What is Mandatory Disclosure Rules (MDR)?

How it works

The Mandatory Disclosure Rules emerged from BEPS Action 12 and the OECD's 2018 model rules targeting CRS Avoidance Arrangements (CRSAA) and Opaque Offshore Structures (OOS). The intent: surface tax-planning arrangements early so authorities can challenge them, rather than discovering them years later through audit.

Two parallel implementations:

• OECD Model MDR (2018) — implemented standalone by jurisdictions outside the EU (UK post-Brexit, some Caribbean and Latin American countries).
• EU DAC6 (Directive 2018/822, in force from 2020) — the EU's broader version, covering the OECD MDR scope plus additional hallmarks (cross-border arrangements meeting specified abusive features).

What gets reported (OECD MDR)

Two trigger categories:

1. CRS Avoidance Arrangements (CRSAA)

Arrangements designed to circumvent CRS reporting. Hallmarks include:

• Use of accounts, products, or investments not classified as financial accounts under CRS.
• Transfer of accounts or jurisdictions to avoid CRS reporting.
• Use of entities or structures to circumvent CRS look-through.
• Use of unreliable / inadequate AML / KYC procedures by financial institutions.

2. Opaque Offshore Structures (OOS)

Structures with passive offshore vehicles (typically holding investment assets) where:

• Beneficial ownership is masked via nominee directors / shareholders, complex trust arrangements, multiple corporate layers, or non-transparent jurisdictions.
• The opacity goes beyond what's commercially reasonable.

Who must disclose

The standard cascade:

1. Intermediaries — promoters, advisers, accountants, lawyers who design or implement the arrangement.
2. Service providers — entities providing administrative services (registered agents, fund administrators) where they have actual knowledge of the relevant features.
3. Taxpayers — when no intermediary is in scope (e.g., the arrangement was self-designed or designed by a non-disclosable foreign adviser).

Disclosure typically goes to the local tax authority via standardised forms within tight deadlines (often 30 days from implementation or first step).

EU DAC6 specifics

DAC6 covers the same MDR scope plus broader hallmarks. Categories of hallmark:

• Category A — Generic hallmarks (confidentiality clauses, success-based fees, standardised documentation).
• Category B — Specific hallmarks linked to main-benefit test (loss-making companies, conversion of income to gains).
• Category C — Cross-border transactions (deductible payments to no-tax jurisdictions, double depreciation).
• Category D — CRS / beneficial ownership (the OECD MDR overlap).
• Category E — Transfer pricing.

Many DAC6 hallmarks require a main benefit test — disclosure only triggered if obtaining a tax advantage was a main benefit of the arrangement.

DAC6 disclosures are exchanged automatically among EU member states.

Examples

• EU adviser sets up a Bahamas trust holding investments for an EU client. The structure may meet CRSAA / OOS hallmarks (passive offshore vehicle, multi-layered ownership). EU adviser must file DAC6 disclosure within 30 days of implementation. EU client's home tax authority receives the data via automatic exchange.
• UK adviser implements a CRS-circumventing structure. UK MDR (post-Brexit, OECD-aligned) requires UK adviser to file with HMRC. HMRC may then challenge the arrangement under domestic GAAR.

Common mistakes

• Assuming MDR / DAC6 only applies to abusive arrangements. Disclosure can be triggered by hallmark presence even when the arrangement is commercially defensible.
• Forgetting the 30-day clock. Disclosure deadlines are short. Late filing penalties apply.
• Treating disclosed arrangements as safe. Disclosure is the start of scrutiny, not the end.
• Missing the cascade to the taxpayer. When no in-scope intermediary exists, the taxpayer themselves must disclose.