DAC6 violates attorney-client privilege: ECJ | International tax news, transfer pricing news

The Court of Justice of the European Union (CJEU) has ruled that the EU DAC6 Directive violates the right to respect for communication between a lawyer and his client.

The DAC6 Directive stipulates that all intermediaries involved in potentially aggressive cross-border tax planning (schemes that could lead to tax avoidance) must be reported to the relevant tax authorities.

A Member State may grant an exemption from this obligation to intermediaries if doing so would violate the legal professional privilege. In such circumstances, legal intermediaries must inform all other intermediaries or the relevant taxpayer of their reporting obligations.

Two professional associations of lawyers brought cases before the Belgian Constitutional Court, which in turn asked the ECJ for a reply on the matter.

In its decision of December 8, 2022, the ECJ found that the obligation to report entails an interference with the right to respect for communication between lawyers and their clients guaranteed in Article 7 of the Charter of Fundamental Rights.

The court said: “The Directive’s obligation for a solicitor’s agent subject to attorney-client privilege to promptly notify other intermediaries of their reporting obligations implies that those other intermediaries become aware of the identity of the solicitor’s agent. You will also learn from his analysis that the tax arrangement in question is reportable and that he was consulted in relation to the arrangement.”

The Court recalled that Article 7 of the Charter of Fundamental Rights of the European Union protects the confidentiality of all correspondence between individuals and provides enhanced protection for exchanges between lawyers and their clients.

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The Court stated: “This special protection of lawyers’ professional privilege is justified by the fact that lawyers have a fundamental role in a democratic society, namely that of legal defence. This role requires that each person be free to seek advice from their lawyer, a principle recognized in all Member States. Attorney-client privilege also includes legal advice, both in terms of its content and existence.”

“Since other intermediaries are obliged to inform the competent financial authorities about the identity of the lawyer and his involvement, this obligation also indirectly leads to a second interference with the right to attorney-client privilege,” the court said.

The Court examined whether the interference can be justified, in particular whether it serves objectives of general interest recognized by the EU and whether it is necessary for the pursuit of those objectives.

However, the Court considers that the duty of notification on the part of a lawyer subject to legal professional privilege is not necessary in order to achieve that objective.

The court stated: “The reporting obligation of other intermediaries who are not subject to the attorney-client privilege and, if such intermediaries do not exist, the obligation of the respective taxpayer, ensure in principle that the tax authorities are informed. Upon receipt of this information, the tax authorities may request additional information directly from the taxpayer concerned, who can then contact their lawyer for assistance. The tax authorities can also carry out an audit of the tax situation of this taxpayer.”

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