the legislation follows closely, were published in 2018. Therefore, the government considers that businesses have had a sufficient amount of time to make initial preparations for the introduction of MDR with the rules coming into force in the first half of 2023.

Timing

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 DAC6 in the UK) will be repealed.

Any reportable arrangements that are made available by intermediaries or implemented by taxpayers after this date will need to be reported with 30 days of this happening. Any pre-existing arrangements for CRS arrangements going back to 25 June 2018 will need to be reported within 180 days after the rules are implemented.

2. Responses

In this section we have set out each question asked in the consultation document and provided a summary of the responses and the common themes and issues that were raised, together with the government’s response to the points made. In the coming weeks, HMRC will consider expanding the guidance and looking at some of the specific issues that were raised in responses to the questions.

Question 1: Are there any areas where you consider there to be potential incompatibility between the draft UK regulations and existing guidance, and the model rules and their commentary which you think would be problematic for businesses seeking to apply the rules?

There were no major concerns raised about the compatibility of the draft UK regulations and existing guidance. One respondent said that they found no areas of incompatibility between draft UK regulations, the existing guidance, the OECD model rules and their commentary. However, it was noted that any changes from the existing interpretation of MDR with the DAC6 rules should be clearly set out in guidance. One of the respondents wanted scrutiny of new guidance before the regulations come into force. Two respondents wanted to reference the OECD model rules within the regulations.

Clarification was requested on the term ‘relevant services’. Specifically, businesses sought confirmation that some of the more routine services they provided would not bring them within the definition of an intermediary. The interpretation of ‘CRS legislation’ was highlighted with reference to pre-existing arrangements. In this question concerns were raised about the reporting back of pre-existing arrangements and the removal of territorial limitations that are in the DAC6 regulations.

Government response

The government welcomes the view that on the whole, there are few areas of incompatibility between the draft regulations, existing guidance and the model rules and their commentary. Where guidance needs to change it will be updated and HMRC will discuss any issues that arise. The government does not intend to delay the implementation of the measure for these discussions and guidance can be revised when necessary.

The definition of ‘CRS legislation’ in the draft regulations has been removed, as the provision is no longer necessary given the government’s decision to limit the reporting of pre-existing arrangements to 25 June 2018.

Question 2: Do you identify any practical difficulties with the transitional provisions?

No respondent identified significant practical difficulties with the transition between reporting in the MDR regime and the DAC6 regime. One respondent asked for clarity on the question of under which regime businesses must report. One respondent requested that any divergence between MDR and DAC6 should be avoided as much as possible.

Government response

Reporting for MDR will be required for arrangements that are designed or implemented on or after the implementation date (when MDR comes into force.) For arrangements that are related to periods before the implementation date the DAC6 reporting system will be available to make reports for at least one month after this date. Reporting on pre-existing CRS avoidance arrangements from 25 June 2018 to the implementation date by promoters will be required. Arrangements already reported under the DAC6 regulations in this period will not need to be reported.

Question 3: Do you agree with the government’s rationale for including the reporting of pre-existing arrangements? Please provide a supporting explanation for your answer where helpful.

Some respondents accepted that there could be an opportunity for designing arrangements that avoided the CRS. However, in written responses and meetings almost all respondents were opposed to reporting back to 29 October 2014 because of the burden to businesses conducting the necessary reviews given the small number of reports that they consider would be made for this period.

Government response

The final regulations require reporting back to 25 June 2018 as was previously the case with the DAC6 regime. This will reduce the burdens on business without reducing the reporting period that was in place under DAC6.

The government recognises that reporting back to 29 October 2014 would be a significant concern for businesses so has limited the ‘reporting of pre-existing arrangements to start from 25 June 2018 – please see the section on ‘Reporting of pre-existing arrangements entered into since 29 October 2014.’

Question 4: Do the proposed safeguards and mitigations strike the right balance between minimising burdens on business and ensuring the regime operates effectively? Are there any other safeguards or mitigations that you think the government should consider?

