On May 30, 2024 on the website of the Court of Justice of the European Union (CJEU) a very interesting conclusion of Advocate General Kokott was published. It regards the Advocate General’s conclusion in Case C‑432/23, ECLI:EU:C:2024:446, Ordre des avocats du Barreau de Luxembourg. This conclusion is a definite must read for legal professionals.
Introduction
Ensuring uniform and lawful tax enforcement in a globalised world requires cooperation between tax administrations. It was for this reason that, in adopting Directive 2011/16/EU, the EU legislature created a legal basis for cooperation between national tax administrations within the European Union. That directive provides in particular for a cross-border exchange of information.
At the same time, however, such an exchange of information and the enquiries associated with it lead to interference with the fundamental rights of the affected taxpayers and persons obliged to provide information. So it is that the Court has already had to address the protection of fundamental rights in the scope of application of Directive 2011/16 on a number of occasions in the past.
A request for a preliminary ruling from Luxembourg now raises the question as to whether and, if so, under what conditions a tax administration may seek disclosure from a lawyer in the context of an exchange of information on request. In that regard, the Court has already emphasised the importance of protecting the confidentiality of communications between lawyers and their clients in connection with the reporting obligation applicable to cross-border tax arrangements.
The present case presents an opportunity to spell out further what protection legal professional privilege (‘LPP’) enjoys. In particular, it raises the question as to whether advice or representation provided on tax matters can generally be excluded from the protection afforded to LPP under EU law, as it can in Luxembourg law.
Facts
11. On 28 June 2022, the Directeur de l’administration des contributions directes (Director of the Direct Taxation Administration, Luxembourg) sent F, a société en commandite simple (limited partnership) (‘the applicant’) a decision (‘the information order’) which was worded in essence as follows:
‘… the competent authority of the Spanish tax administration has sent us a request for information pursuant to … Council Directive 2011/16/EU of 15 February 2011 …
The legal person to which the request relates is the Spanish company K …
Could you please provide, for the period from 1 January 2016 to 31 December 2019, the following information and documents no later than 3 August 2022:
– Please provide all available documentation for the period in question (engagement letter, contracts with the client, reports, memoranda, communications, invoices etc.) relating to services provided by [your company] F to the Spanish company K in connection with:
1. the acquisition in 2015 of 80% of the shares in [N] by the investment group [O] (invoice No …);
2. the acquisition of another Spanish undertaking by the group in 2018 (invoice No …);
– Please provide a detailed description of the manner in which the abovementioned operations were conducted, from the time when the services of [F] were engaged until their completion, as well as an explanation of its involvement in those processes and the identity of its interlocutors (vendors, buyers and third parties) and invoices; …’
12. By email of 8 July 2022, F informed the Direct Taxation Administration that it had acted as lawyer/legal counsel for the group to which K belongs, and that it was therefore prevented by law from communicating information concerning its client in so far as that information was covered by its LPP.
13. In a letter sent by registered post on 8 August 2022, F reaffirmed its position, stating that the instruction from its client in the case to which the decision relates did not cover tax matters but concerned only company law.
14. By letter sent by registered post of 19 August 2022, the Director of the Direct Taxation Administration informed the applicant that that response was not satisfactory. Thereafter, by decision of 16 September 2022, it imposed on the applicant a fine for failing to comply with the information order.
15. The applicant challenged that decision before the national courts by way of an action in which the Ordre des Avocats du Barreau de Luxembourg (Luxembourg Bar) participated as an intervener. By decision of 23 February 2023, the Tribunal administratif (Administrative Court, Luxembourg) dismissed the action and the intervention.
16 By applications received on 10 and 13 March 2023, the applicant and the Bar lodged an appeal against that judgment with the Cour administrative (Higher Administrative Court).
Request for a preliminary ruling
The court with jurisdiction to hear and determine the main proceedings, the Cour administrative (Higher Administrative Court), decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling under Article 267 TFEU:
‘(1) Does legal advice provided by a lawyer on matters of company law – in this case on setting up a corporate investment structure – fall within the scope of the strengthened protection of exchanges between lawyers and their clients afforded by Article 7 of the Charter?
