EFTA court limits tax authority demands for lawyers’ client lists

The EFTA Court ruled on Tuesday that tax authorities cannot demand broad information about lawyers’ clients unless the request is strictly necessary and proportionate, mbl.is reported. The decision concerns a dispute now before Reykjavík District Court.

The case involves a request from the tax authority for a law firm to provide a list of every client it advised on tax matters or otherwise served between 2019 and 2024 in connection with direct or indirect ownership or control of companies, funds or institutions registered abroad or holding foreign assets.

The court found that Article 36 of the EEA Agreement, considered alongside the right to privacy, limits such requests. They must meet tests of strict necessity and proportionality, including when authorities seek effective tax oversight, to combat large-scale tax planning or to prevent tax evasion and fraud.

The ruling says protection of lawyer-client communications covers general legal advice as well as court representation. Confidentiality extends both to the content of advice and to the fact that someone sought legal advice. People may generally expect that a lawyer will not reveal such a consultation without their consent, except in specific exceptional circumstances.

The court also stressed that lawyers’ duty of confidentiality is linked to their fundamental role in a democratic society, where people must be able to seek independent legal advice freely and in confidence.

The Icelandic Bar Association said it agreed with the court’s reasoning. It had previously written to the tax authority to emphasise the importance of respecting lawyers’ role, and said it expected the ruling to remind tax authorities and other public bodies of the importance of confidentiality between lawyers and clients.