These new rules principally apply to ?intermediaries?, a term including advisers and service providers. In the UK, HMRC takes the view that a bank is a potential intermediary for most of the client services it provides.

From 1 July 2020, UK banks will need to identify clients whom they know are seeking to use their services as part of their own tax planning, and potentially report them to tax authorities. The rules also include a lookback period for transactions that have been entered into since 25 June 2018.

In light of recent events, the EU has agreed a delay to the first reporting dates adopted by the UK. However, this deferral only changes the dates for reporting - not the period subject to reporting.

An arrangement is reportable where:

1. there is an EU or UK intermediary
2. it is cross-border and involves one or more parties in the EU or the UK
3. it meets a hallmark - the Directive includes 15 hallmarks, effectively fact patterns in which the EU tax authorities are interested. Notably, many of the hallmarks do not require tax to have been one of the main reasons for the transaction; they simply look at the facts surrounding the transaction.

Although the preamble to the Directive states that it is targeted at ?aggressive tax avoidance?, it is widely scoped and will likely result in reporting of a range of more ordinary and benign transactions as well as aggressive tax avoidance.

In contrast to other regulatory regimes, a report under DAC6 does not mean that the taxpayer has done anything wrong, or that the tax authorities are likely to challenge transactions. The Directive is first and foremost a data-gathering exercise designed to give the EU more insight.

What does this mean for UK banks?

UK banks are finding that they may have obligations under MDR in three main ways:

In practice, the last of these is the most challenging. Where a bank acts as a service provider, the focus will be on identification - where might colleagues become aware of a client's tax planning? How can front office staff be empowered to spot such cases? Critically, the fact that a bank does not provide tax advice doesn't mean that no action is required.

There is good news: where one intermediary files a report on a transaction, another intermediary may rely on it. For banks this will be a critical part of compliance. A client's advisers will be better placed to file a report, and banks can rely on proof of the submission. Again, the challenge is one of identification - banks must identify the cases where a report should be made and make sure they receive that proof, ready to show a tax authority if they enquire. It is estimated that 60-75 per cent of all reportable transactions could be covered in this way.

Nevertheless, UK banks will likely need to enhance their existing procedures or introduce new ones. I will address those enhancements and the challenges in a future article.

For more information see: https://www.ey.com/en_gl/tax/mandatory-disclosure-regime