As published on step.org/industry-news, Thursday 28 January, 2021.
Gibraltar has followed the UK's lead in withdrawing from most of the cross-border tax planning disclosure provisions of the Directive on administrative cooperation, Council Directive (EU) 2018/822 (DAC6).
DAC6, adopted in May 2018, requires intermediaries such as tax advisors, accountants and lawyers to report to their national tax authority any cross-border tax planning schemes in which they are involved, if the scheme bears 'hallmarks' showing it to be potentially 'aggressive avoidance'. Member States and non-member jurisdictions that adopted DAC6, are to exchange this information through a central database. Reporting was originally scheduled to start in July 2020, although the COVID-19 pandemic forced a postponement.
However, on 1 January 2021, following the end of the UK's Brexit transition period, the UK announced a cancellation to almost all of its planned implementation of DAC6, including most of the most controversial 'hallmarks' that practitioners considered could routinely catch benign or commercial arrangements with no tax motive.
Gibraltar, which unlike all other British Overseas Territories was part of the European Union (EU), has now also left the EU and has followed suit on DAC6. On 21 January, it gazetted the Income Tax Act 2010 (Amendment) (EU Exit) Regulations 2021, duplicating the provisions of the corresponding UK statutory instrument enacted earlier this month.
Like the UK, it will require reporting only of arrangements intended to circumvent reporting of financial accounts under the common reporting standard (CRS), or to conceal the ownership of offshore structures. These requirements, referred to in DAC6 as 'category D hallmarks,' form the basis of the OECD's own standard on tax planning disclosure, which is still in development. Both Gibraltar and the UK have committed to following this standard when it appears, as they have regarding the OECD's other tax transparency standards.
Gibraltar's move will remove elements of DAC6 including the penalty regime, the risk of over-reporting and the interaction of the rules with legal professional privilege.
However, taxpayers and intermediaries in the EU with any mandatory disclosure obligations in respect of arrangements involving Gibraltar should consider the immediate impact, says Neil Rumford of EY Gibraltar. This applies in particular to any such person who had been planning to rely on proof that a disclosure under the Directive was filed with the competent authorities in Gibraltar, he said.