News & Insight

Tax October 9, 2023
OECD Mandatory Disclosure Rules (MDR) – Updated HMRC guidance completes the transition from DAC6 to the MDR

OECD Mandatory Disclosure Rules (MDR) – Updated HMRC guidance completes the transition from DAC6 to the MDR


n September 2023, HMRC expanded its International Exchange of Information Manual to include new guidance on the OECD mandatory disclosure rules (the MDR), as implemented in the UK by The International Tax Enforcement (Disclosable Arrangements) Regulations 2023 (the MDR Regulations).

The MDR Regulations, which came into force on 28 March 2023, require the disclosure of arrangements designed to circumvent reporting obligations under the Common Reporting Standard (the CRS) and of opaque offshore structures designed to conceal beneficial ownership.  The CRS (as approved by the OECD) essentially requires financial institutions to carry out prescribed due diligence on account holders and report certain financial account information to their respective jurisdictions for automatic exchange with other relevant jurisdictions.  A primary purpose of the CRS is to stop taxpayers hiding assets offshore.

The MDR Regulations replaced and repealed the legislation implementing the EU regime for the disclosure of certain cross-border tax arrangements referred to as DAC6 which (to the extent applied in the UK) covered similar ground.

The publication by HMRC of the new MDR guidance (available HERE) completes the transition from DAC6 to the MDR.

While the above sounds innocuous enough, many professionals will remember the vast amounts of time incurred in preparation for the DAC6 reporting obligations coming into force in the UK in January 2021.  Although the UK had left the EU, the terms of the UK-EU Withdrawal Agreement mandated full implementation of DAC6 in the UK during the Brexit transition period (which ended on 31 December 2020).  The conclusion of the UK-EU Trade and Cooperation Agreement on 30 December 2020 eventually allowed for a drastic reduction of the scope of DAC6 in the UK, days before the DAC6 reporting obligations were due to start.

DAC6 and Brexit

DAC6 was developed by the EU in parallel to the OECD MDR, by way of an amendment to the EU Directive on Administrative Cooperation (the DAC) which established rules and procedures for EU member states exchanging certain information (including in relation to taxation).

The intention of DAC6 is to give EU tax authorities early warning of new cross-border tax avoidance schemes, by requiring “intermediaries” (including lawyers, accountants and tax advisers) to report arrangements with one or more of a number of hallmarks (in categories A to E) indicating a possible intention to avoid or evade tax. With that ambition, the reporting requirements of DAC6 go far beyond those of the OECD MDR.  Some EU member states (for example, Poland) went even further by voluntarily introducing reporting regimes with requirements exceeding those of DAC6.

To the relief of UK based intermediaries, the UK went the other way by reducing the application of DAC6 in the UK to the level of the reporting obligations required by the OECD MDR (being the minimum standard required by the terms of the UK-EU Trade and Cooperation Agreement).

In the short term, disclosures were made from January 2021 under the DAC6 reporting regime (which by then was up and running), as previously planned.  However, the disclosure obligations were limited to the category D hallmarks of DAC6 (which are based on the OECD MDR), pending legislation for the implementation of the MDR and the repeal of DAC6 in the UK being passed.

When the MDR Regulations came into force earlier this year, intermediaries and taxpayers were told to continue using relevant parts of the existing DAC6 guidance for the time being.  The transition to MDR has now been completed by HMRC’s publication of specific MDR guidance.

Principal features of the MDR

Intermediaries – promoters and service providers

The MDR provides for reporting obligations in respect of “CRS avoidance arrangements” and “opaque offshore structures”.  The MDR uses certain specified hallmarks for identifying such arrangements and structures, with examples being given in the MDR guidance.

Reporting obligations under the MDR apply to relevant “intermediaries” in the first instance. Intermediaries (which can be legal or natural persons) may be “promoters” or “service providers”, in each case with a UK nexus such as UK residence, incorporation, management or a UK office or branch.  However, being subject to supervision by a relevant UK regulatory authority (such as the Solicitors’ Regulation Authority) is not considered a UK connection by itself (as was the case under the DAC6 rules).

“Promoters” are those responsible for the design or marketing of a CRS avoidance arrangement or an opaque offshore structure.  Promoters are usually expected to have a full understanding of the material aspects of the arrangement.

“Service providers” are those providing “relevant services” in respect of a CRS avoidance arrangement or an opaque offshore structure, in circumstances where the person providing such services could reasonably be expected to know that the relevant arrangement or structure is a CRS avoidance arrangement or an opaque offshore structure.  This takes account of a person’s actual knowledge as well as any information that is readily available to them (such as information collected through normal client due diligence).  Intermediaries are not expected to carry out due diligence beyond what they would normally be required to do.

Promoters and service providers are subject to different time limits for reporting.  Where there is no intermediary, or where the intermediary is prevented from reporting (for example because of legal professional privilege), the reporting obligation shifts to relevant taxpayers with a UK nexus (a “reportable taxpayer”).

CRS avoidance arrangements and opaque offshore structures

A “CRS avoidance arrangement” is essentially any arrangements for which it is reasonable to conclude that it is designed to circumvent obligations under CRS legislation or exploit the absence of CRS legislation (or is marketed as (or has the effect of) doing such things).

