On September 26, 2024, while many anticipated the Pope’s visit, others were focused on a pivotal ruling regarding professional secrecy. The Administrative Court of Luxembourg has sought a preliminary ruling from the European Court of Justice (the “ECJ”) in a case involving a Luxembourg law firm and the Luxembourg Bar Association against the Administration des contributions directes, one of Luxembourg’s tax authorities (the “Administration”).
Background
A lawyer from a Luxembourg law firm (the “Lawyer”) faced an injunction from the Administration, demanding documents and information related to a Spanish client. The Lawyer’s refusal to comply resulted in a fine imposed by the Administration.
The injunction was issued under Directive 2011/16, which establishes a framework for cooperation among tax authorities of the Member States of the European Union and outlines the rules for information exchange for tax purposes. In this instance, the Administration’s request originated from the Spanish tax authorities and pertained to documents held by the Lawyer related to services provided to a Spanish company, involving a business acquisition and an acquisition of a majority stake in other Spanish firms.
The Directive mandates that the requested authority (in this case, the Administration) must communicate with the requesting authority (the Spanish tax authorities) regarding specific information it has or it could obtain through administrative inquiries. However, both the Directive and its transposition into Luxembourg law allow the requested Member State to refuse information requests if compliance would contradict its own legislation. This means that information may be withheld if its disclosure would breach professional secrecy.
Professional secrecy and the Charter of Fundamental Rights of the European Union (the “Charter”)
Article 7 of the Charter guarantees the right to respect for private life and communications. Interpreting this article requires consideration of Article 8, paragraph 1 of the European Convention on Human Rights, which safeguards the confidentiality of all correspondence between individuals and provides enhanced protection for communications between lawyers and their clients. This special protection underscores the fundamental role of lawyers in upholding justice within a democratic society.
Exceptions to the protection of lawyers’ professional secrecy in tax matters
According to the General Tax Law of May 22, 1931 (Abgabenordnung or AO), Article 177 permits lawyers to refuse access to information entrusted to them in their professional capacity during tax liability assessments, consultations, or controls. However, this exception does not apply to facts learned while providing advice or representation in tax matters unless disclosing that information would expose clients to the risk of criminal prosecution.
Application of the law by the ECJ
The ECJ has affirmed that legal advice provided by a lawyer is afforded enhanced protection under Article 7 of the Charter, regardless of the legal area involved. Consequently, an injunction like the one issued by the Administration, which encompasses all documentation and information pertaining to the lawyer-client relationship, infringes upon the right to confidentiality in these communications.
Moreover, by exempting almost all communications regarding tax advice from the enhanced protections afforded to lawyers’ professional secrecy under the Charter, the AO effectively undermines this protection in the realm of tax law. The Administration’s injunction seems to assume that the non-invocability of professional secrecy allows it to request the entire file held by the Lawyer, thereby extending the infringement beyond tax matters to include corporate law.
According to the ECJ, Article 177 of the AO and its application by the Administration infringe upon the Charter.
What’s Next?
In the coming months, we might expect amendments to Luxembourg law, particularly the AO, to align it with European Union law.
Link to the ruling: C‑432/23
