Back in January, VinciWorks held a core group meeting with HMRC’s DAC6 policy lead James Marshall. A key outcome of the meeting was that HMRC would be required to provide clarifications in its DAC6 guidance document in order to answer many pressing questions that law firms and other intermediaries had about the UK’s implementation of DAC6. 

At the end of March 2020, HMRC shared with VinciWorks the latest version of its draft guidance. While the final guidance is not expected until later on in the year, the draft guidance gives much insight into HMRC’s view of this challenging piece of legislation. 

DAC6 requires lawyers, accountants, tax advisers, bankers and other “intermediaries” to report some aggressive cross-border tax arrangements. One of the key aspects of the Directive which HMRC clarify in their guidance is who is considered an intermediary.

Please note, this article has been written with references to the HMRC guidance which is in draft form only, and so may be subject to further changes.

Who is considered an intermediary?

HMRC clarify that they see intermediaries falling into two different categories:

Promoter – Intermediaries who design, market, organise, make available for implementation or manage the implementation of a reportable cross-border arrangement

Service provider – Those who undertake to provide aid, assistance or advice in relation to the designing, marketing, organising or implementing of a reportable cross-border arrangement

What is the difference between a promoter and a service provider?

Promoter

A promoter will almost invariably have a full understanding of the material aspects of the arrangement. This is because, in order to effectively carry out the activities of a promoter, the intermediary will need to fully understand the material aspects of the arrangement. A person involved in a cross-border arrangement but without knowledge of those material aspects is unlikely to be a promoter and will normally be a service provider instead. 

Example: A person who advertises an arrangement to potential customers. In this instance, the individual is aware that in order to realise the potential tax benefits of the arrangement, the customer must be a tax resident in the UK, and must be an employee they also have full knowledge of the details of the arrangement, how it works, the specifics of how the tax benefits are realised and the necessary conditions that have to be met in order to achieve this. A person in this position is clearly marketing the arrangement, rather than merely providing assistance in respect of the marketing of the arrangement, and so this would fall within the promoter definition.

Service provider

A service provider is an intermediary who undertakes to provide aid, assistance or advice in relation to the designing, marketing, organising or implementing of a reportable cross-border arrangement. This can be either directly, or by means of other persons, so one could be considered an intermediary if they provide indirect assistance such as aid, assistance or advice. This could include providing financial advice, expertise or knowledge, sharing experience or offering accounting advice.

One important clarification that HMRC made is that the definition of ‘intermediary’ does not include as a ‘service provider’ a person who subsequently becomes aware of an arrangement. 

Example: An auditor, examining a company’s accounting records, identifies a transaction which is reportable. In such a case, the auditor would not be an intermediary simply by virtue of having knowledge of an arrangement, provided that they did not do anything else which would bring them into the intermediary category. This is because the auditor will not have provided “aid, assistance or advice with respect to designing, marketing, organising, making available for implementation or managing the implementation of a reportable cross-border arrangement”.

Is a law firm considered to be an intermediary if it advises a client on whether a DAC6 arrangement they are involved in is reportable?

Example: The management company of an investment fund may be uncertain about whether an arrangement it is helping to set up is reportable. It may seek advice from a firm with more expertise on the requirements of these regulations. If that firm advises that in its view the arrangement should be reported, that does not create an obligation on that firm to make a report, because it is not undertaking any of the activities of an intermediary as listed in DAC6. If the firm provides advice about the implementation of the arrangement itself, for example about how it could be structured in a more efficient way, then the firm could well become an intermediary in respect of that arrangement.

Will a service provider always be considered to be an intermediary? 

A service provider will not always have full knowledge of the arrangements in respect of which they are providing aid, assistance or advice. They can argue that they are not an intermediary because they did not know and could not reasonably have been expected to know that they were involved in a reportable arrangement. In such a case, therefore, they wouldn’t have an obligation to report.

VinciWorks’ end-to-end DAC6 training and reporting solution for all intermediaries

VinciWorks has consulted tax experts across Europe and brought together over 100 international law and accounting firms to develop best-practice for DAC6. The result is an end-to-end compliance solution for DAC6 that not only fulfils business’ reporting and training needs, but includes guides, webinars and regular DAC6-focussed newsletters. We have both an advanced course for those who may be considered as tax intermediaries and a fundamentals course that gives an understanding of when a transaction should be escalated to the compliance team. Our reporting solution can be custom built to serve the needs of all businesses, whether they are promoters, service providers or relevant taxpayers.