Supreme Court pauses part of DAC6 rule

The Official State Gazette published on 21 April 2023 an order of the Third Chamber of the Supreme Court, dated 27 February, granting an interim measure requested by the Spanish Association of Tax Advisers in its challenge to Royal Decree 243/2021. The Court suspends the application, until it gives judgment, of a phrase in article 45.4.b) of the tax management and inspection regulation: the one requiring the exempt intermediary to notify its position, within five days, to the other intermediaries and to the taxpayer concerned.

The issue arises from the regime for reporting cross-border tax-planning arrangements, known as DAC6 after the directive that created it. Although the order is a provisional measure, it shows how Spanish law is adapting to a European ruling affecting lawyers’ professional secrecy, a matter that also concerns their clients: companies and families who receive tax advice on transactions with international elements.

What the DAC6 regime is

Directive (EU) 2018/822 requires intermediaries, such as advisers, banks or lawyers, and failing them the taxpayer, to report to the tax authority the cross-border arrangements that display certain hallmarks associated with a risk of tax avoidance. In Spain it was implemented through the General Tax Law and Royal Decree 243/2021 of 6 April.

When an intermediary is exempt from reporting because it is bound by professional secrecy, as is usually the case with a lawyer, it must notify that fact. The Spanish regulation required this to be done within five days, to both the other intermediaries and the taxpayer, so that the information is filed by whoever is responsible. The debate was whether notifying other intermediaries reveals that a lawyer has been consulted. The issue mainly affects transactions with international elements, such as group restructurings, cross-border payments or wealth structures with entities in several countries.

What the Court of Justice said

On 8 December 2022 the Grand Chamber of the EU Court of Justice declared invalid, in light of the right to respect for communications in article 7 of the Charter of Fundamental Rights, the provision of the directive requiring the exempt lawyer to notify other intermediaries who are not their client of their reporting obligations. It held that such notification interferes with the confidentiality of the lawyer–client relationship and is not strictly necessary.

According to the Court, the professional-secrecy exemption, the lawyer’s duty to notify their client without delay that the arrangement must be reported, and the obligation of the other intermediaries and, failing them, of the taxpayer, all remain. By contrast, article 47 of the Charter, on effective judicial protection, is not infringed, because the reporting stage precedes any proceedings.

What to bear in mind

Until judgment is given, the suspended phrase does not apply. For anyone taking part in international transactions it is wise to keep documenting which intermediaries are involved, whether any is exempt and who takes on the filing, and to review reporting deadlines, which keep running for everyone else. An interim suspension is not an annulment, and the regulation may be amended later. Those who have already filed DAC6 reports can check whether they included notices of the suspended kind and whether they will need updating once judgment is given.

These decisions remind us that tax law also moves through judgments, not only through legislation. This is general information and no substitute for individual analysis: the tax adviser who has acted on your transaction can say whether it affects you and how to document it with the care that professional secrecy demands.

Professional secrecy and the fight against avoidance have to coexist, and the courts fix the point of balance.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.