The CJEU has concluded that the reporting obligations established in the DAC are invalid insofar as they affect lawyers’ professional secrecy, as this guarantees the right to privacy and respect for clients’ private lives. However, it clarifies that the exemption from these obligations does not extend to tax advisors who are not lawyers.
The Court of Justice of the European Union (CJEU) has recently issued two important rulings on lawyers’ professional secrecy in the tax field. In the judgment of December 8, 2022 (case C-694/20; Ordre van Vlaamse Balies), the CJEU ruled on the validity of Article 8ab(5) of Directive 2011/16, concerning administrative cooperation in the field of taxation (DAC), introduced by Council Directive 2018/822 of May 25, 2018. More recently, in the judgment of July 29, 2024 (case C-623/22; Belgian Association of Tax Lawyers), the CJEU revisits the interpretation and validity of the aforementioned directive. Both judgments result from preliminary questions raised by the Belgian Constitutional Court.
First, let’s recall that Article 8ab of the DAC contains two distinct rules in its paragraph 5. On one hand, it authorizes States to adopt necessary measures to exempt an advisor or intermediary when the reporting obligation would violate their duty of professional secrecy according to the law of that Member State. On the other hand, it provides that in such case of exemption, the intermediary must communicate this circumstance to other intermediaries or to the taxpayer themselves, who are then obliged to report this information.
In the 2022 judgment, issued by the Grand Chamber of the court, the CJEU declared that the cited Article 8ab of the DAC was invalid in light of Article 7 of the Charter of Fundamental Rights of the European Union. This invalidity occurred only to the extent that the DAC recognized lawyers’ professional secrecy, but imposed on them the obligation to communicate this exemption due to their professional secrecy to other intermediaries, which could mean that these other intermediaries or the client themselves should report certain cross-border operations that, in the directive’s regulation, posed a risk of tax avoidance.
The CJEU starts in this judgment from the usual analysis, faced with measures affecting a right recognized in the Charter of Fundamental Rights of the Union. According to Article 52 of the Charter, such a measure requires a legal basis, must respond to a legitimate objective, and respect the principle of proportionality. Assuming the existence of an undoubted legal basis that respected the essential content of the affected rights, the CJEU considered that the fight against fraud and aggressive tax planning constituted legitimate objectives that justified the adopted measures. However, upon reaching the last link in the proportionality test, the CJEU considered that this reporting obligation imposed on lawyers went beyond what was necessary to achieve the intended objectives. The preliminary question referred alluded to Articles 7 and 47 of the Charter, relating to the right to privacy and respect for private life and, on the other hand, the right to a fair trial and effective judicial protection. The CJEU dismissed the relevance of the second article and focused its analysis on the first (Article 7 of the Charter) in relation to Article 8 of the European Convention on Human Rights (ECHR) and understood that lawyers’ professional secrecy was based on their clients’ right to privacy who trusted in the confidentiality of their reciprocal communications. This would also follow, in the CJEU’s view, from the jurisprudence of the European Court of Human Rights, highlighting the judgment of December 6, 2012, in the case of Michaud v. France.
This legal basis, the right to privacy and respect for private life, reminded us in Spain that lawyers’ professional secrecy is not a privilege of theirs, but a consequence of a fundamental right, in Spanish constitutional terminology, of clients or litigants. This fundamental right requires the lawyer’s duty to maintain the confidentiality of their communications with their clients. On the other hand, if this fundamental right is a concretion of the right to privacy and respect for private life, and not only a consequence of the right to effective judicial protection, the CJEU’s judgment allowed understanding as protected the communications, not only between lawyers and their clients, but between these and any professional providing advisory services of a nature analogous to those provided by a lawyer.
In the second of the cited judgments, that of July 29, 2024, the CJEU rules on other aspects of interest regarding the interpretation of the DAC, but, for the purposes we now wish to highlight, responds, through its Second Chamber, to the question specifically raised by the Belgian Constitutional Court about the situation of tax advisors, or intermediaries in DAC terminology, who are not lawyers.
The CJEU nuances the previous jurisprudence of the Grand Chamber and understands that the invalidity derived from the previous 2022 judgment only reaches lawyers and not other professionals, even if they perform similar advisory tasks.
The CJEU introduces this clarification with arguments that actually open up other questions. Although in the ruling the judgment refers to the scope of the invalidity declared in the 2022 judgment, the court’s arguments go further and refer to the very scope of application of the exception contained in paragraph 5 of Article 8ab of the DAC.
Starting from the linguistic differences in the drafting of the DAC and the connection of the DAC with the work and model rules of the OECD, the CJEU concludes that this faculty of Member States to substitute the obligation to communicate information for a notification obligation is foreseen only for lawyers and those other professionals who, like lawyers, are qualified under national law to exercise representation in trials before courts. Later, the CJEU itself clarifies that lawyers’ work includes the function of providing legal advice, so that both this advice and representation and defense in court deserve the confidentiality of communications between lawyer and client, confidentiality protected by Article 7 of the Charter and Article 8 of the ECHR.
In this way, the CJEU’s jurisprudence leaves some questions open, but already raises other very important ones.
In Spain, the legislator itself, when transposing these precepts, preferred to speak of intermediaries and take as a reference the professional secrecy recognized in Article 93.5 of the General Tax Law for advisory or defense work, without further precision. Now the CJEU clearly differentiates the services of lawyers and thereby questions this approach and the very transposition of the DAC.
The CJEU could clarify or nuance some of these issues again on the occasion of the judgment it will issue in case C-432/23, Ordre des Avocats du Barreau de Luxembourg. However, the conclusions of the Advocate General, presented on May 30, 2024, go in the direction of reinforcing lawyers’ professional secrecy, clearly including in its scope legal advice, even advice related to the establishment of a certain investment company structure, without referring to the situation of other professionals who could provide analogous services.
