IEIM630050 - Examples of arrangements that concern multiple jurisdictions and that do not.

On 28 March 2023 this legislation was repealed and replaced by the Mandatory Disclosure Rules legislation. Please refer to the guidance at IEIM700000 – Mandatory Disclosure Rules Legislation. The disclosable arrangements legislation (DAC6) will be withdrawn on 31 March 2024.

  • Company A in jurisdiction A sells shares it holds in company B, resident in jurisdiction B, to company C, also resident in jurisdiction A. There are no tax consequences in jurisdiction B directly as a result of the transaction. HMRC would not consider that this transaction was of material relevance to jurisdiction B, so it would not “concern” more than one jurisdiction and so the arrangement would not be reportable as it is not a cross border arrangement.

  • In the same example, if there was potentially a liability to stamp duty in jurisdiction B, it would still be unlikely that this would mean the arrangement itself concerned jurisdiction B, as the jurisdiction itself is not material to the arrangement. However, if an arrangement seeks to obtain a tax advantage in a particular country, then HMRC would consider that country to be of material relevance to the arrangement. Consider an example where company C could get a particular tax relief through acquiring shares in a company resident in jurisdiction B. It therefore sought to acquire the shares in a company resident in that jurisdiction in order to access this relief. It is now clear that jurisdiction B is of material relevance to the arrangement, and so the arrangement would concern jurisdiction B. It would nonetheless be necessary to consider whether any of the tests in paragraphs (a) to (e) of article 3(18) of the DAC are met (see IEIM 630020) to determine whether or not the arrangement is cross-border. In this example, and the example above, company B would not normally be seen as a ‘participant’ in the arrangement unless it had some active involvement. The passive transfer of B’s shares without the knowledge or consent of company B would not be sufficient to make it a participant.

  • A collective investment vehicle is established in jurisdiction D. It is open to retail investors in any jurisdiction. The fact that investors in the fund could be from different jurisdictions does not inherently make this a cross-border arrangement as the location of the investors is not material to the establishment of the vehicle.

  • Building on that example, consider an arrangement which exploits a mismatch between the taxation rules in jurisdiction D and those in jurisdiction E, which allows individuals resident in jurisdiction E to gain certain unintended tax benefits if they invest in a particular type of collective investment vehicle in jurisdiction D. Here the fact that the investors are resident in jurisdiction E, and the vehicle is established in jurisdiction D is fundamental to the structure of the arrangement, and therefore both D and E are of material relevance to the scheme. Therefore the arrangement is clearly a cross-border arrangement.

  • Company F, resident in jurisdiction F, makes a loan to company G, resident in jurisdiction G, and G pays interest to company F in return. The arrangement is clearly cross-border: money flows from one jurisdiction to another, and the payments of interest from G to F may be deductible in G and taxable in F. Therefore the arrangement concerns both those jurisdictions and is a cross-border arrangement. However, as noted in IEIM630040, where an arrangement is a domestic-only arrangement but there is an intermediary located in a different jurisdiction, the intermediary’s location alone will not make the arrangement a cross-border one within the meaning of the legislation. In considering whether this is the case in any particular situation, it will be necessary to consider exactly what the arrangement in question is, and whether the various parties involved are intermediaries or whether they are relevant taxpayers or affected persons in the arrangement.

  • An individual resident in jurisdiction H settles funds into a trust. The trustees are located in jurisdiction I, where the settled funds are held. This arrangement is a cross-border one, as funds move from one jurisdiction to another and this is a key part of the arrangement.

  • Company J is tax resident in a zero-tax jurisdiction. It transfers a UK investment property (its only asset) to UK resident company K in the same group. The profits of the property rental business were subject to UK tax in company J, and capital gains/losses on the disposal are subject to UK corporation tax under the rules for taxation of UK property. Following the transfer, company K is also subject to UK corporation tax on profits and gains/losses. There is no material tax consequence of the arrangement and so the arrangement would not be treated as concerning jurisdiction J.