In a judgment dated 11 July 2023 (docket No. 48677Ca and 48684Ca), the Luxembourg Higher Administrative Court (Cour administrative) (the “Court”) referred several questions to the European Court of Justice (the “ECJ”) for a preliminary ruling. The questions focus on the application of legal professional privilege in the context of the exchange of information upon request in tax matters introduced by the Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation (the “Directive”).
In the case at hand, following a request by the Spanish tax authorities, the Director of the Luxembourg Direct Tax Administration (Administration des Contributions Directes) (the “DTA”) ordered a Luxembourg law firm to disclose a set of documents relating to a transaction it had advised on. The Luxembourg law firm refused to provide the documents on the grounds of the latter being protected by legal professional privilege.
In the context of the case pending before the Court, the question arose as to whether the Directive complied with the Charter of Fundamental Rights of the EU (the “Charter”) and, in particular, with Articles 7 (respect for private and family life) and 52(1) (scope of guaranteed rights) of the Charter.
In particular, by reference to the conclusions drawn by the ECJ in existing case law at the EU level, namely the ruling of 8 December 2022 in Orde van Vlaamse Balies, (case C-694/20), concerning notification obligations for lawyers under the Directive 2018/822 of 25 May 2018 on mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements, the Court recalled that the rights enshrined in Article 7 of the Charter are not absolute rights but must be considered in relation to their function in society. Additionally, the provision in Article 52(1) of the Charter allows for limitations to be placed on the exercise of those rights, provided that those limitations are provided for by law, that they respect the essence of those rights and that, in compliance with the principle of proportionality, they are necessary and they genuinely meet objectives of general interest recognised by the EU, or the need to protect the rights and freedoms of others.
However, insofar as the Directive does not specifically regulate the actual scope of the limitation on the exercise of the right to privacy in its specific emanation relating to correspondence between a lawyer and his client, the Court raises the question of its conformity with the Charter. Indeed, the Directive simply gives Member States the possibility (but not the obligation) to refuse the exchange of information in cases where it "would lead to the disclosure of a commercial, industrial or professional secret or of a commercial process, or of information whose disclosure would be contrary to public policy" (Article 17(4) of the Directive). However, it does not provide for a framework for the exchange of information covered by professional secrecy (in particular that of a lawyer), in the event that a Member State chooses not to systematically refuse to transmit such information.
If the ECJ were to consider that the Directive complies with Articles 7 and 52(1) of the Charter, the Court also raises the question as to whether the scope of the duty of cooperation of lawyers (or of a law firm), in their capacity as third parties holding information in the context of the application of the mechanism for the exchange of information upon request, in particular, specific limitations to take into account the effect of their legal professional privilege can be governed by the provisions of domestic law of each Member State.
Finally, if the ECJ arrives at the conclusion that the scope of the duty of lawyers to cooperate may indeed be governed by the provisions of each Member State’s domestic law, the question arises, whether, in order to comply with Article 7 of the Charter, a national legal provision must include specific conditions which ensures respect of the essence of the confidential nature of communications between lawyers and their clients and reduces the lawyer’s obligation to cooperate, to that which is appropriate and necessary for the achievement of the objective of the Directive.
The ECJ is expected to render a final decision in the coming months.
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