Exchange of information on reportable cross-border tax arrangements: CJEU Judgment in Case C-623/22

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Case Information:

• Court: Court of Justice of the European Union (CJEU)
• Case No: C-623/22
• Applicant: Belgian Association of Tax Lawyers, SR, FK, Ordre des barreaux francophones et germanophone, Orde van Vlaamse Balies, CQ, Instituut van de Accountants en de Belastingconsulenten, VH, ZS, NI, EX
• Defendant: Premier ministre/Eerste Minister (Prime Minister, Belgium)
• Judgment Date: July 29, 2024

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Judgment Summary

The CJEU’s judgment in Case C-623/22 upheld the validity of Directive 2011/16/EU, as amended by Directive 2018/822, which mandates the automatic exchange of information on reportable cross-border tax arrangements. The judgment addressed several challenges concerning the directive’s compatibility with the EU Charter of Fundamental Rights, explicitly focusing on legal certainty, equality, non-discrimination, and respect for private life. The Court found that the directive did not infringe upon these fundamental rights and that the provisions concerning reporting obligations were clear, proportionate, and justified by the need to combat tax avoidance.

Key Points of the Judgment

Background

Directive 2011/16/EU, amended by Directive 2018/822, was introduced as part of the EU’s efforts to enhance tax transparency and combat aggressive tax planning. The directive requires intermediaries and, in some cases, taxpayers to report cross-border arrangements that meet certain criteria (hallmarks) indicating a potential risk of tax avoidance. The Belgian Association of Tax Lawyers and other applicants challenged the directive, arguing that it violated fundamental rights protected by the EU Charter.

Core Dispute

The core dispute centred on whether the directive’s provisions, particularly those related to the scope of reporting obligations, the clarity of definitions, and the protection of legal professional privilege, infringed upon the principles of legal certainty, equality, non-discrimination, and respect for private life.

Court Findings

1. Scope of Reporting Obligations: The Court held that the directive’s broad application to all taxes, not just corporate tax, was justified. The inclusion of various taxes within the directive’s scope was necessary to address the full range of aggressive tax planning practices.
2. Clarity of Legal Definitions: The Court found that terms like “arrangement,” “intermediary,” and “associated enterprise” were sufficiently clear. The directive provided adequate guidance for these terms to be interpreted in a manner consistent with legal certainty and the principle of legality in criminal matters.
3. Legal Professional Privilege: The Court acknowledged the importance of legal professional privilege but upheld the directive’s requirement for intermediaries to notify others of their reporting obligations. This balance was deemed necessary to ensure that tax authorities received critical information without disproportionately infringing on the right to private life.
4. Proportionality of the Reporting Obligation: The Court concluded that the directive’s reporting obligations were proportionate to its objectives. The broad scope of the obligations was necessary to combat tax avoidance across the EU effectively.

Outcome

The Court upheld the validity of Directive 2011/16/EU as amended by Directive 2018/822, rejecting all claims that the directive infringed upon fundamental rights under the EU Charter.

Major Issues or Areas of Contention

The significant areas of contention in this case included:

• Legal Certainty: Whether the definitions and obligations under the directive were sufficiently clear to comply with the principle of legal certainty.
• Legal Professional Privilege: Whether the directive adequately protected the confidentiality of legal advice or if it disproportionately infringed on the right to private life.
• Scope of Application: Whether it was appropriate for the directive to apply broadly to all taxes, not just corporate tax.

Was This Decision Expected or Controversial? Why?

The decision was somewhat expected given the CJEU’s history of supporting EU initiatives to enhance tax transparency and cooperation among Member States. However, it was also controversial, particularly among legal professionals concerned about the implications for legal privilege and the broad scope of the directive. Despite these concerns, the Court’s decision to uphold the directive’s provisions underscores the EU’s prioritization of tax compliance over the potential privacy concerns of intermediaries.

Significance for Multinationals

This judgment reinforces the need for stringent compliance with EU tax laws for multinational corporations. The directive’s broad scope means that a wide range of cross-border tax arrangements could be subject to reporting requirements. Multinationals must now be even more vigilant in assessing their tax arrangements for potential reporting obligations and ensuring their tax planning strategies fully comply with EU regulations.

Significance for Revenue Services

The judgment is a significant victory for tax authorities across the EU. It enhances their ability to obtain critical information on cross-border tax arrangements, thereby improving their capacity to detect and prevent tax avoidance. This decision will likely lead to increased scrutiny of cross-border transactions, making it more challenging for companies to engage in aggressive tax planning.

Importance for Organizations to Engage with Tax Experts

The directive’s complexities and potential legal implications make it crucial for organizations to engage with tax experts. Tax professionals can help navigate its intricate requirements, ensuring compliance and mitigating the risk of penalties. They can also provide guidance on structuring tax arrangements to minimize risk while remaining within the bounds of the law.

Preventative Measures: Implementing a Proper Tax Risk Management Process

Organisations should implement a robust tax risk management process to avoid issues similar to those in Case C-623/22. This could include the establishment of a tax steering committee, which plays a critical role in overseeing the organization’s tax strategy and ensuring compliance with relevant regulations. A tax steering committee helps in:

• Identifying Risks: Early identification of potential tax risks associated with cross-border arrangements.
• Ensuring Compliance: Monitoring compliance with reporting obligations under EU directives.
• Strategic Decision-Making: Providing strategic direction on tax planning while ensuring alignment with the organization’s overall risk management framework.

A well-functioning tax steering committee, as outlined on platforms like taxriskmanagement.com, can significantly reduce the likelihood of non-compliance and the associated penalties, ensuring that the organization’s tax strategies are robust and defensible.