The administrative court has just handed down its judgment in the joined cases opposing several lawyers to the Administration of direct contributions, which asked them for information on their clients.

It took almost a year for the fourth chamber of the administrative court to decide in the dispute arising from the revelations of the Panama Papers. Pleaded in November 2019, the cases found their conclusion – provisional – since an appeal is possible before the Administrative Court – on Tuesday.

The Administration of Direct Taxes had taken advantage of the information published by the International Consortium of Investigative Journalists (ICIJ) in the Panama Papers – on the basis of documents withdrawn from the Panamanian law firm Mossack Fonseca – to contact the lawyers located in Luxembourg and cited in these documents, and request a series of information from them: companies created through Mossack Fonseca, economic beneficiaries of these companies "having implications for taxation in Luxembourg", nature of the services, date of opening and closing of transactions, persons who carried out the transactions, etc.

Alerted by several lawyers, the Bar had reacted strongly, denouncing the “fishing expedition” (fishing for information) of the Administration of direct contributions and recalling the duties of the lawyer as regards respect for professional secrecy. He also "enjoined the lawyers concerned not to reveal the identity of their respective clients, as this would constitute a breach of professional secrecy which could lead to serious criminal and disciplinary sanctions".

Passes of arms between Guy Heintz and the presidents of the bar

The chairman M ^e Rosario Grasso then his successors ^Me François Prum ^and Mr. François Kremer had stepped up to the plate. "All lawyers, including those working in 'business law', are bound, without exception, to the same obligations as 'litigation' lawyers, as clearly and explicitly results from the provisions of Article 35 of the amended law of August 10, 1991 on the profession of lawyer”, recalled Mr. Prum in 2017.

However, given the firmness of the Direct Tax Administration and its director Guy Heintz, who had meanwhile retired, and the accumulation of penalty payments imposed on them for not having provided the requested information, the lawyers had to bring the case before the administrative court so that the courts can rule on the interpretation of the law defended by the tax authorities, according to which the obligation of cooperation with the authorities and the vigilance of lawyers takes precedence over the protection of professional secrecy. The Bar Association had intervened in support of the lawyers.

On Tuesday, the court therefore ruled. In its 30-page judgment, which Paperjam was able to consult, the court relied on the 1944 tax law to recall that the powers of the tax authorities are restrictive and that the latter "cannot require third parties to provide information which is importance only in two limited cases, namely either for the exercise of a tax audit or in the context of a tax investigation procedure for the purpose of establishing tax claims”.

The official's decision (…) is tainted with illegality for excess, even misuse of power.

Administrative Court

The Administration of direct contributions being "in confession" to seek to identify the subject of a possible tax audit and to have contacted the lawyers "on its own initiative and not within the framework of the opening of a procedure of investigation for the establishment of tax claims”, neither of these cases is applicable.

The court also rejects the argument that the tax authorities acted in the context of monitoring tax evasion, since they would have had to know the identity of the person being monitored in order to rely on it.

The judges conclude that “the officer's decision (…) is tainted with illegality for excess, even misuse of power”, resulting in its cancellation.

In a sober press release, the president of the Bar Me Valérie Dupong reacted to this judgment on Thursday by indicating that "the Bar has been confirmed in its position insofar as the administrative court has held that the Administration of direct contributions has committed 'an excess, even a misuse of power'” and “welcomes that the rule of law is preserved”.

Professional secrecy between the lines

However, the court did not really decide on the hierarchy between the obligations of lawyers with regard to the tax administration and professional secrecy. He slips all the same that article 177 of the tax law – which exempts doctors and lawyers from providing information by virtue of their professional secrecy – “is an exception to the general principle of the obligation to inform”, which could be interpreted as a validation of the primacy of this secrecy over tax liability.

It remains to be seen whether the Administration of direct contributions, whose zeal has just been showered, will appeal this judgment. Perhaps she will do it to show the Gafi her dedication to unearthing tax evasion.