EU Mandatory Disclosure Regime: What do the UK draft regulations mean for business?
August 20, 2019
We’re now less than a year away from the full implementation of the new EU Mandatory Disclosure Regime (EU MDR), which requires certain EU transactions to be reported to the tax authorities. Each EU Member State will implement its own version of the rules, (Poland is the first to enact legislation) and the UK has recently released its draft legislation. This means that we now have a clearer idea of the approach HMRC are taking to implementation and their interpretation of the rules. But what do the UK’s draft regulations mean and how should businesses prepare?
The good news is, that in broad terms, the draft regulations contain few surprises. They fall mainly in line with the original DAC6 Directive as laid out by the EU and avoid some of the more punitive obligations which certain territories have imposed on taxpayers. For example, the UK rules will not capture VAT or customs duty and there are no additional UK hallmarks; this is in contrast to territories like Poland which has widened the scope of the taxes covered, as well as introduced domestic rules.
The consultation document indicates that HMRC will take a pragmatic approach to the definition of ‘tax advantage’, limiting it to situations where the tax benefit doesn’t fall in line with the principles or policy intention of the relevant legislation. This alleviates some concern around the breadth of transactions which will need to be reported, for example claiming reliefs such as R&D. Sensibly, SMEs will also be exempt from reporting transactions which fall under the transfer pricing hallmark (E) given that they are (broadly) exempt from these rules in the UK.
While this is positive news, it still remains that businesses have a lot to do in the run up to 1 July next year (the effective date laid down by DAC6). Having spent time with clients to assess the impact of EU MDR, I’ve been struck by the breadth of commercial transactions which are captured, and the effort which is needed to put in place clear processes for identifying, analysing and reporting those transactions which are in scope. It’s also a challenge for businesses to look back and capture transactions in the transitional period from 25 June 2018 which also need to be reported. Companies are looking at how technology, such as PwC’s Smart Reporting Tool, and e-learning, can make things easier.
With the clock ticking down to next year, it’s important for businesses to act now to ensure they can comply with the new rules. Businesses should be assessing the impact of the rules, engaging with intermediaries on reporting and putting in place processes and technology to help manage their obligations.
Join us at our up-coming webcast at 11am on 10 September where we’ll be exploring these themes in more detail and answering your questions. Sign up to register here.