CJEU issues judgement upholding validity of DAC6 provisions

On 29 July 2024, the Court of Justice of the European Union (Second Chamber) (hereinafter, the ‘CJEU’) issued a decision in C-623/22 following a request for a preliminary ruling by the Belgian Constitutional Court (hereinafter, the ‘Referring Court’) concerning the assessment of the validity of Articles 8ab(1), (5), (6) and (7) of Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation as amended by Directive 2018/822 (hereinafter ‘DAC6’). DAC6 introduced an obligation for intermediaries and, in certain instances, taxpayers to report on potentially aggressive cross-border tax planning arrangements (hereinafter, the ‘Reporting Obligation’) to the competent authorities.

The facts

The case before the CJEU was instituted following the initiation of proceedings by the Belgian Association of Tax Lawyers and others, the Ordre des barreaux francophones et germanophone, the Ordre van Vlaamse Balies (Association of Flemish Bars) and others and the Instituut van de Accountants en de Belastingconsulenten (Institute of Accountants and Tax Consultants) and others against the Prime Minister of Belgium. The domestic proceedings brought before the Referring Court concerned the validity of the Belgian transposition of DAC6 provisions in the context of the Charter of Fundamental Rights of the European Union (hereinafter, the ‘Charter’).

Decision

The CJEU ruled on the following five questions put forward by the Referring Court:

1. Does DAC6 infringe the principles of equal treatment and non-discrimination in extending the reporting obligation beyond direct tax?

The CJEU held that, although the Commission’s 2017 impact assessment attaches more importance to direct taxes, any type of tax may be subject to aggressive tax planning. Consequently the inclusion of a wide range of taxes within the scope of DAC6 is in line with its objective and does not adversely impact its validity.

2. Is DAC6 valid considering the principle of legal certainty?
3. Is DAC6 valid considering the principle of legality in criminal matters and the right to respect for private life as enshrined in the Charter?

The CJEU addressed the second and third questions together. To uphold the principle of legal certainty, the CJEU emphasised the need for “clear and precise legal rules”, and the need to ensure that their application is foreseeable for those subject to them.

In relation to the principle of legality in criminal matters, the CJEU highlighted that while DAC6 does not specify penalties for non-compliance with the Reporting Obligation, Article 25a requires Member States to establish effective, proportionate, and dissuasive penalties. Therefore, any lack of clarity or precision in the concepts and time limits governing the required conduct may violate the principle of legality in criminal matters.

The European Court of Human Rights, in the context of Article 7 of the European Convention on Human Rights (hereinafter, the ‘ECHR’), has decided that the necessarily general nature of legislative acts which, of their nature, cannot be drafted precisely, does not render them incompatible with Article 7 ECHR.

Assessing several DAC6 terms, the CJEU decided that the fact that DAC6 refers to broad concepts which must be clarified progressively does not, in principle, preclude it from being regarded as laying down ‘clear and precise rules’ that allow its subjects to foresee which acts and omissions may be subject to penalties of a criminal nature. The CJEU attributed weight to whether any ambiguity or vagueness in those concepts may be dispelled by using the ordinary methods of interpretation of the law, and to the utilisation of relevant international agreements and practices which utilise those concepts. For this reason, the CJEU decided that the Reporting Obligation under DAC6 was sufficiently precise and does not affect its validity.

4. Does Article 8ab(5) of DAC6 extend to intermediaries who are not lawyers but are subject to professional secrecy under national law?

Further to its decision in Orde van Vlaamse Balies and Others (C-694/20), the CJEU clarified that the anti-abuse nature of DAC6 necessitates a limited derogation from the Reporting Obligation. Alluding to Rule 2.4 of the OECD Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures (2018) which restrict the Reporting Obligation waiver ‘only to the extent the disclosure would reveal confidential information held by an attorney, solicitor or other admitted legal representative’, the CJEU decided that in exercising their discretion to identify which professions are covered by legal professional privilege, Member States should not extend the benefit to professions which are not authorised to ensure such legal representation.

Further, the CJEU decided that the Reporting Obligation waiver can extend only to persons pursuing their professional activities under one of the professional titles referred to in Article 1(2)(a) of Directive 98/5, and not to other professionals who, although authorised by the Member States to ensure legal representation, do not meet characteristics akin to a lawyer’s role as collaborating in the administration of justice.

5. In mandating the Reporting Obligation, does DAC6 infringe the right of respect for private life in Article 7 of the Charter?

The CJEU decided that the Reporting Obligation does limit the freedom of taxpayers and intermediaries to organise their personal, professional and business activities, and therefore constitutes an interference with the right to respect for private life guaranteed in Article 7 of the Charter. Notwithstanding, the CJEU found that the interference is justified and proportionate in view of the objectives of DAC6 in the general interest of the EU in combating aggressive tax planning and preventing the risks of tax avoidance and evasion.

Comments

This decision, which closely follows the opinion of AG Emiliou, further cements the standing of DAC6 and narrows the Reporting Obligation waiver for intermediaries. It creates anticipation for the decision, albeit in a broader DAC context, in C-432/23 following AG Kokott’s opinion on legal professional privilege in the context of exchange of information on request, and for the outcome of the evaluation currently being conducted by the EU Commission on the implementation of the DAC, which will allegedly lead to another DAC iteration in 2025.

The CJEU judgement may be accessed here.