(2) If the first question is answered in the affirmative, does a decision by the competent authority of a requested Member State adopted in response to a request from another Member State in the context of an exchange of information on request on the basis of Directive 2011/16, ordering a lawyer to provide it, broadly speaking, with all available documentation relating to its relations with its client, a detailed description of the operations on which it advised and an explanation of its involvement in those processes and the identity of its interlocutors, constitute an interference with the right to respect for communications between lawyers and their clients, guaranteed in Article 7 of the Charter?
(3) If the second question is answered in the affirmative, does Directive 2011/16 comply with Articles 7 and 52(1) of the Charter in so far as it does not include, beyond Article 17(4), any provision which formally permits interference with the confidentiality of exchanges between lawyers and their clients in the context of the system of exchange of information on request and which itself defines the scope of the limitation on the exercise of the right in question?
(4) If the third question is answered in the affirmative, can the arrangements relating to the duty of cooperation of lawyers (or of a law firm) as third parties holding information in the context of the application of the mechanism for the exchange of information on request established by Directive 2011/16, in particular specific limitations to take into account the effect of their legal professional privilege, be governed by the provisions of domestic law of each Member State regulating the duty of cooperation of lawyers, as third parties, in a tax investigation in the context of the application of domestic tax legislation in accordance with the reference made by Article 18(1) of that directive?
(5) If the fourth question is answered in the affirmative, in order to comply with Article 7 of the Charter, must a national legal provision establishing the arrangements relating to the duty of cooperation of lawyers as third parties holding information, like that applicable in the present case, include specific provisions which:
– ensure respect for the essence of the confidentiality of the communications between lawyers and their clients; and
– introduce specific conditions to ensure that the lawyer’s obligation to cooperate is reduced to what is appropriate and necessary for the achievement of the objective of Directive 2011/16?
(6) If the fifth question is answered in the affirmative, must the specific conditions to ensure that cooperation by lawyers with the tax investigation is reduced to what is appropriate and necessary for the achievement of the objective of Directive 2011/16 include the obligation for the competent authority of the requested Member State:
– to carry out an enhanced check of whether the requesting Member State has, beforehand, actually exhausted the usual sources of information which it could have used in the circumstances for obtaining the information requested, without running the risk of jeopardising the achievement of those objectives, in accordance with Article 17(1) of Directive 2011/16; and/or
– to have, beforehand, unsuccessfully contacted other potential information holders in order to be able, as a last resort, to contact a lawyer in his or her capacity as a potential information holder; and/or
– properly to balance, in each individual case, the objective of general interest against the rights at issue in such a manner that a decision ordering that information be provided could validly be issued in respect of a lawyer only if additional conditions are met, such as the requirement that the financial implications of the ongoing check in the requesting State reach or are likely to reach a certain significance or are likely to fall within the scope of criminal law?’
In the proceedings before the Court of Justice, written observations have been lodged by the applicant, the Luxembourg Bar, the Grand Duchy of Luxembourg, the Federal Republic of Germany, the Republic of Austria, the Kingdom of Spain, the Council of the European Union and the European Commission. In accordance with Article 76(2) of its Rules of Procedure, the Court has decided not to hold a hearing.
Legal framework
A. European Union law
The exchange of information on request is governed by Section I of Chapter II of Directive 2011/16. Article 1(1) reads:
‘1. This Directive lays down the rules and procedures under which the Member States shall cooperate with each other with a view to exchanging information that is foreseeably relevant to the administration and enforcement of the domestic laws of the Member States concerning the taxes referred to in Article 2.’
Article 5 of that directive provides:
‘At the request of the requesting authority, the requested authority shall communicate to the requesting authority any information referred to in Article 1(1) that it has in its possession or that it obtains as a result of administrative enquiries.’
In addition, Article 6 of Directive 2011/16 contains rules on the enquiries that may have to be carried out in the requested State:
‘1. The requested authority shall arrange for the carrying out of any administrative enquiries necessary to obtain the information referred to in Article 5.
2. The request referred to in Article 5 may contain a reasoned request for an administrative enquiry. If the requested authority takes the view that no administrative enquiry is necessary, it shall immediately inform the requesting authority of the reasons thereof.
3. In order to obtain the requested information or to conduct the administrative enquiry requested, the requested authority shall follow the same procedures as it would when acting on its own initiative or at the request of another authority in its own Member State.