Businesses generally welcome the safeguards and mitigations but said that these did not help enough in the context of reporting back to 29 October 2014. These concerns were discussed in the ‘Reporting of pre-existing arrangements entered into since 29 October 2014’ section above.

Government response

These safeguards and mitigations will remain in place when reporting arrangements back to 25 June 2018.

Question 5: Do you have any comments on the proposed approach to identifying ‘intermediaries’ in the draft regulations?

It was noted that the current DAC6 guidance on ‘reasonably expected to know’ is useful for identifying intermediaries. Several points were made on when clarification might be required in guidance. There were concerns raised about defining intermediaries and promoters in certain circumstances.

Government response

The government agrees that the current guidance will be used as a starting point for guidance under MDR. HMRC will consider expanding the guidance and looking at the specific issues that were raised in responses to this question. It is worth noting that whether a person meets the definition of an intermediary will depend on the particular facts of the case so HMRC may not be able to cover every possibility in guidance.

Question 6: Do you have any suggestions for how HMRC could improve its approach to dealing with reporting by partners and partnerships?

Respondents were generally in agreement with the practical approach adopted in the draft regulations. Additional guidance was requested in relation to situations where HMRC seek to look through a partnership. One respondent considered that partners of a general partnership should not be considered to be intermediaries if they undertook relevant activities to bring them into scope of the definition.

Guidance was requested on employees of a general partnership especially when employed by an employment service company. Clarification was also required on limited liability partnerships (LLPs) which have their own legal personality, and in this context whether members of LLPs should be excluded.

Government response

The government welcomes the general agreement with this practical approach to the reporting of partnerships. It intends to continue this approach as it worked well in DAC6. As a general partnership is not a legal person in its own right, it is appropriate for a partner to be considered an intermediary if they undertook relevant activities to bring them into the scope of the definition.

However, as with the existing DAC6 regime, HMRC will accept reports made by the partnership or other partners on behalf of the partner who is an intermediary. HMRC agrees that employees of partnerships are not intermediaries. Members of LLPs could potentially be intermediaries if they undertake activities on behalf of the LLP that bring them within the scope of the definition. However, as the LLP has its own legal personality, if it makes a report as an intermediary or promoter then members will not be required to report.

Question 7: Do you have any comments on the proposed approach to identifying ‘reportable taxpayers’ in the draft regulations?

It was considered that it was helpful that the definition of relevant taxpayer is equivalent to a reportable taxpayer in DAC6. However, a number of respondents were concerned about a wide-ranging interpretation of ‘potential user’ even though HMRC said that it would construe this narrowly with a clear link between the arrangement and the taxpayer. The respondents would like this further limitation to be included in the regulations.

Some respondents noted the definition of a ‘client’ and a ‘reportable taxpayer’ and that in some circumstances these may be the same person. However, in other circumstances there would be clients of an intermediary who would be not be reportable taxpayers and reportable taxpayers would not be clients of an intermediary.

Clarification was requested as to whether an entity in the same multinational group which has no knowledge of an arrangement could be considered to be a reportable taxpayer.

Clarification was requested as to the type of persons who exercise control of a trust and whether they could be brought into the definition of reportable taxpayer where they don’t have knowledge of the work an intermediary has done. In this context whether such people were also clients of an intermediary was also raised for clarification.

Government response

In the definition of reportable taxpayer, the government recognises that there should be a clear link between the reportable taxpayer and the arrangement. It will confirm this in guidance. This guidance will address situations raised in the comments above. HMRC will provide further guidance on the definition of ‘clients’ and how the rules work depending on whether or not they are reportable taxpayers. Regulation 5 of the draft regulations will be amended to clarify this issue.

Question 8: Do you have any comments on the proposed definition and interpretation of CRS avoidance arrangements?

Respondents expressed a view that the commentary is useful in terms of determining clarity of the definitions in section 1.1 and 1.2 of the OECD model rules. Similarly, alignment with the DAC6 hallmarks is also useful. Any incidental CRS avoidance which is not intended by a designer or user should not be caught as a CRS avoidance arrangement.

