Authorities may not impose penalties on individuals for refusing to provide information that may prove their criminal liability or liability for an offence that is punishable with administrative sanctions of a criminal nature, meaning a sanction where its purpose is punitive and the offence is very serious.

This is on the basis of the CJEU’s interpretation of Articles 47 (right to an effective remedy and to a fair trial) and 48 (presumption of innocence and right of defence) of the Charter on Fundamental Rights of the European Union (the Charter), and Article 6(1), (2) and (3) of the European Convention on Human Rights (ECHR) as regards the right against self-incrimination in Case C-481/19 DB v Commissione Nazionale per le Società e la Borsa.

How might the judgment in the DB case affect DAC6?

DAC 6 requires that intermediaries or, in some circumstances, taxpayers report certain information to the relevant EU tax authority in respect of cross-border arrangements which meet one of a number of criteria which supposedly identify them as “potentially aggressive tax-planning arrangements” according to the preamble of DAC6. A failure to report would result in a dissuasive tax penalty. DAC6 requires that Member States “lay down the rules on penalties applicable to infringements of national provisions adopted pursuant to this Directive” and that “the penalties provided for shall be effective, proportionate and dissuasive”.

As yet, it is unclear what tax authorities will do with the reported information (other than share it with other tax authorities as required under DAC6). DAC6 itself envisages that tax authorities may take no further action and provides that this would not “not imply any acceptance of the validity or tax treatment of” the relevant arrangement. It is also possible that the reporting may prompt the tax authority to start penalty proceedings for using the reported arrangement, if it was found to be not only potentially aggressive, but also illegal and punishable – or, at least, there is nothing in DAC6 to exclude that possibility or to prevent a tax authority from using information obtained through DAC6 reporting in such proceedings.

At this stage, it is worth pointing out that some of the circumstances that make an arrangement reportable under DAC6 are linked to a main benefit test that is very similar to a general anti-abuse rule (GAAR).

One assumes that, if an advisor were to report a cross-border arrangement linked to the main benefit test, the advisor would do so on the understanding that the main benefit test is different from a GAAR and that, under the criteria established in the applicable GAAR, the reported arrangement would be perfectly legitimate, mainly because one of their professional and ethical obligations would of course, be to advise in accordance with the law, and, at least in my view, this requires that any recommended tax planning does not fall foul of a GAAR.

But that isn’t to say that there could not be any overlap. In that case, DAC6 would, by omission, have allowed information provided under the threat of a sanction to give rise, in turn, to a procedure to sanction not the failure to fulfil the reporting obligation or doing it incorrectly or late, but the failure to comply with the material tax obligation that could be understood to arise as a result of using the tax planning scheme previously reported to the tax authorities, and using as evidence the information reported. In my view, this sounds rather similar to rule which the CJEU criticised in the DB case.

It is worth recalling that the BEPS final report on Action 12 states that “for many countries the types of transactions targeted for disclosure will not generally be the types of transactions that will give rise to criminal liabilities”. Although this essential objective reflects how things should be (aggressive tax planning should not be treated as tax fraud), it is worrying that this distinction is not clear in every Member State. For a long time in Spain, tax authorities and courts have been applying the true GAAR under article 15 of Spanish General Tax Law (GTL) which prevents or limits the imposition of penalties and the rule to curtail simulated transactions under article 16 GTL which, if properly applied, almost requires that penalties be imposed as if they were interchangeable (although this practice may be open to criticism as per my colleague’s recent post). The tax legislator’s understanding is that the GAAR in Article 6 of ATAD does not need to be transposed into Spanish law, given that the issue is sufficiently addressed by articles 15 and 16 of the GTL. If we then take into account the similarities between the DAC6 main benefit test and the GAAR in Article 6 of ATAD, how can we not be concerned about the potential violation of the right to remain silent and the right against self-incrimination when the reportable arrangement is linked to the main benefit test?

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