The Constitutional Court of Belgium has requested a preliminary ruling from the Court of Justice of the EU (CJEU) about exceptions to reporting tax arrangements under the EU Council’s Directive 2018/822 (DAC6).
The Constitutional Court of Belgium has requested a preliminary ruling from the Court of Justice
On February 19, The Belgium high court, Grondwettelijk Hof, filed a request for an opinion from the CJEU (case C-694/20) regarding a DAC6 issue that the Flemish Bar Council and Belgian Association of Tax Lawyers raised on December 21 2020. The legal organisations are seeking to suspend reporting certain tax arrangements under the EU Directive because it would impede on the legal rights of “intermediaries” under the Rules of Procedure of the Court of Justice.
“It is a bit like a Schrödinger of DAC6 that you have to inform other intermediaries first in order to argue for professional secrecy, so mandatory disclosure is both alive and dead at the same time,” said Henrrique Nogueira Nunes, head of tax at Albuquerque & Associados – Sociedade de Advogados, regarding the shortcomings of national DAC6 rules complying with other legal frameworks.
The case was referred to the CJEU based on Article 267 of the Treaty of the Functioning of the EU (TFEU) and relevant to member states with legal measures that give tax advisors the right to waive filing certain cross-border arrangements when the report can breach legal privilege with a client under the national law, such as in Belgium.
The Belgian court deferred to the CJEU on the interpretation of an intermediary under Article 1(2) of the DAC6 rules transposed in Belgium and whether it can infringe on the right to a fair trial as guaranteed by Article 47 and the right to respect for private life as guaranteed by Article 7 of the Charter of Fundamental Rights of the European Union.
Under Article 1(2) of the Belgian law, an intermediary is “any person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement.”
The Flemish Bar Council and Belgian Association of Tax Lawyers argue that Article 14 under the Belgian decree from June 26 2020 that transposed DAC6 into national law infringes on provisions under Articles 7, 8, 20, 21, 47, 48, 49 and 51 of the Charter of Fundamental Rights of the EU, according to documents filed to the Belgian high court. Article 14 determines the way the reporting obligations relate to professional secrecy rules, under which certain intermediaries are legally bound. It will be part of the pending formal ruling from the CJEU.
The case could impact how intermediaries comply with DAC6 rules in several EU member states.
“Sadly the Portuguese Bar Association and other professional organisations have given up similar questioning on the conformity of national legislation on DAC6 with EU law and the Portuguese constitution,” said Nunes, about the limited legal certainty advisors face under national reporting obligations in Portugal too. The CJEU decision could provide scope for other intermediaries to launch cases based on mismatches between their domestic DAC6 rules and other legal frameworks.
While the range of rules under various national DAC6 laws result in advisors and other intermediaries reporting large amounts of data for routine transactions, many reportable tax arrangements were not designed to gain an advantage in the first place. Most of the reporting burden falls on intermediaries directly involved in setting up structures for cross-border transactions that fall within scope of DAC6. Although, corporate taxpayers may also need to be alert to the potential of having to report transactions under DAC6 rules.
“The information does not have to be disclosed by companies themselves unless they develop an in-house structure instead of using tax advisors,” said Giammarco Cottani, tax advisor at Ecovis and tax director of global tax policy at Netflix. “However, companies must carefully monitor structures they want to become involved in, since taxpayers can be liable for cross-border tax arrangements.”
Some EU countries may state broader definitions for “reportable arrangements” and professional secrecy rules within their DAC6 legislation, and the differences between member states can impact the interpretation of cross-border arrangements within scope in multiple countries.
“I look forward to more news from Belgium, where there are actually four cases pending,” said Nuno Cunha Barnabé, senior tax partner at Abreu Advogados. “We have recently made out a letter to the Portuguese Bar Association to defend unconstitutionality too.”
Advisors suggest more DAC6 reporting concerns will reach the CJEU given limited consistency on definitions and reporting applications across member states. However, it is unclear whether some legal certainty through a CJEU ruling will help declutter the reporting environment, or make compliance even more challenging for advisors and other intermediaries.
Source: International Tax Review https://bit.ly/2MknYs6