It was requested that HMRC should provide practical examples of CRS avoidance arrangements including arrangements that take place in countries that don’t report under the CRS. One respondent highlighted the difference in DAC6 which uses the wording ‘undermining’ CRS reporting requirements as opposed to ‘circumventing’ reporting requirements under MDR. With MDR they argued that there had to be an avoidance purpose.

Respondents also asked for clarification about the reporting obligation in circumstances where assets are moved to a territory that does not have a CRS reporting requirement and the purpose of this movement of assets was not to avoid the CRS. There was a view expressed that the intention to circumvent CRS reporting comes from the user of the scheme. Respondents specifically asked about assets being moved to the USA, which is not party to the CRS, but instead received information under the Foreign Account Tax Compliance Act (FATCA) regime.

Government response

The key objective requirement of whether an arrangement is caught as a CRS avoidance arrangement is that it is reasonable to conclude that it is designed to circumvent or is marketed as or has the effect of circumventing CRS legislation or exploiting the absence thereof. It is also noted that just because CRS reporting is not required as a result of an arrangement, it does not necessarily make it a CRS avoidance arrangement if it does not undermine the policy intent of CRS legislation.

The government confirms that the principles in the guidance at IEIM645010 will continue to be applied. However, if a scheme is designed as a CRS avoidance scheme, then it is reportable, by the intermediary, even if the eventual user does not seek to avoid CRS. As the scheme was designed for CRS avoidance initially it does not matter whether it was implemented for avoiding CRS or not.

Where CRS reporting requirements fall away as a result of an arrangement being implemented, for example moving assets into a territory that does not require CRS reporting (including the USA), then as long as this does not undermine the policy intent of CRS legislation a report will not be required.

Question 9: Do you have any comments on the proposed definition and interpretation of Opaque Offshore Structures?

Respondents asked for guidance about the extent of the intention to obscure beneficial ownership needed to make an arrangement reportable, and when beneficial ownership is incidental to the arrangement whether this could be caught as an opaque offshore structure.

Previous guidance on DAC6 in the International Exchange of Information manual at IEIM 645020 suggested that where the anti-money laundering (AML) rules apply to an arrangement, then generally this arrangement is not caught. However, it was suggested that HMRC had potentially widened the scope of the rules to catch arrangements where a person had a reason to suspect that beneficial ownership was being hidden.

The general AML rule was welcomed, and one respondent asked if AML services were outsourced to a reputable third party, then would such an arrangement be not caught by the rules.

One respondent asked if a potential opaque offshore structure would not be caught by the rules if it was based in territories that had CRS reporting, as beneficial ownership would be reported under the CRS.

The concept of a passive vehicle is important, and additional guidance was requested on whether a multinational group entity providing employment services to the vehicle being examined would be sufficient for it not to be passive. Another response raised questions about a vehicle deliberately being made not passive to avoid being caught by the rules.

Further guidance was requested on funds for widely held investments, and for particular circumstances where beneficially ownership is difficult to establish because of the nature of these investments.

Further guidance was also requested for trusts and the complex relationships of all persons involved in a trust and whether it was easy to determine beneficial ownership for trusts set up whose purpose was not to obscure beneficial ownership.

It was pointed out that there may be other reasons for obscuring beneficial ownership than evading or avoiding tax.

Government response

HMRC’s guidance for DAC6 will continue to apply as it covers similar areas to those in the model rules, and HMRC considers that the model rules don’t expand the scope of reporting. It remains a key point that if the beneficial ownership is not obscured from the tax authorities, then this should generally not be caught. If beneficial ownership is obscured for any reason, then this arrangement should be reportable. The OECD MDR rules relate to structures that obscure the beneficial ownership of assets held offshore and if that is the effect of the arrangement then this is reportable irrespective of the reasons why the beneficial ownership is obscured.

The anti-money laundering legislation is very useful in showing that the beneficial owners are not unidentifiable, and this will be generally the case for most arrangements. However, HMRC will clarify in guidance that where there is an intent to hide beneficial owners, then these are arrangements that are caught.

