Combatting aggressive tax planning: the obligation for a lawyer to inform other intermediaries involved is not necessary and infringes the right to respect for communications with his or her client

According to the Judgment of the European Court of Justice in Case C-694/20  (Orde van Vlaamse Balies and Others) regarding the combat against tax avoidance, the obligation for a lawyer to inform other intermediaries involved is not necessary and infringes the right to respect for communications with his or her client .

All the other intermediaries involved in such planning, and the taxpayer him- or herself, are subject to that reporting obligation, which makes it possible to ensure that the tax authorities are informed.

An EU Directive[1] provides that all intermediaries involved in potentially aggressive cross-border tax-planning (arrangements which could lead to tax avoidance and evasion) are required to report them to the competent tax authorities. That obligation concerns all those who participate in the design, marketing, organisation or management of the implementation of that planning. All those who provide assistance or advice in relation to that planning, or in the absence of such persons, the taxpayer him- or are also covered.

However, each Member State may grant intermediaries a waiver from that obligation where it would breach legal professional privilege protected under its national law. In such circumstances, lawyer-intermediaries are however required to notify without delay any other intermediary, or the relevant taxpayer, of their reporting obligations vis-à-vis the competent authorities. The Flemish decree transposing that directive thus provides that, when an intermediary involved in cross-border tax planning is bound by legal professional privilege, he or she must inform the other intermediaries that he or she cannot make that report him- or herself.

Two lawyers' professional organisations brought actions before the Belgian Constitutional Court. In their submission, it is impossible to provide information to other intermediaries without breaching the legal professional privilege by which lawyers are bound. The Belgian Constitutional Court seeks an answer from the Court of Justice in that regard. In its judgment today, the Court of Justice recalls first of all that Article 7 of the Charter of Fundamental Rights of the European Union protects the confidentiality of all correspondence between individuals and affords strengthened protection to exchanges between lawyers and their clients.

That specific protection afforded to lawyers’ legal professional privilege is justified by the fact that lawyers are assigned a fundamental role in a democratic society, that of defending litigants. That role requires that any individual is able to seek advice freely from his or her lawyer, a principle recognised in all Member States. Legal professional privilege also covers legal consultation, both with regard to its content and its existence.

Other than in exceptional situations, clients must have a legitimate expectation that, without their consent, their lawyer will not disclose to anyone that they are consulting him or her. However, the obligation laid down by the Directive[2] for a lawyer-intermediary subject to legal professional privilege to notify without delay other intermediaries of their reporting obligations implies that those other intermediaries become aware of the identity of the lawyer-intermediary.

They also become aware of his or her analysis that the tax arrangement at issue is reportable and of his or her having been consulted in connection with the arrangement. That obligation to notify entails an interference with the right to respect for communications between lawyers and their clients, guaranteed in Article 7 of the Charter of Fundamental Rights. Given that other intermediaries are required to inform the competent tax authorities of the identity of the lawyer and of his or her having been consulted, that obligation also leads indirectly to a second interference with the right to legal professional privilege.

The Court then examines whether those interferences may be justified, in particular whether they meet objectives of general interest recognised by the EU and whether they are necessary for the pursuit of those objectives. The Court recalls that the amendment made in 2018 to the directive forms part of international tax cooperation aimed at contributing to the prevention of the risk of tax avoidance and evasion, which constitutes one of the objectives of general interest recognised by the EU.

The Court considers however that the notification obligation on a lawyer subject to legal professional privilege is not necessary in order to attain that objective. All intermediaries are required to file that information with the competent tax authorities. No intermediary can claim that he or she was unaware of the reporting obligations - which are clearly set out in the Directive - to which he or she is directly and individually subject.

The Directive makes a lawyer-intermediary a person from whom other intermediaries cannot, a priori, expect any initiative capable of relieving them of their own reporting obligations. The disclosure, by notified intermediary third parties, of the identity of the lawyer-intermediary and of his or her having been consulted to the tax authorities also does not appear to be necessary for the pursuit of the objectives of the Directive.

The reporting obligation on other intermediaries who are not subject to legal professional privilege and, if there are no such intermediaries, that obligation on the relevant taxpayer, ensure, in principle, that the tax authorities are informed. The tax authorities may, after receiving such information, request additional information directly from the relevant taxpayer, who will then be able to consult his or her lawyer for assistance. The tax authorities may also conduct an audit of that taxpayer’s tax situation.

The Court therefore holds that the obligation to notify laid down by the Directive infringes the right to respect for communications between a lawyer and his or her client. (curia.europa.eu/photo:freepik.com)

The Decision is available here

[1] Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC (OJ 2011 L 64, p. 1), as amended by Council Directive (EU) 2018/822 of 25 May 2018 (OJ 2018 L 139, p. 1).

[2] Article 8ab(5) of Directive 2011/16.

Comments

Post a Comment

Editorial

Editorial
George Kazoleas, Lawyer

Top Stories

Ombudsman inquiry on Commission President’s text messages is a wake-up call for EU

Image
The European Ombudsman inquiry into the Commission’s handling of a request for text messages between its President and the CEO of a pharmaceutical company is a wake-up call for all EU institutions about ensuring accountability in an era of instant messaging. One year after the initial request by a journalist, the Commission has still not clarified whether messages reported to concern major vaccine procurement deals exist and whether the public is entitled to see them. The Ombudsman had asked the Commission, in a finding of maladministration in January, to conduct a more thorough search for the text messages. The Commission’s recent response failed to say whether it had looked directly and correctly for the text messages and if not, why not. While the response recognised that work-related text messages can be EU documents, it reiterated that the Commission’s internal policy is, in effect, not to register text messages. The Ombudsman has closed  the inquiry  and upheld...
Read more

