Constitutional Court Partially Nullifies DAC6 Implementation, Requests Preliminary Ruling from ECJ on Validity – The Latest News
On 15 September 2022, the Belgian Constitutional Court partially annulled Belgium’s implementation of the DAC6 Directive and referred various additional questions to the European Court of Justice (CJEU) on the compatibility of DAC6 with the European Convention on Human Rights (ECHR) and the EU Charter of Fundamental Rights.
The decision was with regard to the joined cases Belgian Association of Tax Lawyers en anderen, Ordre des barreaux francophones et germanophone, Orde van Vlaamse balies en Alex Tallon, and Instituut van de accountants en de belastingconsulenten v. Belgian State.
Details of the case are summarized below.
The Law implementing Amending Directive to the 2011 Directive on Administrative Cooperation on reportable cross-border arrangements (DAC6) (hereafter the DAC6 Implementation Law) closely follows the definitions, requirements and hallmarks A-E of the Directive. The obligation to report applies to all taxes, except value-added tax, customs duties and compulsory security contributions.
The Law exempts intermediaries from the obligation to report where the reporting obligation would breach their legal professional privilege.
The plaintiffs raised various complaints on the compatibility of the DAC6 implementation law with the Treaty on the Functioning of the European Union (TFEU), the European Convention on Human Rights (ECHR) and the Belgian Constitution.
The Court rejected arguments on the incompatibility with the division of legislative powers, the application to other taxes than the corporate income tax, the retroactive effect, the verification whether another intermediary has reported and the notification of the relevant taxpayer.
Legality and legal certainty
Based on various articles of the Charter of Fundamental Rights of the European Union (the Charter), the ECRM, the International Convention on Civil and Political Rights (ICCPR) and the Belgian Constitution, the Belgian Association of Tax Lawyers and others (the Association) reasoned that DAC6 is incompatible with the legality and legal certainty principle because the definition of the term “intermediary” is not sufficiently accurate and the reporting time limits are not unambiguously defined. The Flemish Bar Association takes the same view with respect to the definition of the terms “arrangement”, “participant”, “related company”, “cross-border”, the various “hallmarks” and the “main benefit” test.
The Court noted that those definitions are defined in the DAC6 Implementation Law and its explanatory memorandum. However, because the definitions must be similarly interpreted in all Member States, and the Court doubted that this is guaranteed, it requested the ECJ to indicate whether the definitions are sufficiently clear and precise.
Commencement of the notification period
The Court also doubted whether the moment when the 30-day notification period starts is precisely defined. As this moment must be interpreted in the same manner by all Member States, the Court requested the ECJ to answer this question.
Restriction of the legal professional privilege
Based on various articles of the Constitution, the ECHR and the Charter, the Association and the Francophone and German Bar Association took the view that the provisions of the DAC6 Implementation Law infringe the legal professional privilege (the privilege), and that the definition of the term “marketable arrangements” is too vague. The Court observed that the privilege may apply to the 3-months’ periodical notification obligation for new information regarding marketable arrangements, and decided that the general waiver of the privilege with respect to this periodical notification is disproportionate. In addition, the Court requested the ECJ to determine whether the term “marketable arrangement” is sufficiently precisely defined.
Obligation to notify other intermediaries when the privilege is involved
The Association and the Bar Associations reasoned that this obligation requires an act in breach of the privilege. The Court did not deal with this argument because it is the subject of the pending case Orde van Vlaamse Balies and Others (C-694/20);
Tax administration audits of a lawyer
The Association and the Bar Associations reasoned that such audits infringe provisions of the Constitution, the ECRM, the Charter and article 6 the Treaty on European Union (TEU) and the general principle of legal certainty. The Court decided that, with respect to inheritance tax and registration duty, the provisions allowing such audits must be nullified because they do not allow invocation of the privilege.
Restriction of the privilege for intermediaries other than lawyers
The Institute for Accountants and Tax Advisors argued that this restriction is incompatible with the non-discrimination provisions of the constitution and the right to privacy as guaranteed by article 8 ECHR and article 8 of the Charter. In this context, the Court nullified the provisions on the periodical reporting obligation regarding marketable arrangements because the privilege cannot be invoked in these cases. With respect to the respecting of the right to privacy, the Court referred a question to the ECJ.
Interference with the right to a private life when the privilege does not apply
The Court referred a question to the ECJ to determine whether the interference with the right to a private life is determined with sufficient precision and whether the reporting obligations are proportionate.
Consequently, the Court nullified the income, inheritance tax and registration duty provisions on the periodical reporting obligations for marketable cross-border arrangements because the privilege cannot be invoked.
In addition, the Court referred the following questions to the ECJ:
- Does DAC6 infringe Article 6(3) TFEU and Articles 20 and 21 of the Charter, and more specifically the accompanying provisions guaranteeing the principle of equality and non-discrimination, insofar as under DAC6, the notification obligation for cross-border arrangements subject to notification is not limited to corporate income tax, but applies to all taxes that fall within the scope of the Directive on administrative cooperation, which in Belgian law does not only cover corporate income tax, but also other direct taxes than the corporate income tax and indirect taxes, such as registration fees?
- Does DAC6 violate the principle of legality in criminal matters as guaranteed by Article 49(1) of the Charter and Article 7(1) of the ECHR, the general principle of legal certainty and the right to private life guaranteed by Article 7 of the Charter and Article 8 of the ECHR, insofar as the concepts of ‘arrangement’ (and therefore the terms ‘cross-border arrangement’, ‘marketable arrangement ‘ and ‘custom arrangement’), ‘intermediary’, ‘participant’, ‘affiliated company’, the qualification ‘crossing border’, the various ‘essential hallmarks’ and the ‘main benefit test’, which are used in the Directive to determine the application area and scope of the reporting obligation for cross-border reporting constructions, are not sufficiently clearly and precisely defined?
- Does DAC6, in particular Article 8bis ter, paragraphs 1 and 7 thereof, infringe the principle of legality in criminal matters covered by Article 49(1) of the Charter and by Article 7(1) of the ECHR and the right to a private life guaranteed by Article 7 of the Charter and by Article 8 ECHR, insofar as the starting point of the thirty day notification period within which the intermediary or the relevant taxpayer must comply with the reporting obligation for a notifiable cross-border arrangement is not sufficiently clearly and accurately defined?
- Does Article 1, point 2) of the DAC6 infringe the right to a private life as guaranteed by Article 7 of the Charter and Article 8 ECHR, insofar as the new Article 8bis(5) of the Directive on administrative cooperation, provides that, where a Member State takes the necessary measures to give intermediaries the right to an exemption from the obligation to provide information about a reportable cross-border arrangement when the reporting obligation would constitute an infringement of the statutory right of non-disclosure in accordance with the national law of that Member State, that Member State is obliged to compel those intermediaries to, without undue delay, inform other intermediaries (or, where those do not exist, the relevant taxpayer), effectively resulting in a situation where an intermediary subject to the criminally-sanctioned professional legal privilege under the law of that state is obliged to share information learned during the exercise of his profession with another intermediary who is not his client?
- Does DAC6 violate the right to a private life guaranteed by Article 7 of the Charter by Article 8 of the ECHR, to the extent that the reporting obligation for reportable cross-border arrangements would lead to an interference with that right of the intermediaries and the relevant taxpayers that is not reasonably justified nor proportionate to the objectives, and which would not be necessary to guarantee the proper functioning of the internal market?”