There is a question whether DAC6 might violate the principle of proportionality in Article 5(4) of the TEU. This principle requires that "the content and form of the Union’s action shall not exceed what is necessary to achieve the objectives of the Treaties". In other words, any measure carried out must be proportionate to its objective. The proportionality test is two-fold:

• the measure must be objectively appropriate to achieve the intended objective (adequacy test), and
• the measure must be strictly necessary to achieve the intended objective (suitability test).

The fundamental aim of DAC6, as the second paragraph of its preamble states, is to protect Member States’ tax bases from erosion by allowing tax authorities to obtain information that “would enable those authorities to react promptly against harmful tax practices and to close loopholes by enacting legislation or by undertaking adequate risk assessments and carrying out tax audits”. Paragraph 7 of the preamble states that the information obtained may have a dissuasive effect “if the information reached the tax authorities at an early stage, in other words before such arrangements are actually implemented”.

In respect of the operative provisions, paragraph 8 of the DAC6 preamble states that, “the reporting obligation should be placed upon all actors that are usually involved in designing, marketing, organising or managing the implementation of a reportable cross-border transaction or a series of such transactions, as well as those who provide assistance or advice”.

Adequacy

When it comes to the adequacy test, is it appropriate for the obligation to be imposed on those who provide assistance or advice on an arrangement when they often don’t have all the information, don’t know the tax implications in jurisdictions other than the one where they provide services, or simply don’t provide tax assistance or advice?

Those advisers or assistants may not actually meet the conditions to be considered secondary intermediaries under Article 3(21) of the consolidated DAC (and would then not be subject to any reporting obligations under DAC6). This is because an adviser or assistant would be considered a secondary intermediary only if, taking into account the information available and the expertise and understanding required to provide the services they have been engaged to provide, they know or can reasonably be expected to know that the advice, assistance or help required of them relates to a reportable arrangement.

But is it reasonable to impose the burden of analysing whether DAC6 applies, establishing internal compliance protocols and checking to see if they know or if they should reasonably be expected to know that the advice or assistance being sought is on a reportable arrangement, on individuals who generally do not have this knowledge, simply because they may have it in exceptional cases? How is it fair to impose the obligation to apply and analyse DAC6 on groups that, in most cases, do not have knowledge of whether or not the arrangement on which they are advising is reportable?

Suitability 

In applying the suitability test, we ask whether the measure is strictly necessary. On this important issue, DAC6 merely states that “in accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective, especially considering that it is limited to cross-border arrangements concerning either more than one Member State or a Member State and a third country”. However, there is not one single reference that explains the subjective scope of the reporting obligation of DAC6, which would seem disproportionate to me insofar as it extends to secondary intermediaries.

It is true that, to date, the CJEU has not been particularly effective in monitoring the principle of proportionality to assess the competence of the EU. It has said that "the legality of a measure adopted…can be affected only if the measure is manifestly inappropriate having regard to the objective which the competent institutions are seeking to pursue" (see, among others, judgments in Afton Chemical, paragraph 28, and Slovakia and Hungary, paragraph 207).

This has led some constitutional courts to question the effectiveness of the principle of proportionality in monitoring the powers of the EU – see, for example, the judgment of the German Constitutional Court of 5 May 2020 in reaction to the CJEU decision in Weiss and Others. I wonder if this is why Germany – lucky you, German advisers – has narrowed the definition of intermediaries subject to the obligations under DAC6 to primary intermediaries, being those who design, market, organise, make available or oversee the implementation of reportable cross-border arrangements. Having said this, we have not lost hope that EU case law will begin to move in a direction that is more in line with what the principle of proportionality should be – appropriate, balanced and reasonable.

This was the final post in my five-part series on DAC6 which also included the following posts: 

• DAC6 and legal professional privilege - request for a preliminary ruling
• Does some Member States' implementation of the legal professional privilege exemption from DAC6 reporting infringe higher-ranking Union standards?
• Penalties for failure to make a DAC6 report and the right to a fair trial
• Avoiding double DAC6 reporting: is the hierarchy in Article 8ab(3) of the DAC compatible with the freedom of establishment?