Daily Mail publisher wins case against ‘success fees’ paid to lawyers (ECtHR)

Image
Obligation on publisher of the Daily Mail to pay substantial “success fees" in defamation and breach of privacy cases was excessive. The case Associated Newspapers Limited v. the United Kingdom (application no. 37398/21) concerned the fact that Associated Newspapers Limited the publisher of the Daily Mail and the Mail on Sunday had been obliged to pay extensive costs incurred by claimants who had successfully sued it in privacy and/or defamation proceedings following articles it had published in print or online in 2017 and 2019.  Since one of the claimants had entered into a conditional fee arrangement (CFA) with his legal representative, and both had taken out “after-the-event” (ATE) insurance, Associated Newspapers Limited had been liable not only for their base costs, but also for fee uplifts including the “success fee” in the CFA and for their ATE insurance premiums.  In Chamber judgment (12.11.2024) in the case, the European Court of Human Rights held, unanimously, that t...
Read more

ECtHR elects a new Vice-President of the Court and two new Section Presidents

Image
The European Court of Human Rights has elected on 23.9.2024 a new Vice-President of the Court – Judge Ivana Jelić (elected in respect of Montenegro). She will take up her duties on 1 November 2024.  The Court has also elected at the same date two new Section Presidents – Judges Lado Chanturia (elected in respect of Georgia) and Ioannis Ktistakis (elected in respect of Greece). They will also take up their duties on 1 November 2024. Ivana Jelić was born on 17 March 1975 in Podgorica, Montenegro and was elected Judge of the European Court of Human Rights on 12 July 2018. Lado Chanturia was born on 14 April 1963 in Tsalenjikha, Georgia, was elected Judge of the European Court of Human Rights on 8 January 2018 and is Vice-President of Section since 18 May 2023. Ioannis Ktistakis was born on 3 January 1971 in Thebes, Greece and was elected Judge of the European Court of Human Rights on 8 March 2021. (source/photo: echr.coe.int) Read more here
Read more

Intellectual property: the figurative sign consisting of the phrase ‘RUSSIAN WARSHIP, GO F* *K yourself’ in Russian and English cannot be registered as an EU trade mark

Image
In its Judgment in Case T-82/24 (Administration of the State Border Guard Service of Ukraine v EUIPO) (RUSSIAN WARSHIP, GO F**K YOURSELF) the General Court ruled that the figurative sign consisting of the phrase ‘RUSSIAN WARSHIP, GO F* *K yourself’ in Russian and English cannot be registered as an EU trade mark. That phrase, which has become a symbol of Ukraine’s fight against Russian aggression, is not perceived as an indication of a commercial origin.  The Administration of the State Border Guard Service of Ukraine (Kyiv, Ukraine) requests the General Court of the European Union to annul the decision of the European Union Intellectual Property Office (EUIPO) of 1 st December 2023, which refused registration of the following figurative sign as an EU trade mark: ‘RUSSIAN WARSHIP, GO F* *K yourself’ That mark is a war cry uttered by the Ukrainian border guard on Snake Island on 24th February 2022, the first day of the full-scale Russian invasion of Ukraine. Registration was sou...
Read more

The banks Crédit agricole and Credit Suisse participated in a cartel in the sector for suprasovereign bonds, sovereign bonds and public agency bonds denominated in US dollars

Image
According to the Judgment of the General Court in Cases T-386/21 (Crédit agricole and Crédit agricole Corporate and Investment Bank v Commission) and T-406/21 (UBS Group and Credit Suisse Securities (Europe) v Commission), the banks Crédit agricole and Credit Suisse participated in a cartel in the sector for suprasovereign bonds, sovereign bonds and public agency bonds denominated in US dollars (‘SSA Bonds’).  The General Court of the European Union confirms the Commission’s finding of an infringement and maintains the amount of the fines imposed in 2021. In 2018, the European Commission initiated proceedings for infringement of the competition rules involving Deutsche Bank, Bank of America, Crédit agricole and Credit Suisse (now UBS Group [1] ).  In 2021, the Commission found that those banks had entered into an agreement on the secondary market for suprasovereign, sovereign and agency bonds denominated in dollars (SSA bonds). According to the Commission, traders employed by ...
Read more

European Ombudsman asks Commission to publish details of its handling of senior staff move to law firm

Image
The European Ombudsman has asked the European Commission to publish details about how it has handled the planned move by a former director in its competition department to the Brussels office of a US corporate law firm as a partner. Any restrictions that have been placed on the activities of the former director to mitigate potential conflicts of interest should be made public without delay, said the Ombudsman. She noted that public information about the move came from the law firm and gives the impression that the Commission has allowed a senior official to work for a company that anticipates major benefits from their inside knowledge.  The Ombudsman also noted that the Commission declined to give details about the individual’s professional experience despite the fact that the law firm itself has put out a press release detailing it. The Ombudsman has previously criticised a tendency in the EU administration to underestimate the potential negative effects of staff moves to th...
Read more

A national court is not required to apply a decision of its constitutional court that infringes EU law (ECJ)

Image
In its Judgment of 26.9.2024 in Case C-792/22 (Energotehnica) the Court of Justice ruled as regards the right to an effective remedy that a national court is not required to apply a decision of its constitutional court that infringes EU law. In such a case, the national court may not be penalised.  Following the death of an electrician by electrocution during a maintenance operation, an administrative procedure was initiated against his employer. At the same time, criminal proceedings for negligence and manslaughter were initiated against the supervisor. The victim’s next of kin also became civil parties to the criminal proceedings.  The administrative court hearing the dispute concluded that the present case did not involve an ‘accident at work’. It annulled the administrative penalties imposed on the employer. According to national legislation, as interpreted by the Romanian Constitutional Court, that administrative decision prevents the criminal court from reconsidering whe...
Read more