From 1 July 2020, the European Mandatory Disclosure Rules Directive (DAC6) will apply.[2] Pursuant to it, intermediaries[3] and taxpayers must report potentially aggressive international tax arrangements that could lead to tax avoidance and evasion to the competent tax authorities (reporting obligation).[4] The tax authorities will then exchange this information with tax authorities in other European Member States through a system of mandatory and automatic information exchange. When implementing DAC6, Member States could choose to give some intermediaries, such as, for example, lawyers, the right to be waived from that reporting obligation if it would breach their legal professional privilege under the national law. However, a lawyer intermediary in those cases would then be obliged to notify, without delay, the other intermediaries, or if there is no such intermediary, the relevant taxpayer, of their own reporting obligations (notification obligation).[5]

Background of the case

The case concerned a dispute in which a Belgian lawyer invoked his legal professional privilege when failing to report cross-border tax structures that could potentially lead to tax fraud and avoidance. The Belgian Constitutional Court asked the CJEU to assess the notification obligation introduced against several general principles and fundamental rights recognised by Union law, in particular the right to respect for private life (as enshrined in Article 7 of the Charter of Fundamental Rights of the European Union (the Charter) as well as Article 8(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR)). Does Article 8ab(5) of DAC6 violate the right to respect for private life by requiring lawyer-intermediaries, who are bound by their legal professional privilege, to notify other intermediaries (not being their clients) about reportable cross-border tax arrangements, thus compelling the sharing of confidential information?

The essence of the judgment

In the judgment, the CJEU ruled that the confidentiality of the relationship between a lawyer and his or her client enjoys very specific protection, which relates to the special position occupied by a lawyer in the judicial organisation of the European Member States and to the fundamental task entrusted to him or her and which is recognised by all the European Member States. This specific protection of lawyers' legal professional privilege is justified by the fact that lawyers are assigned a fundamental role in a democratic society, that of defending litigants.[6] That fundamental task entails, on the one hand, the requirement, the importance of which is recognised in all the European Member States, that any person must be able, without constraint, to consult a lawyer whose profession encompasses, by its very nature, the giving of independent legal advice to all those in need of it and, on the other, the correlative duty of the lawyer to act in good faith towards his or her client.[7] The legal professional privilege covers not only the activity of defence but also legal advice, both with regard to its content and to its existence. Individuals who consult a lawyer can reasonably expect that their communication is private and confidential.[8] Therefore, other than in exceptional situations, those persons must have a legitimate expectation that their lawyer will not disclose to anyone, without their consent, that they are consulting him or her.[9] It was in the light of those considerations that the CJEU held in its judgment of 8 December 2022 that the notification obligation, when it is imposed on the lawyer, infringes Article 7 of the Charter.

In the judgment of 29 July 2024, the CJEU now clarifies that, in view of the unique position which they accord to the profession of lawyer within society and for the purposes of the proper administration of justice, the solution thus adopted in the judgment of 8 December 2022 as regards lawyers can extend only to persons pursuing their professional activities under one of the professional titles referred to in Article 1(2)(a) of the European Directive to facilitate practice of the profession of lawyer on a permanent basis in a Member State other than that in which the qualification was obtained[10] and not in respect of other professionals who may also be entitled to ensure legal representation under national laws and regulations, such as university professors in certain European Member States. With regard to these professionals, the notification requirement therefore does apply.

Conclusion

The CJEU judgment of 29 July 2024 marks an important step in the protection of the legal professional privilege within the European Union. It confirms the fundamental nature of this privilege and emphasises that the confidential relationship between a lawyer and his or her client is subject to very specific protection, related to the special position occupied by a lawyer in the judicial organisation of the European Member States. Lawyers and taxpayers seeking legal advice on tax structures or tax strategies within the European Union can be confident that this advice as well as their confidential communications about it will remain confidential. This protection is crucial for upholding general principles and fundamental rights in the European Union.

The difference between a lawyer and a tax adviser is crucial for the application of the legal professional privilege, as highlighted by the CJEU judgment of 29 July 2024. Although both professionals are often involved in tax matters, they have different functions, responsibilities and rights, especially with regard to the legal professional privilege. Tax advisers do have in the Netherlands and Belgium an informal legal professional privilege, which means that the tax inspector is not permitted to request reports and other documents originating from a tax advisor, provided these are intended to clarify the taxpayer's tax position or to advise them in that regard.[11] Tax advisors cannot, however, invoke the general legal professional privilege. For example, this confidentiality obligation cannot be opposed to criminal authorities. To ensure that confidential information remains protected from investigative authorities and other intermediaries who must be informed under certain circumstances on the basis of the notification obligation, a taxpayer should seek advice from a tax adviser who is also a registered lawyer!

Footnotes

1. CJEU 29 July 2024, ECLI:EU:C:2024:639, C-623/22 (Order of Flemish Bars and others).
2. Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC, as amended by Council Directive (EU) 2018/822 of 25 May 2018.
3.  An intermediary, according to Article 3 of DAC6, includes a person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement.
4. Article 8ab(1) of DAC6.
5. Pursuant to Article 8ab(5) of DAC6.
6. ECHR 6 December 2012, CE:ECHR:2012:1206JUD001232311 (Michaud v France), §118 and 119.
7. CJEU 8 December 2022, EU:C:2022:963, C-694/20 (Order of Flemish Bars and Others), §28.
8.  ECHR 9 April 2019, CE:ECHR:2019:0409JUD001123609 (Altay v Turkey (No 2)), §49.  
9.  CJEU 8 December 2022, EU:C:2022:963, C-694/20 (Order of Flemish Bars and Others), §27.
10.  Directive 98/5/EC of the European Parliament and of the Council of 16 February 1998 to facilitate practice of the profession of lawyer on a permanent basis in a Member State other than that in which the qualification was obtained, as amended by Council Directive 2013/25/EU of 13 May 2013.
11.  Supreme Court 23 September 2005, ECLI:NL:HR:2005:AU3140.