The judgment of the Court of Justice of the EU in Case C-694/20 Orde van Vlaamse Balies and Others extends the protection of legal professional privilege. In the context of combatting aggressive tax planning, a lawyers’ obligation to inform other intermediaries involved is not necessary and infringes the right to respect for communications with his or her client.
The Court of Justice of the European Union (CJEU) has issued a very significant judgement on the principle of legal professional privilege that will likely have an impact in investigations by European authorities, including in the competition law and regulatory fields. The judgement examines the validity of an EU law designed to discourage aggressive tax planning arrangements by imposing reporting requirements on tax intermediaries in cross-border taxation matters, and the consequences of these requirements on the rights to privacy and a fair trial considering the lawyer-client relationship. The judgement is important because it recognises that legal professional privilege is not limited to advice given in the context of legal proceedings, which was the restrictive view taken by European competition authorities in the context of investigations, following the Akzo 2010 ruling (CJEU judgement in case C‑550/07 P).
Council Directive 2011/16/EU of 15 February, as amended by Council Directive (EU) 2018/822 of 25 May 2018, establishes reporting obligations to all intermediaries involved in potentially aggressive cross-border tax-planning, including those who provide assistance or advice on this matter. However, Member States can grant intermediaries a waiver from that responsibility where it would breach legal professional privilege protected under its national law.
On this point, the Flemish Decree which transposes the Directive 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. The Belgian Constitutional Court asked the CJUE whether privacy and procedural rights under Articles 47 and 7 of the Charter of Fundamental Rights (the Charter) are infringed if information must be shared where the ‘tax intermediary’ in question is a lawyer, and if the reporting requirement, particularly with respect to third party intermediaries, violates lawyer-client privilege.
The CFEU establishes in the first place that the specific protection afforded to lawyers’ legal professional privilege by Article 7 of the Charter also covers legal consultation, both with regard to its content and its existence. However, the obligation laid down by the Directive for a lawyer-intermediary subject to legal professional privilege to notify without delay other intermediaries of their reporting obligations implies that other intermediaries become aware of the identity of the lawyer, as well 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. As such, the obligation to notify implies an interference with the right to respect for communications between lawyers and their clients, guaranteed in Article 7 of the Charter of Fundamental Rights.
When examining whether these interferences are justified, the CJUE considers that the notification obligation on a lawyer subject to legal professional privilege is not necessary in order to attain that objective, given that reporting obligations on other intermediaries who are not subject to legal professional privilege and the taxpayer itself, already ensure, in principle, that the tax authorities are informed. 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. Tax authorities may also conduct an audit of that taxpayer’s tax situation.
Therefore, the CJEU 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.
Case C-694/20 Orde van Vlaamse Balies and Others
