The Court of Justice of the European Union (CJEU) has held that the EU DAC6 Directive violates the right to respect for communications between a lawyer and his or her client.
The DAC6 Directive provides that all intermediaries involved in potentially aggressive cross-border tax planning (arrangements which could lead to tax avoidance) must be reported to the competent tax authorities.
A Member State may grant intermediaries a waiver from that obligation where it would breach legal professional privilege. In such circumstances, lawyer-intermediaries must notify any other intermediary, or the relevant taxpayer, of their reporting obligations.
Two lawyers’ professional organizations brought actions before the Belgian Constitutional Court, which in turn sought an answer from the CJEU in this regard.
In its decision given on December 8, 2022, the CJEU said that the obligation to notify entails an interference with the right to respect for communications between lawyers and their clients, guaranteed in Article 7 of the Charter of Fundamental Rights.
The court said: “The obligation laid down by the Directive for a lawyer-intermediary subject to legal professional privilege to notify without delay other intermediaries of their reporting obligations implies that those other intermediaries become aware of the identity of the lawyer-intermediary. They also become aware of his or her analysis that the tax arrangement at issue is reportable and of his or her having been consulted in connection with the arrangement.”
The Court recalled that Article 7 of the Charter of Fundamental Rights of the European Union protects the confidentiality of all correspondence between individuals and affords strengthened protection to exchanges between lawyers and their clients.
The court explained: “That specific protection afforded to lawyers’ legal professional privilege is justified by the fact that lawyers are assigned a fundamental role in a democratic society, that of defending litigants. That role requires that any individual is able to seek advice freely from his or her lawyer, a principle recognized in all Member States. Legal professional privilege also covers legal consultation, both with regard to its content and its existence.”
“Given that other intermediaries are required to inform the competent tax authorities of the identity of the lawyer and of his or her having been consulted, that obligation also leads indirectly to a second interference with the right to legal professional privilege,” the court said.
The Court examined whether the interferences may be justified, in particular whether it meets objectives of general interest recognized by the EU and whether they are necessary for the pursuit of those objectives.
The Court considers however that the notification obligation on a lawyer subject to legal professional privilege is not necessary in order to attain that objective.
The court said: “The reporting obligation on other intermediaries who are not subject to legal professional privilege and, if there are no such intermediaries, that obligation on the relevant taxpayer, ensure, in principle, that the tax authorities are informed. The tax authorities may, after receiving such information, request additional information directly from the relevant taxpayer, who will then be able to consult his or her lawyer for assistance. The tax authorities may also conduct an audit of that taxpayer’s tax situation.”