Global Tax Alert: French Supreme Administrative Court requests preliminary ruling from ECJ

The French Supreme Administrative Court has requested a preliminary ruling from the European Court of Justice (ECJ) regarding the new filing rules applicable to intermediaries dealing with certain reportable cross-border arrangements in application of Amending Directive to the 2011 Directive on Administrative Cooperation on reportable cross-border arrangements (2018/822) (DAC6) (the Directive).

According to French domestic law intermediaries subject to professional secrecy are subject to DAC6 rules, but they have to obtain their client's agreement within 30 days to file a reportable cross-border arrangement. In case they do not obtain such an agreement, they have to notify any other intermediaries involved in the arrangement that the arrangement is reportable. The report must be made within 90 days of the date on which the first notification is sent.

Representatives of the French National Council of Bars, the Conference of the French Bar Presidents and the Paris Bar Association have previously requested the French Supreme Administrative Court to cancel these rules based on the argument that they are contrary to EU law to the extent that they do not provide for an exception applicable to intermediaries relying on legal privilege of attorneys due to the incompatibility of Article 8bis ter, paragraph 5, of the Directive with the principle of protection of lawyers' professional secrecy guaranteed by Articles 7 and 47 of the Charter of Fundamental Rights of the European Union and the provisions of Articles 8 and 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR).

The French Supreme Administrative Court annulled some sections of the French tax authorities guidelines regarding reporting deadlines as well as acknowledged that there is some doubt as to whether DAC6 is in line with EU law and therefore requested the ECJ to rule whether Article 8bis ter paragraph 5 of the Directive does

• infringe the right to a fair trial guaranteed by Article 47 of the Charter of Fundamental Rights of the European Union and Article 6 of the ECHR in so far as it does not exclude lawyers acting in legal proceedings from the scope of intermediaries subject to the obligation of declaration or notification?
• infringe the right to respect for private life and communications guaranteed by Article 7 of the Charter of Fundamental Rights of the European Union and Article 8 of the ECHR, in so far as lawyers evaluating the legal situation of their clients are not excluded from the scope of the filing obligations?

In its reasoning the Court recalls the previous case law of the ECJ, “Ordre des barreaux francophones et germanophone et autres contre Conseil des Ministres” (26 June 2007, C-305/05), according to which a lawyer would not be able to carry out his mission and would be deprived of the rights conferred by Article 6 of the ECHR if, in the context of legal proceedings or their preparation, he was forced to cooperate with the public authorities by transmitting to them the information obtained in this context. The Court notes that Article 8bis ter, paragraph 5, of the Directive does not exclude by principle lawyers from the scope of intermediaries and seems to prevent Member States from allowing a lawyer to refrain from notifying another intermediary of mandatory reporting requirements, even though such notification may result in the disclosure of information covered by professional secrecy to the public authorities.

The Court furthermore recalls the ECJ’s precedent “Michaud contre France” (6 December 2012, n°12323/11) according to which Article 8 of the ECHR guarantees the right to any individuals to respect for their correspondence and therefore, protects the confidentiality of all exchanges for purpose of communication. The Court notes that by requiring a lawyer to provide to the public authority information relating to another person, the obligation to report suspicions constitutes an interference with the lawyer's right to respect for his correspondence and his private life, which includes his professional activities.

The Court notes that an infringement to a fundamental freedom may be justified if it is provided for by law, it fulfils a legitimate purpose and it is necessary in a democratic society. In the light of DAC6 such interference appears to pursue not the objective of fighting against fraud and tax evasion, but a simple objective of monitoring potentially aggressive tax planning arrangements, which does not constitute an objective of general interest justifying the infringement of a fundamental freedom.

Interestingly, the Belgian Constitutional Court has asked the same questions to the ECJ in its decision dated 17 December 2020.

As a result of this new decision, in the short term and until the ECJ clarifies the questions raised by the Court, French lawyers will have to ensure that filing and notification deadlines pursuant DAC6 are duly complied with.

The decision of the ECJ will however have a significant impact, beyond Belgium and France, as it will give guidance on how DAC6 rules should be implemented in all Members States in light of the general EU law principles. In this context we note that in France, for anti-money laundering purposes, suspicious transactions are not directly declared by the relevant lawyer to the French authorities, but indirectly, notably through the Head of the Bar. If the decision of ECJ will entail a challenge of the DAC6 rules, similar alternative methods of disclosure may have to be considered.