Limitation of the DAC 6 notification obligation applicable to lawyers

Limitation of the DAC 6 notification obligation applicable to lawyers

On 22 December 2022, the Luxembourg bar issued a circular n°001/2022-2023 in relation with DAC6 Directive (the Circular) and replacing the existing circular 009/2021 of 1st July 2022.

Under the Circular, the Luxembourg bar provides for a swift answer to the decision of the Court of Justice of the European Union (CJEU) rendered on 8 December 2022 (C-694/20 Orde van Vlaamse Balie e.a.) (CJEU Decision) for Luxembourg lawyers.

In summary, based on the Circular, the DAC 6 obligation of notification for lawyers will only apply to their clients – and not to intermediaries and clients as it was the case before. Said differently, their professional secrecy will prevent Luxembourg lawyers to inform other intermediaries of the existence of an obligation to report an identified cross-border arrangement.

The DAC 6 obligation of notification

As a reminder, the Luxembourg law of 25 March 2020 on reportable cross-border arrangements (the DAC 6 Law) requires that certain intermediaries or, as the case may be, the relevant taxpayers, report certain cross-border arrangements to the Luxembourg tax authorities. The DAC 6 Law is the law implementing the Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards automatic exchange and obligatory exchange of information in the field of taxation in relation to cross-border reportable arrangements (DAC 6).

However, the DAC 6 Law provides for a waiver of this obligation of reporting for certain Luxembourg intermediaries due to their professional secrecy, which notably benefits to Luxembourg lawyers.

The DAC 6 Law indicates that such “exempt” intermediaries have an obligation to inform - within 10 days as from the date where the arrangement can be/is implemented-, each intermediary (or in the absence of intermediary, the taxpayer) of their DAC 6 reporting obligations.

Hence, based on the DAC 6 Law, Luxembourg lawyers had to notify intermediaries and/or taxpayers, if need be. It also meant that they had to provide intermediaries with information about their client and the transaction subject to a DAC 6 reporting obligation.

The content of the CJEU Decision

The CJEU decision relates to this DAC 6 obligation of notification, which applies in other European Union (EU) countries and more precisely Belgium in the case brought to the CJEU.

In the case at hand, Belgium courts have been asked by two lawyer professional organisations whether the obligation of notification was compatible with article 7 (i.e. right for private and family life) and article 47 (i.e. right to an effective remedy and to a fair trial) of the Charter of Fundamental Rights of the European Union (the Chart of Fundamental Rights).

The CJEU reminds that article 7 of the Chart of Fundamental Rights protects the confidentiality of all correspondence between individuals and grants enhanced protection to exchange between lawyers and their clients. This means that, except in exceptional situations, clients must have a legitimate expectation that their lawyer will not disclose any information.

Accordingly, the CJEU Decision rules that the DAC 6 obligation of notification interferes with the right to respect communications between lawyers and their clients in light of article 7 of the Chart of Fundamental Rights, without being justified by the objective of preventing tax evasion and fraud which is an objective of general interest recognised by the European Union.

In addition, the CJEU considers that the DAC 6 obligation of notification applicable to other intermediaries not subject to professional secrecy or to the taxpayer (in the absence of other intermediaries) is already sufficient to ensure that the concerned tax authorities are informed of the existence of a reportable cross-border arrangement for DAC 6 purposes.

The clarification brought by the Circular

The decision rendered by the CJEU binds EU national courts dealing with similar requests but will not bind directly other EU jurisdictions. Hence, the CJEU Decision does not apply directly to Luxembourg lawyers in the absence of any intervention from a Luxembourg authority.

This is what the Luxembourg bar did with the Circular.

The Circular confirms that the DAC 6 obligation of notification applies solely for their clients, so that the information related to a cross-border arrangement will not have to be shared with a third-party intermediary, as a result of the provisions of the lawyers’ professional secrecy.

What to retain?

The Circular is welcome for the Luxembourg lawyers as it will ensure the preservation of lawyers’ professional secrecy and provide additional guarantee to clients. It will be interesting to see whether the legislator or the Luxembourg tax authorities would follow the Luxembourg bar and enact a more general approach regarding the limitation of the scope of the DAC 6 obligation of notification for professions subject to a similar legal privilege.