When AML services are outsourced to reputable third parties and where the beneficial owners will be reported under the CRS then this arrangement will not be caught, provided there is no evidence to the contrary that the arrangement does in fact obscure beneficial ownership from the tax authorities.

The government acknowledges that with widely held investments and trusts the position can be complicated. HMRC will work with stakeholders in these areas to help provide guidance on these more complex areas.

Question 10: Do you have any comments on the proposed approach to identifying reportable arrangements and structures?

Respondents said that MDR guidance must be clear that arrangements will be reportable if the arrangements involve an intermediary or reporting taxpayer in the UK regardless of what jurisdictions they involve.

Examples should be given of arrangements and structures in scope of the obligation where they occur outside the UK and how they need to be linked to a UK person in order to fall into scope for reporting.

A point was made that certain arrangements not reportable under DAC6 would be reportable under MDR. This would result in an increased compliance burden. There were general concerns raised about data protection obligations in the UK and other jurisdictions.

Government response

The government wants to align with the model rules so the territorial limitation in DAC6 will be removed for MDR. This will reduce the possibility of any inconsistencies in reporting with other jurisdictions implementing MDR. Guidance will be issued on the intermediary or taxpayer having a UK nexus.

HMRC takes its data protection obligations seriously and will ensure that any information received and exchanged will be subject to these obligations. Intermediaries and reportable taxpayers will need to comply with their own data protection obligations.

Question 11: Do you have any comments on the proposed structure of the reporting obligations for both intermediaries and reportable taxpayers?

The removal of the requirement under DAC6 for a potential intermediary to report if it was a member of a UK professional body was welcomed by many stakeholders. Clarification was sought that if such a person does not undertake work in the UK or is non-UK resident then there is no reporting requirement even if the arrangement was potentially reportable because of the existence of other UK intermediaries or reportable taxpayers.

Clarity was requested on the meaning of ‘residence’ and respondents would prefer this to mean ‘tax residence’. Also, clarity was requested on the meaning of ‘place of management’ and most respondents preferred a definition similar to central management and control.

One respondent wanted this definition to be removed from the UK nexus because of concerns that a European branch would need to be reported into both the UK and the European entity.

One respondent made the point that residence can’t always be determined at the time and relates to a period of time, so questioned what the reporting requirements were here.

One respondent questioned whether exchange of information would take place with the UK Crown Dependencies that had published draft rules and whether the UK would be exchanging information with the British Overseas territories.

A clarification was required about the need for an intermediary to notify a client and whether that is dependent on that client being a reportable taxpayer.

Government response

The government can confirm that a person who is a member of a UK professional association with no other links to the UK concerning an arrangement does not have a responsibility to report information.

HMRC will clarify what is meant by residence and place of management in guidance. However, it will not remove the UK nexus on place of management. It is important to have a reporting requirement on businesses who are intermediaries for CRS avoidance schemes and opaque offshore structures that is consistent with the model rules.

It would not be expected that most non-UK branches would have a place of management in the UK, but it would depend on the facts and circumstances. HMRC will clarify the position on notifying clients whether they are reportable taxpayers or not in the final regulations.

Question 12: Do you have any comments on the application of the exemptions from reporting?

There was a request made that HMRC could provide a list of partner jurisdictions. There were a number of respondents who made the point that the exemptions in the draft regulations were potentially narrower than implied in the consultation document. This was specifically the case with another intermediary making a report in a partner jurisdiction.

Guidance was requested as to what constitutes evidence that would be sufficient to give an exemption from reporting. There was a concern raised of dual reporting with EU member states not being partner jurisdictions when being signed up to DAC6 rather than MDR and that the UK and the EU should aim to exchange this information with one another. One respondent asked about whether the UK would share information with the Crown Dependencies who had published legislation but had not yet brought it into force.

It was noted that the wording in the draft regulations on legal professional privilege had changed to ‘any information to the extent that it is privileged information’ whereas DAC6 referred to ‘any privileged information’ in draft regulation 5(1). They queried whether this signalled a change of policy.

