European Court of Justice: Upholding the EU Directive on Tax Reporting Obligations

CJEU upholds EU directive on tax reporting for cross-border arrangements. Ruling addresses scope, clarity of terms, legal privilege, and proportionality. Balances tax enforcement with fundamental rights protection. Belgian case prompted preliminary ruling.

In a ruling of July 29, 2024, case C-623/22, the Court of Justice of the European Union (CJEU) affirmed the validity of various provisions of the EU directive mandating tax reporting obligations. This directive requires that intermediaries involved in potentially aggressive cross-border tax arrangements, which could lead to tax avoidance or evasion, report these arrangements to the relevant tax authorities.

The controversy began in 2020 when several organizations, including lawyer and tax consultant associations and bar associations, challenged the Belgian law that transposed this EU directive into national legislation. They argued that the directive violated specific provisions of the Charter of Fundamental Rights of the European Union and other general principles of EU law. In response, the Belgian Constitutional Court referred several questions to the CJEU for a preliminary ruling.

In its judgment, the CJEU addressed several key matters:

SCOPE OF REPORTING OBLIGATIONS

The Court confirmed that the directive’s reporting obligation, which extends beyond corporate taxes, does not infringe on the principles of equal treatment and non-discrimination as outlined in Articles 20 and 21 of the Charter of Fundamental Rights. This broad scope of reporting is deemed consistent with EU law.

CLARITY AND PRECISION OF TERMINOLOGY

The Court found that the directive's provisions were sufficiently clear and precise, upholding the principles of legal certainty and legality in criminal matters. The requirements related to the information that must be reported were deemed adequately defined, ensuring that the interference with the privacy of intermediaries and taxpayers is justifiable.

LEGAL PROFESSIONAL PRIVILEGE

In its earlier judgment of December 8, 2022, the CJEU had ruled that the obligation for lawyers, who are exempt from reporting obligations due to legal professional privilege, to inform other intermediaries of their reporting duties breached that privilege. The Court clarified that this judgment applies specifically to lawyers who practice their profession permanently in a Member State other than where they obtained their qualification. It does not extend to other professionals who may be authorized to provide legal representation. The confidentiality of lawyer-client relationships is given specific protection due to the fundamental role of lawyers in the judicial system, recognized across Member States.

PROPORTIONALITY OF REPORTING OBLIGATIONS

The Court also concluded that the reporting obligations imposed on intermediaries, who cannot claim legal professional privilege, and on the relevant taxpayers represent a proportionate and justified interference with the right to respect for private life. This right includes the ability to organize one’s private life.

The ruling emphasizes the CJEU's commitment to maintaining the balance between effective tax enforcement and the protection of fundamental rights. It reinforces the directive’s role in preventing aggressive tax planning while upholding core principles of EU law.

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European Court of Justice: Upholding the EU Directive on Tax Reporting Obligations

CJEU upholds EU directive on tax reporting for cross-border arrangements. Ruling addresses scope, clarity of terms, legal privilege, and proportionality. Balances tax enforcement with fundamental rights protection. Belgian case prompted preliminary ruling.

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