The European Court of Justice Will Resolve on The Scope of Legal Professional Privilege

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The main purpose of the 6th Directive on the Administrative Cooperation between EU Member States (DAC 6) is to facilitate the functioning of the internal market by discouraging the use of aggressive cross-border tax planning arrangements. In a nutshell, DAC6 stated that intermediaries (such as lawyers, consultants, financial institution, etc. and sometimes taxpayers) should report to the national tax authorities any advice and/or implementation of a cross-border arrangement that might constitute aggressive tax planning. In most cases intermediaries are advisors. However, considering that in almost every European member state a “legal professional privilege” (LPP) exists, this reporting obligation, seems to contradict LPP of such intermediaries although DAC6 provides for a clue for member states to regulate certain reporting exemptions.

On the grounds of this cart blanche, in September 2022 the Belgian Constitutional Court partially annulled the reporting obligation transposed in its national legislation pursuant to a decree issued in 2020 as deemed to be conflicting LPP. The Belgian Court considers the lawyers’ LPP to be an essential component of the right to respect for private life and the right to a fair trial, as guaranteed by the Charter of Fundamental Rights of the European Union (the Charter) and the European Convention on Human Rights. The Court also states that even though exterior to any litigation, the provision of legal advices to clients remains covered by the LPP. Given the nature of the controversy, the Belgian Constitutional Court referred the matter to the ECJ, seeking for clarification as to whether the mandatory exchange of information in cross-border arrangements required for intermediaries is compatible with the Charter.

The Advocate General (AG) opined on the case that for DAC6 reporting purposes, lawyer-intermediaries do not act as defenders of their client in a dispute with the tax authorities. Thus, since there is no link with litigation in usual court dispute resolution, the AG assumes that the obligation for lawyer-intermediaries to notify other intermediaries to report the tax administration of a cross-border arrangement cannot affect the rights under the Charter and LPP cannot be invoked thereto. According to the AG’s the same applies to lawyer-intermediaries exempted from the obligation to report as the latter are exhaustively obliged to transfer to other intermediaries limited information but not legal assessment or communication with the client.

Moreover, the requirement to notify is deemed justified and proportionate by the European Union’s general interest in combating international tax avoidance and evasion as an objective of general interest within the European Union. However, considering that professional legal secrecy is not yet harmonized in the EU, the AG points out that member state courts are the competent authorities to outline case-by-case the activities falling within the scope of LPP.

In almost every European member state there is a professional privilege issue in the context of DAC6 reporting obligations. Many other European countries apart from Belgium have also raised similar questions to those brought up by the Belgian Constitutional Court.

The ECJ follow up on the topic will be also intriguing in the light of the recent abolishment of unlimited access to beneficial ownership data in national registers, as the decision impacts mandatory disclosure rules in general. With this in mind, we will follow the topic and expect the court to rule on this case as well, as the decision is also related to two other current joined cases C 37/20 and C 601/20, regarding the change in the publicity of the state registers of beneficial owners , insofar as matters are related and depend on each other.

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