Federal Court Issues Preliminary Injunction Protecting Attorney-Client Privilege in Tax Planning Arrangements

1. Background

The General Resolution in question is No. 4838/2020 and through that resolution Argentina’s tax authority (the “AFIP,” for its acronym in Spanish) issued a new mandatory reporting regime for tax planning arrangements. For an analysis of the regime, read our prior article here.

The Argentine Federation of Bar Associations (in Spanish, “Federación Argentina de Colegios de Abogados,” to which we will refer hereinafter as the “Federation”) filed in December 2020 a class action suit with Federal Trial Court in Administrative Matters No. 7 pursuing a declaration on the unconstitutionality and unenforceability of the Resolution.

In the lawsuit, the Federation also filed for a preliminary injunction to prevent the AFIP from applying the Resolution against attorneys until a final non-appealable judgement is handed down.

As a basis for its claim, the Federation stated that the Resolution constitutes an administrative order of regulatory nature and general scope. As such, it was issued in breach of the rule of law. In addition, the Federation contended that the Resolution also violates attorney-client privilege.

As a basis for the preliminary injunction, the Federation claimed that if the measure was not issued, attorneys would be subject to the reporting regime, thus potentially risking sanctions, while the essential activity they conduct (i.e. advising on tax-related matters)  would also be put at risk, hindering their right to work.

The Federation concluded that the preliminary injunction could guarantee the free exercise of the legal profession.

Contrariwise, the AFIP argued that the Federation did not have standing to sue on behalf attorneys and challenged the preliminary injunction. In addition, the AFIP contended that the Resolution does not violate attorney-client privilege because Section 8 provides that tax advisors who rely on attorney-client privilege must notify the advised taxpayer of their reporting duties under the Resolution. Thus, the taxpayer could release the attorney from their attorney-client privilege duties.

2. The Court’s Decision

The Court dismissed the AFIP’s lack of standing defense and ordered the AFIP to refrain from applying the Resolution against attorneys until a final appealable judgment is handed down.

The Court addressed the necessary requirements for ordering preliminary injunctions (i.e., sufficiency of claim and imminent peril) and concluded that:

 

1. There is sufficiency of claim in this case because the statements made by the Federation in its pleadings demonstrated that the Resolution is presumably  unconstitutional and (in the Federation’s words) violates the rule of law, reasonability, proportionality, legal certainty (since the AFIP might continue issuing regulations on the matter without legal grounds on account that the Resolution refers to an AFIP website), privacy, legal and constitutional supremacy, the rule that only the Legislative Branch can pass substantial tax regulations, and attorney-client privilege, among other principles.
2. The Court also seems to have deemed the imminent peril requirement as met, as it invoked prior caselaw and stated that “the greater sufficiency of claim, the less demanding the imminent peril requirement.” 

Lastly, the Court held that the potential consequences to attorneys resulting from the enforcement of the Resolution could outweigh those of issuing the preliminary injunction and precluding the Resolution’s enforcement.

3. Conclusions

The Court’s decision —which was appealed by the AFIP— applies to all attorneys who are allegedly affected by the Resolution. The Court’s decision regarding the preliminary injunction was upheld on appeal without a stay of execution, so the preliminary injunction is already in force.

The ruling constitutes a promising precedent for tax attorneys, as it suspends the enforcement of duties and obligations imposed by the Resolution —the scope and effectiveness of which have sparked controversy from the onset. In addition, the Resolution has been interpreted as a violation of attorney-client privilege and the rights and duties of attorneys in the exercise of their profession.