Tax lawyers’ professional secrecy: what are the limits when faced with the investigative powers of the tax authorities?

by | Mar 28, 2023 | Corporate taxation, Dispute resolution: litigation, Personal taxation, Tax inspection | 0 comments

It is difficult to reconcile the rule of professional secrecy with the administration’s powers of investigation. The question of compatibility for any investigative activity of the administration necessarily arises, and in particular for the right of communication.

General investigative investigation and control

According to article 226-13 of the French Penal Code, persons entrusted with certain information by virtue of their profession may not divulge it when it is secret by nature, or when the private individual who has entered into a relationship with the professional has intended to require the latter’s discretion with regard to the facts of which he or she has become aware.

Those who are bound by professional secrecy, such as tax lawyers, may be tempted to hide behind this obligation to secrecy in order to block the administration’s right of communication.

The tax legislator has overcome this paralyzing effect of professional secrecy by establishing the principle that professional secrecy is not enforceable against the administration because the administration’s agents are also subject to it (
LPF, art.L 103
), with a number of exceptions.

As an exception to this principle, administrative investigations must take into account certain professional secrets and the legal confidentiality of statistical surveys.

Attorney-client privilege

Lawyers have a number of obligations in terms of tax audits and fraud prevention. With this in mind, the European Union has adopted a series of directives aimed at preventing the use of the financial system for money laundering purposes, which have been transposed into French law.

The consequence is a weakening of lawyer-client confidentiality, since lawyers will now be obliged to report any suspicions they may have in this respect to their clients, when, in the course of their professional activity, they assist them in preparing or carrying out transactions concerning certain defined operations, or participate in financial or real estate transactions, or act in a fiduciary capacity.

However, lawyers are not subject to this obligation when the activity in question relates to a legal proceeding and, in principle, when they provide legal advice (law 71-1130 of December 31, 1971, art 65-5, as amended by law 97-308 of April 7, 1997).

They must submit their declarations to the President of the Bar Association of the Conseil d’Etat and the Cour de Cassation, or to the President of the Bar Association with which they are registered, as appropriate, who is responsible for forwarding them to the national financial intelligence unit (Tracfin).

Confidentiality only appliesà the lawyer

The customer is not bound by professional secrecy, and may decide to lift it, without being forced to do so. On the other hand, disclosure of the contents of correspondence exchanged between a taxpayer and his lawyer vitiates the taxation procedure conducted against the taxpayer and results in discharge of the tax when, in the absence of the latter’s prior agreement, the contents of this correspondence form the basis of all or part of the rectification (
CE December 12, 2018 n°414088

According to a ruling dated March 15, 2017 (n°15-25649) the Cour de cassation ruled that the documents and correspondence exchanged between the lawyer and the chartered accountant of a company suspected of tax fraud were not covered by professional secrecy and that the administration could therefore seize the correspondence exchanged.

In the same way, a company subjected to a computer search by agents of the DGCCRF can only request the removal of correspondence exchanged with its lawyer if it can prove that it relates to the exercise of the rights of defense (Cass.crim ruling November 25, 2020 n°19-84304).

Fines incurred by councils

When, following a tax audit, the tax authorities apply a surcharge of 80% to a taxpayer, a fine may be imposed on the taxpayer’s advisor who has intentionally provided a service directly enabling the taxpayer to commit the acts, omissions or maneuvers. The fine is set at 50% of the revenue derived from the service provided to the taxpayer. Its amount may not be less than €10,000 (art 1740 A bis CGI).

A board that has been fined may no longer take part in the work of the administrative tax commissions, the consultative committee for research tax credit and collaborative research tax credit, the tax abuse committee and the tax offences commission.

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