Insights

On 26th September 2024, the Second Chamber of the Court of Justice of the European Union (the “CJEU”), in Case C‑432/23, ‘F SCS and Ordre des Avocats du Barreau de Luxembourg v Administration des Contributions Directes’, addressed a request for a preliminary ruling from the Higher Administrative Court of Luxembourg, in terms of Article 267 of the Treaty on the Functioning of the European Union. The CJEU held that a decision obliging a lawyer to disclose all information regarding their relationship with a client in the context of company law advice violates the fundamental right to respect lawyer-client communications, as enshrined in Article 7 of the Charter of Fundamental Rights of the European Union (the “Charter”).

Facts of the Case

The request for a preliminary ruling arose from proceedings involving F SCS, a Luxembourg law firm, the Luxembourg Bar, and the Luxembourg Inland Revenue. The dispute concerned a request for information received by the Luxembourg Inland Revenue from the Spanish Tax Authorities in terms of Council Directive 2011/16/EU on administrative cooperation in the field of taxation (the “Directive”).

In response to the request made by the Spanish Tax Authorities, the Luxembourg Inland Revenue ordered F SCS to provide all information and documents concerning the services provided by it to K, a Spanish company, in connection with the acquisition of a business and a majority shareholding in another company. F SCS responded that it was prevented by law from communicating any information concerning its client K, due to legal professional privilege. The Luxembourg Inland Revenue imposed a fine on F SCS for non-compliance with the request for information.

F SCS sought annulment of the decision before the Administrative Court of Luxembourg, supported by the Luxembourg Bar. After the Administrative Court dismissed their action, they appealed to the Higher Administrative Court of Luxembourg, which referred the following questions to the CJEU for a preliminary ruling:

1. Whether Article 7 of the Charter applies to legal advice provided by a lawyer in company law matters; and
2. Whether the Directive is valid in light of Article 7 of the Charter, given its lack of explicit provisions on lawyer-client confidentiality; and
3. Whether a decision such as the one issued to F SCS by the Luxembourg Inland Revenue is compatible with Articles 7 and 52(1) of the Charter.

Findings of the Court

1. Applicability of Legal Professional Privilege to Company Law Matters:

The CJEU reaffirmed that Article 7 of the Charter, mirroring Article 8(1) of the European Convention on Human Rights ECHR, protects the confidentiality of all communications between lawyers and their clients.  In fact, the Court noted that case-law of the European Court of Human Rights protects the confidentiality of all correspondence between individuals, and affords strengthened protection to exchanges between lawyers and their clients.

The CJEU confirmed that Article 7 of the Charter guarantees the secrecy of all legal advice, both in terms of its content and to its existence. Any legal advice given by a lawyer, including legal advice in relation to company law matters, enjoys the strengthened protection guaranteed by Article 7 of the Charter. Consequently, the CJEU decided that a decision issued by a governmental authority in terms of the Directive requiring a lawyer to disclose all information about their relationship with a client regarding company law advice interferes with the right to lawyer-client confidentiality, protected by Article 7 of the Charter.

2. Validity of the Directive in the light of Article 7 of the Charter:

The CJEU clarified that the Directive merely determines the obligations that Member States have towards each other, and authorises such Member States not to comply with a request for information, if carrying out the investigation requested would be contrary to national legislation. Therefore, it is up to Member States to ensure that procedures for gathering information under the Directive comply with Article 7 of the Charter.

The CJEU hence determined that while the Directive does not explicitly address the protection of lawyer-client confidentiality, this omission does not constitute an infringement of Article 7 of the Charter.

3. The compatibility of a decision such as that issued by the Luxembourg Inland Revenue against F SCS with Article 7 and 52(1) of the Charter:

The CJEU recognized that rights under Article 7 are not absolute, and may be subject to lawful limitations under Article 52(1) of the Charter, provided such limitations respect the essence of the rights.

The CJEU also noted that the Luxembourg Inland Revenue’s decision was based on national law, which excludes certain types of tax advice from legal privilege. As a result of this, none of the content of the communications between F SCS and its client K could have been kept secret from the Luxembourg Inland Revenue. However, the CJEU highlighted that by virtue of Article 7 of the Charter, people can reasonably expect their communications to remain private and confidential, and apart from exceptional circumstances, have confidence in the fact that their lawyers will not disclose the fact that they are consulting them to anyone, without their consent. The CJEU concluded that by excluding tax advice from the strengthened protection of legal professional privilege under Article 7 of the Charter, Luxembourg national law renders that protection devoid of its very substance in that area of law. Consequently, the CJEU ruled that a decision such as the one issued by the Luxembourg Inland Revenue against F SCS, based on the application of Luxembourg national law, unjustifiably infringes the right guaranteed by Article 7 of the Charter, due to the broad derogation it permits from legal professional privilege in lawyer-client communications.

Concluding Remarks

The CJEU’s ruling in ‘F SCS and Ordre des Avocats du Barreau de Luxembourg v Administration des Contributions Directes’ reaffirms the need to balance the objectives of inter-state cooperation in tax matters, with the preservation of lawyer-client confidentiality. This judgement serves as a critical reminder to national authorities to ensure that legal professional privilege remains intact.