Expansion of EU legal privilege: CJEU looks at DAC6 notification requirements for lawyer intermediaries
Speed Read
The Court of Justice of the European Union (CJEU) recently considered the mandatory disclosure requirements on lawyer intermediaries under the EU Mandatory Disclosure Regime or DAC6. DAC6, formally known as EU Directive 2018/822 of 25 May 2018, amended EU Directive 2011/16 and introduced new disclosure and reporting rules for intermediaries, including lawyers, who advise or assist in potentially aggressive tax-planning cross-border tax arrangements. DAC6 did, however, provide for the possibility of Member States to provide for a waiver from intermediaries' reporting obligations where same would breach their legal professional privilege (LPP) under national law. Where an LPP waiver applies, Member States are required to ensure that such intermediaries are under an obligation to notify other intermediaries or, if there is no such intermediary, the relevant taxpayer, of their reporting obligations. In the case of Orde van Vlaamse Balies and Others v Vlaamse Regering Case C-694/20 (Orde), the CJEU ruled that requiring lawyers who qualify for a waiver from reporting obligations due to LPP to notify other intermediaries was a breach of the right to respect for communications between lawyers and their clients guaranteed by Article 7 of the Charter of Fundamental Rights of the European Union (the Charter).
The Request for a Preliminary Ruling
Under the Belgian law implementing the DAC6 regime, intermediaries availing of the waiver from reporting obligations on account of LPP were obliged to notify in writing any other intermediaries of their reporting obligation. Only once the other intermediaries had been notified would the reporting obligations waiver take effect. The Belgian Constitutional Court submitted a request for a preliminary ruling to the CJEU on the question of whether this reporting obligation, as regards lawyer intermediaries, to other intermediaries, infringed the right to a fair trial as guaranteed by Article 47 of the Charter and the right to respect for private life as guaranteed under Article 7 of the Charter.
Article 7 of the Charter - right to respect for private and family life, home and communications
The Court noted its obligation when interpreting Charter rights to take into account the corresponding rights contained in the European Convention on Human Rights (ECHR). The Court thus noted that the European Court of Human Rights (ECtHR) case law on Article 8(1) recognised that the right protects the confidentiality of all correspondence between individuals and affords strengthened protection to exchanges between lawyers and their clients (Michaud v. France - application no. 12323/11). The Court stated that protections afforded by Article 8(1) ECHR, and thus Article 7 of the Charter, extend not only to legal defence but also to legal advice. Referring to the ECtHR case of Altay v Turkey (no. 2) - application no. 11236/09, the Court pointed out that individuals who consult a lawyer can reasonably expect their communication to be private and confidential. The Court further stated that "…other than in exceptional situations, those persons have a legitimate expectation that their lawyer will not disclose to anyone, without their consent, that they are consulting him or her" [para. 27]
The Court recognised that the obligation to notify laid down in Article 8ab(5) of the amended Directive 2011/16 meant that other intermediaries became aware of the identity of the notifying lawyer intermediary, of his or her assessment that the arrangement was reportable and the fact of his or her having been consulted in relation to the arrangement. It recognised that the obligation to notify thus constituted an interference with the right to respect for communications between lawyers and their clients. After conducting an examination into whether such an interference was justified, the Court ultimately held that it was not and that the reporting obligation on lawyer intermediaries infringed the rights guaranteed under Article 7 of the Charter. The Court was satisfied that the Directive provides for the provision of the relevant information to the tax authorities without the need for a lawyer intermediary to provide same in breach of LPP (i.e. ultimately a non-lawyer intermediary will be under an obligation to report or the taxpayer who is the client will be notified of the reporting obligation by the lawyer intermediary). The Court concluded that the pursuit of the objectives of amended Directive 2011/16 of combating aggressive tax planning and preventing the risk of tax avoidance and evasion did not thus strictly require the provision of information by lawyer intermediaries in breach of LPP.
Article 47 of the Charter – the right to a fair trial
The Court then turned to assess the validity of the reporting obligation in light of the right to a fair trial as enshrined within Article 47 of the Charter. The Court concluded that Article 47 "presuppose[s], by definition, a link with judicial proceedings" and that such a link had not been established in the present case. It was noted that the lawyer intermediary was not acting as defence counsel for their client in a dispute and the fact that the matter may at a later stage give rise to litigation was not sufficient to establish this requisite link to litigation. There was thus no interference with the right to a fair trial under Article 47 of the Charter.
Key Takeaway
In this jurisdiction, s. 817RC(10) of the Taxes Consolidation Act 1997 sets out the notification requirements of lawyer intermediaries who qualify to claim LPP. This section was amended by s.59(a)(iv)(II) of the Finance Act 2020 such that intermediaries who qualify for a waiver from reporting obligations due to LPP are only under an obligation to inform the taxpayer of their reporting obligations and are not under an obligation to inform other intermediaries (as was the case pre-Finance Act 2020). The obligations on lawyer intermediaries subject to LPP in this jurisdiction thus seem to be aligned already to the approach adopted by the CJEU in the Orde case.
For more information, please contact Enda Hurley, Partner, James Somerville, Partner, Bryan Hughes, Senior Associate, Rachel Kemp, Knowledge Lawyer or your usual A&L Goodbody Tax Disputes & Enquiries Team contact.
Date published: 15 March 2023