An “opaque offshore structure” is defined as a “passive offshore vehicle” that is held through an “opaque structure”.  A “passive offshore vehicle” means a legal person or legal arrangement that does not carry on a substantive economic activity supported by adequate staff, equipment, assets and premises in the jurisdiction where it is established or is tax resident.  An “opaque structure” is, very broadly, a structure designed to conceal (or marketed as, or having the effect of, concealing) beneficial ownership.

How reports are made

Reports are made electronically through an HMRC reporting facility using XML software; there is no manual system for making a report.  This has been criticised by businesses who are forced to purchase software systems for generating the XML file format required for making reports, even if reports are expected to be made only infrequently or a s one-off.

A person required to make a report under the MDR first needs to register with HMRC for that purpose.  Information on how to do this is available HERE.

How likely is it that providers of professional services (such as lawyers, accountants and tax advisers) will be required to make a report under the MDR?

Intermediaries that are not in the business of designing or marketing disclosable arrangements or structures schemes may take some comfort from the fact that they are unlikely to be classed as “promoters”.

For intermediaries that are neither promoters (with full oversight of an arrangement) nor financial entities with CRS reporting obligations, being knowingly involved in arrangements that are designed to circumvent CRS reporting should be a rare occurrence.  For example, a scenario where funds are moved from a jurisdiction where the CRS is in force to one where it is not, would not by itself give rise to a reporting obligation.  A promoter advising a client to move funds in order to escape a CRS reporting obligation would be a different matter.

HMRC guidance is also clear in that the definition of a “service provider” (with reporting obligations under the MDR) does not include a person who becomes aware of an arrangement, but does not provide any assistance or advice in relation to it.  The guidance gives the example of an auditor who identifies a reportable transaction when examining a company’s accounting records, without having been involved in the design or implementation of the relevant arrangement or structure.

With regard to opaque offshore structures, HMRC guidance states that where a person is obliged to identify beneficial ownership under anti-money laundering legislation and successfully does so, this would generally mean that the beneficial owners are not unidentifiable and that, accordingly, the relevant structure should not normally be considered a disclosable opaque offshore structure.  This comes with the caveat that, where it is clear that an arrangement has been designed to obscure beneficial ownership from the tax authorities then it is reportable, even if the intermediary has been able to identify the beneficial owners. Thus, the position will depend to some extent on the intermediary’s knowledge of the client and the proposed transaction.

HMRC do not generally expect potential intermediaries to carry out investigations into their clients beyond standard KYC / AML checks, unless there are grounds to suspect that beneficial ownership is being obscured from the tax authorities. For example, where a beneficial owner is not identified because their ownership interest is below the required ownership threshold, that would not by itself lead to the conclusion that a structure is a disclosable opaque offshore structure.  However, if there was a suggestion that an owner was deliberately keeping their interest just below the relevant threshold to avoid being identified, then this could be evidence of a disclosable opaque offshore structure.

Differences between the MDR and DAC6

There are many similarities between the MDR and DAC6 (to the extent previously applied in the UK), and HMRC are expected to take a similar approach to interpretation.

A main difference is that the MDR applies at a global rather than European level.  Further, unlike DAC6, the MDR does not include territorial limitations beyond requiring an intermediary or reportable taxpayer with a UK nexus (see above).  Thus, a reporting obligation can arise in respect of an arrangement or structure which is not otherwise connected with the UK.

Exchange of MDR data

The OECD has published a list of jurisdictions (available HERE) that have so far signed the multilateral competent authority agreement (MCAA) supporting the MDR. At the time of writing, the MCAA has been signed by 17 jurisdictions including the UK.

An automatic exchange of information will occur once the relevant signatories have set up any necessary local rules and procedures.  HMRC have committed to publish a list of “partner jurisdictions” in due course.  Importantly, it appears that there will be no automatic exchange of information with EU member states that have implemented DAC6 unless they have separately signed up to and implemented the OECD MDR.  EU member states that have signed up to the OECD MDR so far include Belgium, Croatia, Finland, Portugal, Slovenia and Spain.

As is the case for DAC6, an intermediary or reportable taxpayer with a UK nexus is not required to make a disclosure to HMRC if the same arrangement or structure has already been reported in a partner jurisdiction.  However, this exemption will not be available until HMRC have confirmed that there are any partner jurisdictions (which has not yet happened).  Even then, it may in practice be difficult for an intermediary or reportable taxpayer to establish what has been disclosed elsewhere (and how complete that disclosure is), in which case the safest route will be to make a separate disclosure.

This Insight piece was written and researched by Annette Beresford. If you would like to discuss this piece or anything else on management and founder incentives generally, then do please contact us at

All the thoughts and commentary that HLaw publishes on this website, including those set out above, are subject to the terms and conditions of use of this website.  None of the above constitutes legal advice and is not to be relied upon.  Much of the above will no doubt fall out of date and conflict with future law and practice one day.  None of the above should be relied upon.  Always seek your own independent professional advice.


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