This measure addresses the UK’s implementation of the Organisation for Economic cooperation and Development’s (OECD) Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures.
On 17 January 2023 the International Tax Enforcement (Disclosable Arrangements) Regulations 2023 were laid before the House of Commons. These regulations implement the Mandatory Disclosure Rules. The regulations come into force on 28 March 2023.
Who is likely to be affected
This measure will affect people who design, market, or advise on certain structures and arrangements that could be used to evade tax. This could include tax advisory and legal firms and financial institutions. The measure could also affect taxpayers who implement such arrangements.
General description of the measure
New rules will require promoters and advisors to disclose details of certain types of arrangements to HMRC. An arrangement will be reportable if it involves the use of opaque offshore structures or if it circumvents reporting under the Common Reporting Standard (CRS). The CRS involves the reporting and exchange between tax authorities of financial account information, to prevent people hiding money offshore. Arrangements which circumvent the CRS or involve the use of opaque offshore structures arrangements can be used to hide beneficial ownership of assets from the tax authorities.
HMRC will share and exchange information on these arrangements with other tax authorities implementing the rules where the taxpayers involved in the arrangement are resident and will use the information received to identify and challenge potential cases of offshore tax non-compliance. These new disclosure rules are also expected to influence taxpayers to help ensure that any relevant structures they implement are reported correctly for tax purposes, with all tax due being declared.
The measure will be implemented by Statutory Instrument. The government consulted on this measure from 30 November 2021 to 8 February 2022.
These new rules will help the government to tackle offshore tax evasion. Mandatory reporting will discourage people from entering into arrangements in the first place if they are intending to use the arrangements to evade tax. HMRC will use information received from these reports to help identify and challenge potential cases of offshore tax evasion.
The Organisation for Economic Co-operation and Development (OECD) rules and exchange framework will replace the existing EU rules now that the UK has left the EU.
Background to the measure
The government worked with other jurisdictions and the OECD to develop the model Mandatory Disclosure Rules (MDR). These model rules allow jurisdictions to take a common approach to implementation and enable exchange of equivalent information between implementing jurisdictions.
The government announced it would implement MDR at Budget 2021 and launched a consultation on draft implementing regulations on 30 November 2021. Following the MDR consultation, the government decided to implement MDR on 28 March 2023.
MDR will replace EU-based DAC6 rules which the UK implemented prior to EU Exit. Now that the transition period has ended, the UK is transitioning to global rather than EU standards on tax transparency. The MDR implementing regulations will simultaneously revoke the EU-based rules in the UK.
The new rules are due to come into force on 28 March 2023. Existing reporting requirements under DAC6 will apply until the new rules come into force.
The current law on disclosing arrangements is contained in SI 2020/25, as amended by SI 2020/713 and SI 2020/1649.
This measure will replace the existing reporting obligations based on EU rules. The new regulations will implement with the Model Mandatory Disclosure Rules agreed at the OECD. The regulations will impose the reporting obligations, set deadlines for reports to be made, and provide for penalties for non-compliance, along with rights of appeal.
Summary of impacts
Exchequer impact (£m)
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The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households, and families
This measure is expected to have an impact on individuals who enter into arrangements which are reportable under the regulations. Individuals who are impacted may have to provide information on the arrangements to HMRC. However, in most cases intermediaries will have the reporting obligation so individuals would only have to report in very limited circumstances.
Those individuals who do enter into reportable arrangements and have to report will need to use software to produce files that can be uploaded on the HMRC reporting portal. There is likely to be a cost to individuals in purchasing or developing the necessary software.
Customer experience is expected to remain broadly the same as this measure does not significantly alter how individuals interact with HMRC.
The measure is not expected to impact on family formation, stability, or breakdown.
It is not anticipated that there will be impacts for groups sharing protected characteristics.
HMRC will explore any reasonable adjustments needed to allow a disabled individual to make a report.
Impact on business including civil society organisations
This measure will have a negligible impact on an estimated 5,500 businesses who, on behalf of their clients, undertake cross-border arrangements that could impact on the identification of beneficial ownership or on the automatic exchange of information between tax authorities.
One-off costs will include familiarising themselves with the new regime. This will include upskilling some staff when the rules are first introduced. A small number of these businesses will have to report to HMRC under the regulations. These businesses will incur an additional one-off cost that could include making any necessary changes to IT systems to collect and report information.
Continuing costs to businesses could include the preparation, checking and submission of reports to HMRC as well as the payment of subscription fees for software.
Customer experience is expected to remain broadly the same as this measure does not significantly alter how businesses interact with HMRC. Businesses impacted would have been aware of the similar DAC6 measure which MDR is replacing.
This measure is not expected to impact civil society organisations
Operational impact (£m) (HMRC or other)
HMRC will make changes to IT systems:
- to allow customers to report information to HMRC
- for HMRC to process the information, exchange it with other jurisdictions, and use it for compliance purposes
There will also be some additional staff costs. Costs are still being finalised but are estimated to total approximately £16m.
A Data Protection Impact Assessment has been undertaken for the changes made by this measure. Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through reviewing the reports received under the new rules, and through communication with affected taxpayers and advisers.