Some respondents mentioned the removal of Arrangement Reference Numbers (ARN) reference numbers. They thought these were useful to demonstrate to other intermediaries that a report had been made. Clarification was required by what was meant by a written notice in draft regulation 9(1).

There were some concerns raised about the change of wording in the exemption for legal professional privilege and the requirement to notify the client, and what would happen if the client was not a reportable taxpayer.

It was asked whether an intermediary who was a law firm could report on behalf of a reportable taxpayer without waiving legal professional privilege. There was also a concern raised about different standards of legal professional privilege in other jurisdictions and whether these standards could be applied when exempting reporting requirements.

There would be some instances where taxpayers would have multiple Tax Identification Numbers (‘TIN’). It was asked whether advice given to use a specific TIN over another one would be reportable.

Government response

HMRC will publish a list of partner jurisdictions for MDR. HMRC will only automatically exchange information with those on this list. This accords with the OECD rules and ensures consistency between implementing jurisdictions.

Amending the scope of exemptions unilaterally could have unintended consequences and create loopholes in the rules. HMRC will also clarify in its guidance, the position on the evidence that is required by an intermediary to know that a report has been filed already.

The ARN numbers were a requirement of DAC6 and are not part of the OECD model rules. The change in wording in regulation 5(1) does not mean that there is a change in policy concerning what is meant by legal professional privilege. Where an intermediary is exempt from reporting information they hold, as it is subject to legal professional privilege, the reporting obligation will normally sit with another intermediary or the taxpayer.

If the intermediary’s client waives privilege, the intermediary may then make the report, as is the case under DAC6. The government has clarified the position concerning clients of intermediaries and whether they are or are not reportable taxpayers. Regulation 5 in the draft regulations will be amended to reflect this.

For a taxpayer who holds multiple TINs advice given to consider the use of a particular TIN would not normally be reportable unless this was specifically part of the arrangement that allowed avoidance of CRS reporting.

Question 13: Do you have any comments on the proposed penalty regime?

One respondent welcomed the approach mirroring the DAC6 penalty regime. Another respondent said that when looking at a ‘reasonable excuse’ items 2(c) and 2(d) of draft regulation 20 should be separated from 2(a) and 2(b).

Concerns were raised about reporting dates and whether late reporting could attract a penalty. It was suggested that longer time limits may be helpful in certain situations. For example, longer reporting time limits would be helpful where the reportable taxpayer may not know when an intermediary reported or when another intermediary would not know whether the promoter had reported. It was also suggested that the time limit for reporting of pre-existing arrangements should be extended.

The penalty regime for larger penalties was seen to be complex and suggested a high initial maximum penalty. There was concern raised over the reason to exclude legal advice obtained by an intermediary as evidence that a penalty should not be charged. One respondent was concerned how the penalty regime would operate for the reporting of pre-existing arrangements.

Government response

It is the government’s intention to mirror the penalty regime in the existing DAC6 regulations (and indeed the reporting dates). The government considers that this has worked well and has not changed the overall structure of the penalty provisions.

On reporting dates, similar time-limits have worked for the existing DAC6 regulations. The government wants the rules to align with the OECD model rules so the reporting dates will remain as they are in the draft regulations.

The provisions for no penalty to be charged where the person has a reasonable excuse for failing to report or reporting late should address circumstances where people are unable to fully meet their obligations due to circumstances outside their control. Draft regulation 20 will be amended to address the issue when looking at a reasonable excuse.

Question 14: If you need to make a report under the new regulations, what methods could you use?

Just over half of respondents expressed a preference for a manual online reporting system.

Government response

Please refer to the ‘Providing an online manual reporting system’ section above, and the government response after question 16.

Question 15: Would you expect to report to HMRC yourself or would you want someone else such as an agent to report on your behalf?

There was a view that reportable taxpayers or intermediaries who are not lawyers or accountants would benefit from having an agent to report on their behalf. However, some of the bigger firms made the point that client reporting would be so unlikely as make such a service not cost effective.

