Out-Law Guide 5 min. read

UK Mandatory Disclosure Rules (MDR) for cross-border tax avoidance arrangements

New UK rules requiring disclosure of cross-border tax avoidance arrangements have been introduced to replace DAC6, the EU’s mandatory disclosure regime. Under the new Mandatory Disclosure Rules (MDR), disclosure has been extended to include arrangements wholly outside the UK/EU.

The MDR became law in the UK on 28 March 2023. The MDR is based on rules devised by the Organisation for Economic Co-operation and Development (OECD) to tackle offshore tax evasion known as the Model Mandatory Disclosure Rules (MMDR). The MDR is designed to ensure that tax authorities are notified of tax avoidance arrangements or opaque offshore structures.

MDR – replacement of DAC6

The MDR replaces the EU Mandatory Disclosure Regime (DAC6), which applied in the UK prior to Brexit. Following Brexit, and in anticipation that the UK would implement the MMDR, the application of DAC6 in the UK was narrowed so that reporting was only required in respect of certain arrangements. Under the limited DAC6 rules an "intermediary", or in some cases a taxpayer, was obliged to notify His Majesty's Revenue & Customs (HMRC) of a ‘hallmark D’ arrangement – broadly, one that was "cross-border" and was designed to circumvent the common reporting standard (CRS) or intended to disguise beneficial ownership. 

The CRS requires financial institutions in countries which have signed up to the standard to make annual reports of non-residents holding bank accounts and other financial accounts.

Territorial scope – UK connection

The MDR is similar to the limited DAC6 regime that previously applied in the UK, although the territorial scope has been broadened. The UK’s DAC6 rules only applied to a cross-border arrangement involving the UK or an EU member state and another country, which could be an EU member state or a third country. The MDR does not include an equivalent territorial restriction – rather, a reporting obligation arises where there is a connection with the UK. This means that UK-based intermediaries may be required to report arrangements under the MDR that are wholly outside the UK or EU where previously such arrangements would not have been caught by the UK's DAC6 regime.

Arrangements – obscuring ownership and undermining reporting

As with the limited DAC6 regime, under the MDR, the requirement to report is based on arrangements with hallmark D. Hallmark D is based on the OECD’s MMDR. There are two parts to hallmark D: D1 and D2.

Arrangements will be caught by the MDR under the following circumstances:

  • They have the effect of undermining or circumventing reporting obligations under agreements on the automatic exchange of financial account information, or which take advantage of the absence of automatic exchange of information rules. This includes reporting obligations under CRS. Examples of the structures that could be caught under this limb include transferring money from one country to another country to avoid reporting obligations or putting funds into an offshore account to avoid reporting obligations in another country.
  • They obscure legal or beneficial ownership and involve the use of offshore entities or structures with no substantive economic activity. Examples of the arrangements that could be caught under this limb include where control of a company is exercised via indirect rather than formal means or choosing to establish in a jurisdiction for no reason other than that jurisdiction's no/minimal requirements on reporting beneficial ownership information.

Broadly, beneficial ownership will be obscured if the beneficial owners cannot reasonably be identified by HMRC. The identity of the beneficial owners does not have to be publicly available.

Application to trusts

In relation to trusts, HMRC has confirmed that where the beneficiaries are named, or identified by class, the beneficiaries would not be considered to be unidentifiable. Similarly, where there is the possibility of beneficiaries being added to a trust in the future, this would not necessarily trigger this hallmark, unless people were deliberately excluded from the trust temporarily to avoid being identified.

Reporting – time limits and exclusions

Under the MDR, the rules relating to who should report remain broadly the same as for DAC6. Under the MDR, an intermediary that is resident, managed or incorporated in the UK may have an obligation to report. A person who is an "intermediary" in respect of reportable cross-border arrangements or structures is required to report.

An "intermediary" for these purposes is widely defined and includes persons who promote or design cross-border arrangements or structures (so-called "promoter intermediaries"), as well as those who have undertaken to provide advice or assistance in relation to cross-border arrangements or structures (so called "service provider intermediaries"). The MDR also applies to "reportable taxpayers" - taxpayers who use structures caught by the MDR.

The initial version of MDR contained a "look-back" period for reporting existing arrangements that went all the way back to 29 October 2014. Following a public consultation, the government revised the period to 25 June 2018, matching the look-back period for pre-existing arrangements under DAC6. Where existing arrangements have already been disclosed under DAC6, there will be no need to disclose again.

Pre-existing arrangements, implemented between 25 June 2018 and the date the MDR took effect (28 March 2023), must be reported by promoter intermediaries by 25 September 2023. There is an exemption where the aggregate balance or value of the financial account subject to the avoidance arrangement immediately prior to its implementation was less than $1,000,000

Broadly, any new arrangements must be reported by intermediaries within 30 days of being made available or assistance being provided, whichever is earlier. For reportable taxpayers, the time limit for reporting is 30 days after the first step in the reportable arrangement is carried out.

As with DAC6 reporting, an intermediary is not required to report any information under the MDR to the extent such information is subject to legal professional privilege. A UK intermediary is also not required to report the arrangement if it has previously been reported to HMRC or in certain circumstances where the intermediary has reported it in another jurisdiction in which it has a relevant connection.

Similar to DAC6, the reporting obligations can shift to a UK resident taxpayer that uses the arrangements. This can arise where there is no intermediary in relation to the reportable arrangements or structure, or where an intermediary does not have to report under the MDR, for example by virtue of legal professional privilege. In such circumstances, the UK resident taxpayer must do the reporting itself, within 30 days after the first step of the arrangement has been implemented, if it has the relevant information in its knowledge, possession or control – unless  it has evidence that an intermediary has reported the information in another jurisdiction that has implemented substantially similar rules.

An intermediary or reportable taxpayer that makes a return is required to notify (within 30 days of making a report) any person that such intermediary or relevant taxpayer knows or should reasonably be expected to know is an intermediary or reportable taxpayer in relation to that arrangement or structure.

Similarly, information will be reported to HMRC in the same manner as it is reported under DAC6, by way of uploading an extensible markup language (XML) file containing the reportable information.


Akin to DAC6, financial penalties may be imposed for non-compliance with the MDR. When assessing the quantum of any penalty, HMRC will consider whether proportionate procedures for identifying arrangements which could be caught by the MDR – such as appropriate training for employees – are  in place and maintained.


HMRC has not yet published updated guidance and has confirmed that it will update existing guidance on international exchange of information in due course. HMRC has also stated that the OECD commentary on the MMDR is useful for interpretation of the MDR, and that its own guidance will align with this commentary.

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