On the 8 December 2022, the Court of Justice of the European Union ("CJEU"), in delivering a ruling in the case of Orde van Vlaamse Balies, IG, Belgian Association of Tax Lawyers, CD & JU v. Vlaamse Regering, found that the obligation imposed on a lawyer (as reporting intermediary under Council Directive (EU) 2018/822 of 25 May 2018 ("DAC6"), which amended Council Directive (EU) 2011/16/EU ("Amended Directive")) to inform other intermediaries involved in a potentially aggressive tax-planning cross-border arrangement interferes with the right to legal professional privilege afforded to the lawyer's client.

Legal context

On 25 May 2018, DAC6 introduced an obligation on an intermediary and the relevant taxpayer (as such terms are defined by DAC6) to report potentially aggressive tax-planning cross-border arrangements to the competent authorities.

The matter which fell under the CJEU's lens for consideration, in this case, revolved around the new Article 8ab(5) introduced into the Amended Directive by DAC6, as transposed into Belgian law. Article 8ab(5) enables Member States to exempt intermediaries from filing information on a reportable cross-border arrangement where the reporting obligation would breach the legal professional privilege under the national law of that Member State. The Amended Directive dictates that such an exemption would be applicable to the extent that the relevant Member State requires the intermediary seeking to benefit from such an exemption to notify, without delay, any other intermediary, or, if there is no such intermediary, the relevant taxpayer of the obligation to report. In such a scenario, in terms of Article 8ab(6) of the Amended Directive, the obligation to report would fall on such other intermediary or, if there is no such intermediary, on the relevant taxpayer.

Background to the preliminary reference

In 2020, the applicants ("Applicants") instituted proceedings before the Belgian Constitutional Court ("Referring Court") seeking the suspension of the Belgian law referred to above, as well as its annulment, in whole or in part.

The sticking point stemming from the preliminary reference related to the obligation requiring a lawyer acting as an intermediary, where the lawyer is bound by legal professional privilege, to inform the other intermediaries concerned in writing, providing reasons, for the lawyer's inability to fulfil his or her reporting obligation under the Amended Directive (as transposed into Belgian law). The Applicants claimed, inter alia, that such an obligation is inherently incompatible with the duty of legal professional privilege lawyers owe to their clients.

In its preliminary reference to the CJEU, the Referring Court noted that under Belgian law, information which lawyers must file with the competent authorities in respect of their clients is protected by the legal professional privilege if that information relates to activities which fall within their specific tasks of defence or representation in legal proceedings and the provision of legal advice. It further explained that legal professional privilege also captures the identity of the lawyer's client and equally attaches to other actors, such as public authorities and intermediaries within the context of DAC6.

The Referring Court thus requested the CJEU to issue a preliminary ruling on the validity of the Amended Directive insofar as the obligation noted in Article 8ab(5) is concerned. It queried whether the relevant provisions of the Amended Directive infringe the right to a fair trial as guaranteed by Article 47 of the Charter of Fundamental Rights of the European Union ("Charter") and the right to respect for private life as guaranteed by Article 7 of the Charter.

The CJEU's considerations

The CJEU started by clarifying that the Referring Court seeks to ascertain the validity of the obligation arising from Article 8ab(5) of the Amended Directive insofar as the notification must be made by a lawyer acting as an intermediary ("lawyer-intermediary") to another intermediary who is not the lawyer's client.

The CJEU explained that lawyers may, in the execution of their duties, qualify as 'intermediaries' for the purposes of the Amended Directive given that they may engage in activities involving, inter alia, the design, marketing, organisation, making available for implementation or managing the implementation of a reportable cross-border arrangement. Therefore, lawyers carrying out such activities (and other activities specified in the Amended Directive) are, in principle, subject to the reporting obligation provided for in Article 8ab(1).

In its deliberations, the CJEU expressed the view that the obligation established by Article 8ab(5) as applicable to a lawyer-intermediary necessarily entails the consequence that other intermediaries become aware – through the lawyer-intermediary's notification made pursuant to Article 8ab(5) – of the identity of the notifying lawyer-intermediary, of the lawyer's assessment that the arrangement at issue is reportable and of the lawyer having been consulted in connection with the arrangement.

Following due consideration of the relevant provisions of the Amended Directive within the context of its scope, the spirit of Articles 7 and 47 of the Charter, judgements of the European Court of Human Rights relating to the interpretation of Articles 7 and 47 of the Charter, as well as the Advocate General's Opinion, the CJEU found that in the circumstances noted above, and insofar as such other intermediaries do not necessarily have knowledge of the identity of the lawyer-intermediary and of the lawyer having been consulted on the reportable cross-border arrangement, the obligation to notify laid down in Article 8ab(5) constitutes an interference with the right enshrined in Article 7 of the Charter to respect for communications between lawyers and their clients.

With respect to the validity of Article 8ab(5) of the Amended Directive in the light of Article 47 of the Charter, the CJEU clarified that lawyers would be unable to carry out their task of advising, defending and representing their clients in an adequate manner (who would, in turn, be deprived of their rights under Article 47 of the Charter), if lawyers were obliged, in the context of judicial proceedings or the preparation for such proceedings, to cooperate with the competent authorities by sharing with them information obtained in the course of related legal consultations.

On this point, however, the CJEU agreed with the Advocate General's Opinion, that the obligation to notify arises at an early stage, at the latest when the reportable cross-border arrangement has just been finalised and is ready to be implemented, and would thus generally arise outside the scope of legal proceedings or their preparation. It further noted that a cardinal element of the right to a fair trial (guaranteed in Article 47 of the Charter) presupposes a link with judicial proceedings and, as such a link had not been established in the case under consideration, the CJEU found that in such circumstances the reporting obligation laid down in Article 8ab(1) of the Amended Directive does not interfere with the right to a fair trial guaranteed by the Charter.

The CJEU's ruling

In the light of the above considerations, the CJEU ruled that Article 8ab(5) of the Amended Directive is invalid in the light of Article 7 of the Charter, insofar as the Member States' application of that provision has the effect of requiring a lawyer-intermediary, where the lawyer is exempt from the reporting obligation under Article 8ab(1) on account of the legal professional privilege by which the lawyer is bound, to notify, without delay, any other intermediary who is not the lawyer's client of that intermediary's reporting obligations under Article 8ab(6).

This article was first published in The Malta Independent (4 January 2023).

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