BDO Corporate Tax News

On 29 July 2024, the Court of Justice of the European Union (CJEU) issued its decision in Case C-623/22, concluding that the EU DAC6 directive (Directive on Administrative Cooperation, also referred to as Mandatory Disclosure Rules) is valid and does not require annulment. The case, which was referred to the CJEU by the Belgian Constitutional Court, had been brought by the Belgian Association of Tax Lawyers (BATL) and others due to concerns as to whether concepts and definitions in DAC6 infringe the right to equality, non-discrimination, a fair trial and the right to privacy. The CJEU decided the directive is valid and upheld the opinion of Advocate General Emiliou released on 29 February 2024.

Background

DAC6 requires certain intermediaries and/or taxpayers in the EU to disclose reportable cross-border arrangements to the local tax authorities. BATL challenged the validity of the transposition of DAC6 into Belgian law. According to BATL, the objective of DAC6 is to fight potentially aggressive tax planning, but this is not reflected in the wording of the directive. BATL also took the position that specific concepts and definitions in DAC6 are too vague and unclear and that legal professional privilege under the directive should be extended to all professionals that are entitled to legal privilege under domestic law, instead of being limited to lawyers.

CJEU decision

In reaching its conclusion that the DAC6 directive is valid, the CJEU answered the questions referred by the Belgian Constitutional Court:

• The court held that the fact that DAC6 is not limited to corporate income taxes but is applicable to all taxes falling within its scope, does not in itself infringe the equal treatment and nondiscrimination principles.
• The following DAC6 terms and concepts are sufficiently clear and precise: “arrangement,” “intermediary,” “participant,” “associated enterprise,” the various “hallmarks,” the “main benefit test” and the starting point of the 30-day period for fulfilling the reporting obligation. These terms are important for defining the DAC6 reporting obligations and are often subject to conflicting interpretations by EU member states. The CJEU agreed that some terms are broad and general but none makes it impossible or unreasonably difficult for intermediaries or taxpayers to ascertain when and within what time frame they may be subject to the DAC6 reporting obligation. Therefore, it does not call into question the validity of DAC6 in light of the principles of legal certainty and legality in criminal matters. To the extent the reporting obligation entails any interference with the intermediary’s or taxpayer’s private life, this is sufficiently defined in view of the information required.
• With respect to the time the information has to be reported, the CJEU referred to the AG’s opinion, in which he explained that there would be no duty to report if the arrangement is not intended to be operational. The CJEU held that “it is necessary, as far as possible, to limit the risk that reporting obligations must be performed in respect of arrangements the implementation of which remains uncertain, which could arise particularly in the case of auxiliary intermediaries who, being less directly involved than the main intermediaries, are consequently less likely to be specifically instructed on the progress of the arrangement concerned.” In the case of an auxiliary intermediary, the CJEU confirmed that the reporting period runs from the time the arrangement is implemented, not from the beginning of the intermediary’s involvement in the design of the arrangement.
• Another question before the CJEU involved the issue of whether all professionals should be able to invoke the legal professional privilege of confidential communications under domestic law and therefore be entitled to a waiver of the obligation to notify. The CJEU ruled in 2022 (C-694/20) that a lawyer who is entitled to claim legal professional privilege is not obliged to inform other potential intermediaries of their DAC6 reporting obligation as that would breach the privilege. In the instant case, the court explained that its prior decision applies only to lawyers and not other professionals who may be authorised to ensure legal representation. Therefore, tax advisers, notaries, auditors, accountants, bankers (who may be bound by legal professional privilege under the domestic law of some EU member states) are not entitled to a waiver of the obligation to notify other potential intermediaries.
• The reporting obligation on intermediaries (or in the absence of such an intermediary, the relevant taxpayer) who are not entitled to a waiver of the duty to notify constitutes a proportionate and justified interference to the right to respect for private life, understood as the right of all persons to organise their private life.

Conclusion

Unfortunately, the CJEU’s decision does not resolve all uncertainties surrounding DAC6, so questions will remain on specific terms for defining the reporting obligations. Differing interpretations by EU member states will continue, resulting in an obligation to file a DAC6 report in the EU member state of one intermediary, but not for instance in the EU member state of the relevant taxpayer. What is clear, however, is that only lawyers are entitled to a waiver of the obligation to notify other intermediaries.


Hans Noordermeer
Lisanne Rijff
BDO in Netherlands