EU Tax Centre’s European Tax Flash

The Court then focused on the complainants’ argument that the lack of precision or clarity of certain key concepts in DAC6 violates the principle of legal certainty and the principle of legality in criminal matters protected by Article 49, paragraph 1, of the Charter and the right to respect for private life guaranteed by Article 7 of the Charter.

The Court recalled its consistent case-law that the principle of legal certainty requires that laws be clear and precise and that their application be foreseeable, in particular where they may have negative consequences. This principle ensures that interested parties can understand the extent of their rights and obligations and plan accordingly. However, this does not prevent the Union legislature from using abstract legal concepts in its legislation, nor from requiring that laws cover all possible scenarios, since not all situations can be anticipated by the legislature.

The Court also recalled that, as regards the principle of legality in criminal matters, the case-law of the European Court of Human Rights (ECHR) is also relevant. In this context, the ECHR had previously held that, due to their necessarily general nature, legislative acts cannot be absolutely precise. According to the ECHR, the use of legislative techniques involving the use of general categories in legislation may create grey areas, but this is not sufficient to render a provision incompatible with the European Convention on Human Rights, as long as the provision is sufficiently clear in the vast majority of cases. Furthermore, on the basis of consistent case-law of the CJEU, the progressive clarification of the rules of criminal liability through judicial interpretation is not prohibited, provided that such interpretations are reasonably foreseeable. Where certain terms appear vague or ambiguous, they may be interpreted using ordinary methods of legal interpretation, as well as by reference to relevant international conventions and practices.

Finally, the Court recalled its consistent case-law, stressing that the degree of foreseeability required depends largely on the content and subject-matter of the legislative act, as well as the number and quality of its addressees. The stakeholders concerned are not prevented from seeking informed advice. In the specific case of persons carrying out a professional activity, the Court noted that they can be expected to take particular care in assessing the risk involved in such an activity.

The Court then examined the various deadlines and conditions highlighted by the referring court in the light of the case-law and the principles referred to above. In each case, the CJEU held that the provisions met the requirements of clarity and precision as described by those principles. In support of this conclusion, the Court referred to the definitions provided in the DAC6 and suggested interpretations based on common usage of the terms, internationally accepted practices or the OECD Model Rules on Mandatory Disclosure for CRS Avoidance Arrangements and Opaque Offshore Structures (2018) (the ‘OECD Model Rules’), developed on the basis of the best practices recommended by Action 12 of the BEPS project, on which the EU MDRs were based. The main guidance provided by the Court is summarised below.

‘Arrangement’

While acknowledging that the term “arrangement” is not specifically defined in the DAC6 Directive, the CJEU noted the various instances in which the term has been used in the Directive. In this context, the Court clarified that the term should be understood in its “usual sense of mechanism, operation, structure or arrangement the purpose of which, in the context of the DAC6 Directive, is to carry out tax planning”.

The Court also clarified the reporting obligations under DAC6, in particular in situations where a “reportable arrangement” consists of several sub-arrangements. If these sub-arrangements individually meet the reporting criteria (i.e. they independently present a potential risk of tax avoidance), each of them must be reported, in addition to the overall arrangement. Conversely, if the sub-arrangements do not individually meet these criteria, the reporting obligation applies only to the overall arrangement, once it meets the temporal conditions set out in DAC6.

“Cross-border agreement”, “tradable agreement”, “tailor-made agreement”, “intermediary” and “associated enterprise”

The CJEU noted that several other key concepts – “cross-border agreement”, “marketable agreement”, “tailor-made agreement”, “intermediary” and “associated enterprise” – are already defined in the DAC.³.

The Court also addressed the term “participant in the agreement”. Although not explicitly defined in DAC6, the Court clarified that this term should be understood as including the “relevant taxpayer”, as defined in Article 3(22). However, in the Court’s view, “intermediaries” are generally not considered participants unless they actively participate in the agreement as relevant taxpayers.

Features

The Court held that the characteristics of the DAC6⁴ are not drafted in a way that makes the application of the reporting obligation unpredictable for those subject to that obligation. The Court also addressed the plaintiffs’ concerns about the subjectivity of the primary benefit test⁵In this context, the CJEU referred to the BEPS Action 12 report, which specifies that the main advantage test consists of comparing the expected tax advantage with other potential advantages of the transaction.

Declaration deadline

The Court stressed the importance of informing the tax authorities as early as possible, preferably before the implementation of an arrangement. However, the CJEU confirmed the AG’s observations regarding the need to minimise the risk of reporting arrangements that might not be implemented, in particular for ancillary intermediaries who are less directly involved and therefore less likely to specifically understand the evolution of the arrangement concerned.

The Court clarified that the reporting obligation of auxiliary intermediaries begins after they have provided aid, assistance or advice, and no later than the general deadline specified in DAC6. Auxiliary intermediaries may also choose to fulfil their reporting obligations before the start of the 30-day period allowed for such reporting.

Conclusion

On the basis of the above, the Court considered that the degree of precision and clarity of the terminology used in DAC6 does not affect its validity in light of the principles of legal certainty and legality in criminal matters. The Court also concluded that the interference with the private life of the intermediary and the taxpayer concerned that the reporting obligation entails is defined in a sufficiently precise manner in view of the information that such a declaration must contain.