Government response

At the moment we do not consider it necessary to provide agent reporting.

Question 16: If your preferred method of reporting was not available, please explain whether this would cause significant difficulties for you or your organisation and why?

As mentioned in question 14 and in the section ‘Providing an online manual reporting system’ above, just over half of respondents would like an online manual reporting system. This is because the expectation is that few reports would be made and it would not be cost effective for a business to buy in or build software for XML file upload for just a few instances of reporting, if any. In these respondents’ views having to obtain such software would be disproportionate.

Government response

As stated in the first paragraph of the government response in the ‘Provide an online manual reporting system’ section previously, the government understands the concerns raised by businesses over the costs of buying and developing software when such a low level of reporting is expected. For the reasons stated that paragraph, on balance the government is not be able to provide a manual reporting system. If businesses are unable to build systems themselves then there will be third party software providers who are able to provide a solution. It is appreciated that some businesses would prefer such an online reporting service to be available but it is hoped that the decision to not report back to 2014 as strongly indicated by business will be welcomed.  

HMRC will discuss with businesses how it can support them with the reporting requirement.

Question 17: Do you have any comments on the expected impacts of this measure?

One respondent made the comment that the benefit to the Exchequer may be modest and anecdotal evidence from DAC6 may show that costs incurred by business exceeded predicted exchequer revenues. More incurred costs are now unwelcome, so commencement and policy on pre-existing arrangements need to take this into account.

Another respondent reported the negative impacts of implementing IT systems for reporting and that these costs could be reduced by manual data entry. Another respondent mentioned the one-off costs to business of implementation and encouraged HMRC to follow the model rules as closely as possible. One respondent concerned with these one-off costs was also concerned about the training and IT changes that needed to be implemented. They wanted the measure delayed for implementation until Summer 2023.

One respondent wanted clarity on the treatment of overlapping DAC6 and MDR reporting requirements. They also wanted to understand the alignment of implementation of MDR in the UK with other implementing jurisdictions. One respondent wanted to know how information was going to be shared under MDR.

Government response

The government understands the one-off costs involved for Business, and has sought to reduce these where possible, for example by reducing the period of time to report pre-existing arrangements.

The regulations will closely mirror the model rules, and the guidance for DAC6 will be amended where necessary to accord with the new MDR regulations. Where there is a change in emphasis HMRC will clarify this in guidance.

The intention to adopt MDR was made in the Spring Budget 2021 and the consultation was announced on 30 November 2021. These rules closely accord with the existing DAC6 rules, so businesses have been given sufficient time to make initial preparations for the change. When MDR is implemented, DAC6 reporting will finish. However, the system for reporting under DAC6 will remain open for at least 30 days for any final reports that need to be made before the MDR rules come into force.

Information that HMRC receives under MDR will be automatically exchanged with other jurisdictions that have signed up to MDR when the information relates to that jurisdiction.

3. Next steps

The regulations implementing MDR will come into force in the first half of 2023. The precise date is still to be determined.

HMRC will continue to work with stakeholders including those who responded to the consultation, to draft further HMRC guidance. This will provide further help to intermediaries and taxpayers so that they can meet their obligations under these regulations.

The guidance will be published in HMRC’s International Exchange of Information Manual. HMRC would welcome discussion with businesses on this guidance.

Annex: List of stakeholders

• Alternative Investment Management Association (AIMA)

• Azets LLP

• Caesium International

• Chartered Institute of Taxation (CIOT)

• Deloitte LLP

• DLA Piper LLP

• Ernst & Young LLP

• Foresters LLP

• Freshfields Bruckhaus Deringer LLP

• Institute of Chartered Accountants in England and Wales (ICAEW)

• KPMG LLP

• The Law Society of England and Wales

• Osborne Clarke LLP

• PricewaterhouseCoopers LLP

• Ruffer LLP

• Simmons & Simmons LLP

• The Society of Trust and Estate Practitioners (STEP)

• UK Finance Limited

• Wedlake Bell LLP

• Willkie Farr & Gallagher (UK) LLP