Judgment summary
This is a request for a preliminary ruling from the Grondwettelijk Hof (Constitutional Court, Belgium), made by decision of 17 December 2020, received at the Court on 21 December 2020 (paragraph referencing the request). The case concerned the validity of Article 8ab(5) of Council Directive 2011/16/EU, as amended by Council Directive (EU) 2018/822, in the light of Articles 7 and 47 of the Charter of Fundamental Rights of the European Union [1].
The proceedings arose from an action brought by the Orde van Vlaamse Balies, IG, the Belgian Association of Tax Lawyers, CD and JU against the Vlaamse Regering, concerning the validity of Flemish legislation transposing the EU directive on mandatory automatic exchange of information on reportable cross-border tax arrangements [2].
The Court held that Article 8ab(5) of amended Directive 2011/16 is invalid in the light of Article 7 of the Charter, in so far as its application by Member States requires a lawyer acting as an intermediary, who is exempt from the reporting obligation under Article 8ab(1) because of legal professional privilege, to notify without delay any other intermediary who is not his or her client of that other intermediary's reporting obligations under Article 8ab(6) [66].
Background
Directive 2011/16 established a system of administrative cooperation between national tax authorities of Member States [3]. It was amended by Directive 2018/822, which introduced an obligation to report potentially aggressive cross-border tax-planning arrangements to the competent authorities, in order to help Member States protect their tax bases and combat tax avoidance and evasion [4].
Article 8ab of amended Directive 2011/16 requires intermediaries to file information on reportable cross-border arrangements with the competent authorities. Under Article 8ab(5), Member States may allow intermediaries a waiver from this reporting obligation where it would breach legal professional privilege under national law; in that case, the intermediary must notify, without delay, any other intermediary or, if there is none, the relevant taxpayer, of their reporting obligations under Article 8ab(6) [6].
Belgium transposed this regime in the Flemish Region through the Decree of 21 June 2013, as amended by the Decree of 26 June 2020 [7, 8]. Article 11/6 of the amended decree required a lawyer-intermediary bound by legal professional privilege to notify, in writing and giving reasons, any other intermediary that he or she cannot fulfil the reporting obligation, which then automatically shifts to that other intermediary [10].
The applicants challenged this notification obligation before the Grondwettelijk Hof, arguing it could not be complied with without infringing lawyers' legal professional privilege, and that it was unnecessary since the client could inform other intermediaries directly [13]. The Grondwettelijk Hof suspended the relevant provision and referred a question on the validity of Article 8ab(5), inserted by Article 1(2) of Directive 2018/822, to the Court of Justice [17].
Core dispute
The referring court asked whether Article 1(2) of Directive 2018/822, by inserting Article 8ab(5) into Directive 2011/16, infringes the right to a fair trial under Article 47 of the Charter and the right to respect for private life under Article 7 of the Charter, in so far as it obliges a lawyer-intermediary who is exempt from reporting due to legal professional privilege to notify, without delay, any other intermediary, or if none, the relevant taxpayer, of their reporting obligations [17].
The Court clarified that the real issue was the validity of this obligation only in so far as the lawyer-intermediary must notify another intermediary who is not his or her client, since notification to the lawyer's own client does not engage the same fundamental rights concerns [18, 19, 20].
The dispute centred on whether this notification obligation, which necessarily discloses to a third-party intermediary the identity of the lawyer-intermediary and the fact of consultation, and which may lead to further disclosure to tax authorities, constitutes an unjustified interference with legal professional privilege and the right to a fair trial.
Court findings
The Court found that the obligation to notify under Article 8ab(5) necessarily makes other intermediaries aware of the identity of the notifying lawyer-intermediary, his or her assessment that the arrangement is reportable, and the fact that he or she was consulted, which constitutes an interference with the right to respect for communications between lawyers and their clients under Article 7 of the Charter [29, 30]. It also found an indirect interference arising from the subsequent disclosure by the notified third-party intermediaries to the tax authorities of the lawyer-intermediary's identity and the fact of consultation [31, 32].
Applying the test for limitations on Charter rights under Article 52(1), the Court held that the interference was provided for by law and did not undermine the essence of the right [38, 40]. However, on proportionality, the Court concluded that the notification obligation was not strictly necessary to achieve the objectives of combating aggressive tax planning and preventing tax avoidance and evasion [46].
The Court reasoned that intermediaries' reporting obligations are already clearly set out in Article 8ab(1) and (9), so no intermediary can claim ignorance of them merely because he or she is an intermediary [47]. Other intermediaries cannot necessarily know of the lawyer-intermediary's identity or consultation, and even where they do, they cannot rely on the lawyer reporting without verification, since exemption from filing requires proof that another intermediary has already filed [48, 49]. The lawyer-intermediary remains obliged to notify his or her own client [50]. The Court also rejected the Commission's argument that disclosure of the lawyer's identity was necessary to verify legitimate reliance on legal professional privilege, since the purpose of the reporting regime is to ensure information reaches the tax authorities, not to police lawyers' compliance with professional rules [56, 57, 58].
On Article 47 of the Charter, the Court found that the right to a fair trial presupposes a link with judicial proceedings [61]. Since the notification obligation arises at an early stage, before and outside any judicial proceedings or their preparation, no such link was established, and therefore no interference with Article 47 was found [62-65].
Outcome
The Court ruled that Article 8ab(5) of amended Directive 2011/16 is invalid in the light of Article 7 of the Charter, in so far as the Member States' application of that provision requires a lawyer acting as an intermediary, who is exempt from the reporting obligation under Article 8ab(1) because of legal professional privilege, to notify without delay any other intermediary who is not his or her client of that intermediary's reporting obligations under Article 8ab(6) [66].
The Court did not find the provision invalid in the light of Article 47 of the Charter [65]. Costs were left to be determined by the national court, as the proceedings before the Court of Justice constituted a step in the action pending before the Grondwettelijk Hof [67].
Major issues / areas of contention
- Whether Article 8ab(5) of amended Directive 2011/16, requiring a lawyer-intermediary bound by legal professional privilege to notify other, non-client intermediaries of their reporting obligations, infringes Article 7 of the Charter (right to respect for private life and communications).
- Whether the same provision infringes Article 47 of the Charter (right to a fair trial), given that the notification obligation arises before and outside judicial proceedings.
- Whether the notification obligation is provided for by law and respects the essence of the right to legal professional privilege under Article 52(1) of the Charter.
- Whether the notification obligation is strictly necessary and proportionate to the EU objectives of combating aggressive tax planning and preventing tax avoidance and evasion.
- The scope of the term 'intermediary' under Article 3(21) of amended Directive 2011/16 and when lawyers fall within that definition.
- The interaction between the reporting obligation under Article 8ab(1), the waiver for legal professional privilege under Article 8ab(5), and the shifting of the obligation under Article 8ab(6).