In a judgment dated 8 December 2022 in the case C-694/20 Orde van Vlaamse Balies, the European Court of Justice ("ECJ" or the "Court") sitting in Grand Chamber handed down a decision concerning the compatibility of Directive 2011/16/EU on administrative cooperation in the field of taxation as amended by Direction 2018/822 ("DAC 6") with legal professional privilege.
Background
As a reminder, DAC 6 imposes an obligation on intermediaries (any person who designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement), to report certain aggressive tax border arrangements, as defined ("cross-border arrangement") to the competent tax authorities. This obligation extends, under certain special circumstances, to lawyers who are bound by legal professional privilege.
In the case at hand, the Flemish decree transposing DAC 6 provides that, when an intermediary involved in cross-border tax planning is bound by legal professional privilege (the "lawyer-intermediary"), he/she must inform the other intermediaries that he or she cannot make that report him/herself. The Belgian Constitutional Court asked the ECJ to examine the validity, in light of Articles 7 and 47 of the Charter of Fundamental Rights of the European Union (the "Charter"), of the obligation on lawyers, when acting as intermediaries within the meaning of DAC 6, to notify any other intermediary who is not his or her client of that intermediary’s reporting obligations in relation to the transaction.
Findings of the Court
First of all, the ECJ recalled that Article 7 of the Charter protects confidentiality of all correspondence between individuals and affords strengthened protection to exchanges between lawyers and their clients, including legal advice. The Court found that the obligation laid down by Article 8ab(5) of DAC 6 for a lawyer-intermediary where he/she is exempt from reporting directly to the competent tax authorities on account of the legal privilege he/she is bound, to notify other intermediaries of their reporting obligations necessarily entails that other intermediaries become aware of the identity of the notifying lawyer-intermediary. The Court found that in so far as those intermediaries did not have knowledge of the identity of the lawyer-intermediary and of him/her having been consulted on the cross-border arrangement, the obligation to notify entails an interference with the right to respect for communications between lawyers and their client. Furthermore, the fact that the intermediary must inform the competent authority of the identity of the lawyer-intermediary when making a reporting also constitutes an infringement of Article 7 of the Charter. The Court found that these interferences were not strictly necessary in order to attain the objectives of DAC 6, namely combating aggressive tax planning and preventing the risk of tax avoidance and evasion, since other intermediaries are required to file that information with the competent tax authorities. No intermediary can claim that he or she was unaware of the reporting obligations - which are clearly set out in DAC 6- to which he or she is directly and individually subject.
As regards Article 47 of the Charter and the right to fair trial, the Court held there was no sufficient link between judicial proceedings and the reporting requirements to constitute an infringement to the right to a fair trial.
Conclusion
This judgment should affect the position of Luxembourg based lawyers who are also under an obligation to notify other intermediaries of their reporting obligations under DAC 6 in relation to a particular transaction, although no guidance has been issued. One could nonetheless consider it regrettable that the judgment does not call into question the obligation on lawyers to advise the relevant taxpayer that a transaction may be reportable under DAC 6. In this respect, the judgment does not examine the issue of the lawyer’s obligation to notify a taxpayer that may not be their client, which may raise similar difficulties under Article 7 of the Charter.
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