In a judgment of 29 July 2024 (Case C-623/22), the Court of Justice once again explicitly confirms the fundamental role of lawyers in a democratic society and their special position within the judicial organisation of the Member States. Consequently, the Court’s earlier finding of incompatibility of the directive commonly known as “DAC 6” with Article 7 of the Charter of Fundamental Rights of the European Union applies only to an attorney-at-law (“advocaat”/ “avocat”). This exception does not apply to other professionals subject to professional secrecy. Otherwise, DAC 6 remains intact.
Context
Directive 2011/16/EU aims to improve administrative cooperation between Member States in the field of taxation by facilitating the exchange of information between Member States for the needs of their internal tax systems and by providing a framework for cooperation in administrative enquiries or audits. Since its introduction, the Directive has been amended several times. The sixth version of the Directive (“DAC 6”) introduced the exchange of information on “cross-border arrangements”. The Belgian legislation implementing DAC 6 (i.e. a federal law, a Flemish decree, a Brussels ordinance and two Walloon decrees) is the subject of several proceedings for annulment before the Constitutional Court, in which the Flemish, French-speaking and German-speaking Bars are among the parties.
Indeed, DAC 6 provides inter alia that Member States may take the necessary measures to exempt intermediaries from their obligation to report if this would violate their professional secrecy (“legal professional privilege”). However, if a Member State adopts such a measure, it should also, according to DAC 6, take the necessary measures to require intermediaries to inform without delay any other intermediary or, failing that, the relevant taxable person of the reporting obligation that has become incumbent on them.
The Belgian legislator provided for such an exception in the implementing legislation. A Belgian attorney-at-law, who was not allowed to report a cross-border arrangement to the tax authorities on the grounds of professional secrecy, was obliged under that legislation to inform the other intermediaries involved in the arrangement, who were not clients, of their obligation to report, which constitutes a breach of the lawyer’s professional secrecy. Accordingly, in a judgment of 17 December 2020, the Constitutional Court asked the Court of Justice whether this provision of DAC 6 was compatible with Article 7 of the Charter of Fundamental Rights of the European Union, which protects the right to privacy. In its judgment of 8 December 2022, the Court of Justice held that DAC 6 is indeed invalid in the light of Article 7 of that Charter, insofar as its application has the effect of obliging an attorney-at-law, when relieved of the duty of disclosure by virtue of professional secrecy, to inform any other intermediary who is not a client of his/her duty of disclosure. Indeed, the very existence of the relationship between a client and its attorney-at-law must be kept secret from third parties (including the other intermediaries and also the tax authorities). The Constitutional Court subsequently annulled the Belgian implementing legislation in several judgments with regard to the obligation of attorneys-at-law to inform other intermediaries who are not their clients. In the eighth version of the Directive (“DAC 8”), which the Member States must transpose into national law by 31 December 2025, the provision in question has also been amended.
In a judgment of 15 September 2022, the Constitutional Court had referred five further and broader preliminary questions to the Court of Justice, namely on the compatibility of DAC 6 with the principle of equality and non-discrimination, the principle of legality in criminal matters, the general principle of legal certainty, and the right to respect for private life. In its fourth preliminary question, the Constitutional Court asked whether the invalidity of DAC 6 (which was later confirmed by the Court of Justice) with regard to attorneys-at-law also applied to other professionals subject to professional secrecy under criminal law.
Court of Justice upholds DAC 6 and confirms special position of attorneys-at-law
In its judgment of 29 July 2024, the Court of Justice ruled that its examination did not reveal any facts or circumstances that would affect the validity of DAC 6 in the light of the principles of equal treatment and non-discrimination, legal certainty, legality in criminal matters and the right to respect for private life. In other words, the Court of Justice upheld the entire DAC 6 legislation as it stands after the 8 December 2022 ruling. In certain areas, the Court does make some clarifications (inter alia regarding the commencement of the obligation to report, distinguishing between intermediaries that are promoters and intermediaries that are service providers, and the more limited content of the report when attorneys-at-law are involved – indeed, the report may contain neither the identity of the attorney-at-law nor the content of the advice provided).
It is noteworthy in this respect that the Court of Justice makes a clear and strict distinction between attorneys-at-law and other professionals subject to professional secrecy under criminal law (such as tax advisors, accountants, auditors and notaries). According to the Court, the solution adopted in its judgment of 8 December 2022 for attorneys-at-law does not apply to other professionals.
Indeed, the Court reaffirmed that Article 7 of the Charter and its counterpart in the ECHR (Article 8(1)) confer enhanced protection on the exchange of information between attorneys-at-law and their clients, regarding activities relating to legal defence and also regarding legal advice, and with respect to both the content of legal advice and its mere existence. This specific protection of the professional secrecy of attorneys-at-law is justified by the fundamental role they have in a democratic society, namely that of defending litigants. The Court of Justice thus reaffirms that the confidentiality of the relationship between attorneys-at-law and their clients enjoys very specific protection, linked to the special position occupied by attorneys-at-law in the judicial organisation of the Member States and the fundamental task entrusted to them, which is recognised by all the Member States.
Consequently, where other professionals subject to professional secrecy are not allowed to report a cross-border arrangement because of their professional secrecy, they must still inform the other intermediaries involved in the arrangement of their obligation to report. In that respect, the Belgian implementing legislation will therefore not need to be adjusted beyond what was already provided for in DAC 8. However, in view of the ECJ’s considerations on some other points (including the commencement of the obligation to report and the content of the report), the implementing legislation will have to be fine-tuned in other respects as well.
Finally, this judgment is expected to have a significant impact in the context of tax proceedings and investigations of any kind, where the tax authorities do not always respect the confidentiality of correspondence with professionals subject to professional secrecy.
Please do not hesitate to contact us if you have any questions regarding tax investigations or other tax matters.