…’
Article 16 et seq. of Directive 2011/16 lays down general conditions governing administrative cooperation. Article 17(1) and (4) of Directive 2011/16 provides:
‘1. A requested authority in one Member State shall provide a requesting authority in another Member State with the information referred to in Article 5 provided that the requesting authority has exhausted the usual sources of information which it could have used in the circumstances for obtaining the information requested, without running the risk of jeopardising the achievement of its objectives.
4. The provision of information may be refused where it would lead to the disclosure of a commercial, industrial or professional secret or of a commercial process, or of information whose disclosure would be contrary to public policy.’
Article 18 of Directive 2011/16 provides:
‘1. If information is requested by a Member State in accordance with this Directive, the requested Member State shall use its measures aimed at gathering information to obtain the requested information, even though that Member State may not need such information for its own tax purposes. That obligation is without prejudice to paragraphs 2, 3 and 4 of Article 17, the invocation of which shall in no case be construed as permitting a requested Member State to decline to supply information solely because it has no domestic interest in such information.
2. In no case shall Article 17(2) and (4) be construed as permitting a requested authority of a Member State to decline to supply information solely because this information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.’
B. Luxembourg law
Article 177 of the Loi générale des impôts du 22 mai 1931 (General Tax Law of 22 May 1931; ‘the Luxembourg Tax Code’) provides in essence:
‘(1) The following may also refuse to communicate information:
1. Defence counsel and lawyers who have acted in criminal cases,
2. Doctors in respect of information entrusted to them in the exercise of their profession,
3. Lawyers in respect of information entrusted to them in the exercise of their profession[,]
4. Assistants or collaborators of the persons referred to in points 1 to 3 in respect of facts which they have learned in that capacity.
(2) This provision shall not be applicable to the persons referred to in points 3 and 4 in respect of facts of which they became aware in connection with advice or representation in tax matters, unless an affirmative or negative response to questions would put their clients at risk of criminal prosecution.’
Conclusion
Advocate General Kokott proposes that the Court answer the questions referred by the Cour administrative (Higher Administrative Court, Luxembourg) as follows:
(1) Legal advice provided by a law firm, even on matters of company law – for example on setting up a corporate investment structure – falls within the scope of the protection afforded by legal professional privilege as guaranteed by Article 7 of the Charter of Fundamental Rights of the European Union (‘the Charter’).
(2) A decision of the competent tax authority ordering a law firm to disclose information in the context of an exchange of information on request whereby that authority, broadly speaking, calls for the production of all documentation relating to certain transactions and its involvement in those transactions constitutes interference with the right to respect for communications between lawyers and their clients that is guaranteed by Article 7 of the Charter.
(3) Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC is compatible with Article 7 and Article 52(1) of the Charter, in so far as it does not include, beyond Article 17(4), any provision which formally permits interference with the confidentiality of exchanges between lawyers and their clients in the context of the system of exchange of information on request and which itself defines the scope of the limitation on the exercise of the right in question. This is because Article 17(4) of Directive 2011/16 gives the Member States sufficient discretion to fulfil the requirements of Article 7 of the Charter.
(4) The national legislation of each Member State can and must stipulate the conditions, the scope and the limits of the duty to cooperate incumbent on lawyers, as information holders, in the context of the exchange of information on request under Directive 2011/16. In so doing, national law must, in particular, enable the competent authority to strike a balance on a case-by-case basis between the objectives in the general interest, on the one hand, and the protection afforded by legal professional privilege, on the other. Since Luxembourg law does not allow for such a balance to be struck in matters of tax law, Article 7 of the Charter precludes the application of the national law to that extent.
Remarks ITP
The conclusion of the Advocate General in the present case indicates that lawyers/law firms should not simply make all information requested by tax authorities in the context of an exchange of information relating to one of their clients available to the tax authorities, but that they must make an assessment as to which information must be made available to the tax authorities and which information does not need to be made available to the tax authorities under the application of professional secrecy applying to lawyers/the applicable legal professional privilege.
The full text of the conclusion of he Advocate General, as published on the website of the CJEU and including the legal assessment as made by the Advocate General, can be found here.
Copyright – internationaltaxplaza.info
Follow International Tax Plaza on Twitter (@IntTaxPlaza)
