CJEU Decision reinforces the value of LPP
On 8 December 2022, the Grand Chamber of the Court of Justice of the European Union gave a decision on LPP, once again reinforcing it as an inherent element of the right of defence provided under the European Convention on Human Rights. The case concerned an amended Directive that introduced an obligation to report any potentially aggressive tax-planning cross-border tax arrangements to the competent authorities.
The Directive tries to address the increasing complexity and difficulty that Member States face when collecting taxes, as increasingly sophisticated schemes have evolved, due to the increased mobility of both capital and persons that the Internal Market enables. For this purpose, the reporting of arrangements that fall under the scope of the Directive could, in the view of the Institutions, benefit the Internal Market.
Overview of the law in dispute
The Court was requested a preliminary ruling concerning the validity of Article 8ab(5) of Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC (OJ 2011 L 64, p. 1), as amended by Council Directive (EU) 2018/822 of 25 May 2018 (OJ 2018 L 139, p. 1), in the light of Articles 7 and 47 of the Charter of Fundamental Rights of the European Union. The case against the amended Directive was brought in Belgium, against the Flemish Decree of 26 June 2020, brought by the Flemish Bar Council, the Belgian Association of Tax Lawyers, and others. The request for a preliminary ruling concerned the compatibility of Article 1(2) of Directive 2018/822 with Article 7 and Article 47, the right to respect for private life, and the right to a fair trial, respectively, of the Charter of Fundamental Rights of the European Union.
As amended, Article 8ab requires Member States to take measures to require intermediaries to file information, that they are aware of or possess, on reportable cross-border arrangements with the competent authorities within 30 days. Member States can take necessary measures to give intermediaries the right to a waiver from filing such information if the obligation would breach LPP under national law. If that were the case, intermediaries must instead notify any other intermediary or the relevant taxpayer of their reporting obligations.
The contents of the reporting obligations were the following:
(a) the identification of intermediaries and relevant taxpayers, including their name, date and place of birth (in the case of an individual), residence for tax purposes, TIN and, where appropriate, the persons that are associated enterprises to the relevant taxpayer;
(b) details of the hallmarks set out in Annex IV that make the cross-border arrangement reportable;
(c) a summary of the content of the reportable cross-border arrangement, including a reference to the name by which it is commonly known, if any, and a description in abstract terms of the relevant business activities or arrangements, without leading to the disclosure of a commercial, industrial or professional secret or of a commercial process, or of information the disclosure of which would be contrary to public policy;
(d) the date on which the first step in implementing the reportable cross-border arrangement has been made or will be made;
(e) details of the national provisions that form the basis of the reportable cross-border arrangement;
(f) the value of the reportable cross-border arrangement;
(g) the identification of the Member State of the relevant taxpayer(s) and any other Member States which are likely to be concerned by the reportable cross-border arrangement;
(h) the identification of any other person in a Member State likely to be affected by the reportable cross-border arrangement, indicating to which Member States such person is linked.
The position of the applicants and of the Court
According to the applicants, it is impossible to require a lawyer, who is acting as an intermediary, where they are bound by legal professional privilege, to inform the other intermediaries concerned in writing, stating reasons why they cannot fulfil their reporting obligation, without infringing the legal professional privilege by which lawyers are bound. Furthermore, that obligation to provide information is not necessary to ensure that cross-border arrangements are reported, since the client, regardless whether they are assisted by the lawyer, can themselves inform the other intermediaries and ask them to comply with their reporting obligation.
The Court notes that case-law of the ECtHR that Article 8(1) ECHR protects the confidentiality of all correspondence between individuals and affords strengthened protection to exchanges between lawyers and their clients, highlighting sections from the ECHR judgment Michaud v. France. It also stresses that, pursuant to the ECtHR, individuals who consult a lawyer can reasonably expect that their communication to be private and confidential. The Court sees the protections under Article 7 and 8(1) of ECHR to be justified by the fact that lawyers are assigned a fundamental role in a democratic society, that of defending litigants.
The Court does find that the obligation to notify, laid down in Article 8ab(5) of amended Directive 2011/16, entails an interference with the right to respect for communications between lawyers and their clients, guaranteed in Article 7 of the Charter. Furthermore, it does note that that obligation to notify leads, indirectly, to another interference with that right, that results from the disclosure, by the third-party intermediaries who have been notified, to the tax authorities of the identity of the lawyer-intermediary and the fact that they have been consulted with.
Though the Court did not find that the principle of legality and the respect for the essence of the rights guaranteed under Article 7 ECHR were infringed upon, it did consider the requirement to be disproportionate. The Court noted that “Even if the notification obligation established by Article 8ab(5) of amended Directive 2011/16 is indeed capable of contributing to the combating of aggressive tax planning and the prevention of the risk of tax avoidance and evasion, it must be held that that obligation cannot, however, be regarded as being strictly necessary in order to attain those objectives and, in particular, to ensure that the information concerning the reportable cross-border arrangements is filed with the competent authorities.”
Furthermore, by expressly providing in Article 8ab(5) that legal professional privilege may lead to a waiver from the reporting obligation, the amended Directive 2011/16 makes a lawyer-intermediary a person from whom other intermediaries cannot, a priori, expect any initiative capable of relieving them of their own reporting obligations.
The Court did also not accept the position of the Commission that the disclosure of the identity of the lawyer-intermediary and of their consultation would be necessary to enable the tax authorities to ascertain whether that lawyer-intermediary is justified in relying on legal professional privilege.
The Court concluded that the obligation to notify replacing, for the lawyer-intermediary bound by legal professional privilege, the reporting obligation laid down in Article 8ab(1) of amended Directive 2011/16 does not entail any interference with the right to a fair trial, guaranteed in Article 47 of the Charter, thus considering Article 8ab(5) to be invalid in light of Article 7 ECHR.
 117. The Court notes in this connection that it has on several occasions examined complaints under Article 8 of the Convention brought by lawyers in the exercise of their profession.
It has pointed out in this connection that, by virtue of Article 8, correspondence between a lawyer and his client, whatever its purpose enjoys privileged status where confidentiality is concerned. It has also said that it “attaches particular weight” to the risk of impingement on the lawyer’s right to professional secrecy, “since it may have repercussions on the proper administration of justice” and professional secrecy is the basis of the relationship of confidence between lawyer and client.
- The result is that while Article 8 protects the confidentiality of all “correspondence” between individuals, it affords strengthened protection to exchanges between lawyers and their clients. This is justified by the fact that lawyers are assigned a fundamental role in a democratic society, that of defending litigants. Yet lawyers cannot carry out this essential task if they are unable to guarantee to those they are defending that their exchanges will remain confidential. It is the relationship of trust between them, essential to the accomplishment of that mission, that is at stake. Indirectly but necessarily dependent thereupon is the right of everyone to a fair trial, including the right of accused persons not to incriminate themselves.
- This additional protection conferred by Article 8 on the confidentiality of lawyer-client relations, and the grounds on which it is based, lead the Court to find that, from this perspective, legal professional privilege, while primarily imposing certain obligations on lawyers, is specifically protected by that Article.