In response to a preliminary reference from Luxembourg, the Court of Justice of the European Union (CJEU) has found that legal advice in company law matters falls directly within the scope of Article 7 of the Charter of Fundamental Rights of the European Union (the “Charter”), and a request for a lawyer to provide confidential information on these matters pursuant to national laws enacting the Council Directive 2011/16/EU (“DAC 6”) constitutes an interference of those rights.  

Background

DAC 6 requires tax authorities to exchange taxpayer information on certain reportable cross-border tax arrangements, which the tax authorities subsequently exchange, with the purported aim of tackling aggressive tax planning practices.

Facts of the case

The Case of F SCS / Ordre des avocats -v- Luxembourg (C‑432/23) came before the CJEU by way of preliminary reference to examine whether the disclosure requirements under domestic legislation transposing DAC 6 unjustly interfere with the client/attorney privilege that is protected under Article 7 of the Charter.

In June of 2022 a Luxembourg incorporated law firm (the Law Firm), was ordered by the Luxembourg tax authorities to provide all documents and information concerning the services provided to it by a Spanish incorporated company relating to the acquisition of a Spanish incorporated business and of the majority shareholding of a Spanish incorporated company, following a request from the Spanish tax authorities. The Law Firm refused the request from the Luxembourg tax authorities to provide the information on the grounds of legal professional privilege by virtue of acting as Legal Counsel for the Spanish company. This refusal resulted in a fine by the Luxembourg tax authorities, which was challenged by the Law Firm. The Luxembourg Court referred three questions to the CJEU.

Questions for Preliminary Reference

1. Whether legal advice in commercial matters, in this case setting up a corporate investment structure, was protected under Article 7 of the Charter and if protected, whether the requirements under DAC 6 interfere with this protection.
2. Whether DAC 6 may be invalidated by virtue of failing to expressly include a provision permitting interference with communications between lawyers and clients or including a definition of the scope of any limitation (a matter which is currently for the domestic law of the Member States)
3. Whether Article 7 of the Charter precludes a Decision under national legislation that grants a derogation from legal professional privilege on the tax advice provided between lawyer and client except in exceptional circumstances (in this instance, the national law implementing DAC 6 reporting excluded the right to rely on the privilege except where disclosure would lead to a risk of criminal prosecution against the client. In a related question whether DAC 6 is invalid on the basis that it infringes upon LPP.

Findings of the Court

The CJEU determined that legal advice in company law matters falls directly within the scope of Article 7 of the Charter, and a request for a lawyer/law firm to provide confidential information on these matters would constitute an interference of those rights.

 In so finding  the fundamental role of lawyers within society was recognised by the CJEU and determined that clients are permitted to have the legitimate expectation that information exchanged between them and their legal advisors is confidential and will not be disclosed, referring to the previous judgment of the CJEU in Orde van Vlaamse Balies and Other (Case C-694/20), which highlighted that interference with attorney-client privilege can only be permitted in exceptional circumstances. The Court also reiterated the finding in that case that Article 7 of the Charter corresponds to Article 8(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms. The CJEU found that DAC 6 itself was not invalidated. The CJEU found that while DAC 6 arranges the manner in which tax authorities in different Member States exchange reportable information, it does not determine the requirements for those information gathering procedures under domestic law, nor does it explicitly permit interference with confidentiality of communications between lawyers and their clients within the framework of the information exchange system on request. It is for the Member State to ensure its national law provides the strengthened protection for legal professional privilege.

Finally, the Court held that national legislation must only override legal professional privilege in exceptional cases and that in this case a broad disclosure requirement with only an exception in cases where the taxpayer could be subject to criminal proceedings unjustly contravened Article 7 of the Charter.

Key Takeaway

The judgment is another confirmation from Europe’s top court that national legislation transposing DAC 6 cannot unjustly encroach upon legal professional privilege. As highlighted in this case, to do so would be to exclude a whole branch of law from the fundamental protections of legal professional privilege. Therefore, it is clear that domestic legislation must ensure the powers conferred on tax authorities to obtain information respect the privileged nature of tax advice given by lawyers to their clients.