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On May 16, 2017, the Court of Justice of the European Union (‘CJEU’ or ‘Court’) issued its decision in the Berlioz Investment Fund S.A. v Directeur de l’administration des Contributions directes case (C-682/15). The Court found that Berlioz Investment Fund S.A. (‘Berlioz’), a Luxembourgish taxpayer company can rely on the Charter of Fundamental Rights of the European Union (‘Charter’) to challenge not only the Luxembourg tax authority’s penalty for not providing information demanded pursuant to a request to the Luxembourgish tax authorities from the French tax authorities under Council Directive 2011/16/EU of February 15, 2011 on administrative cooperation in the field of taxation (‘EU DAC’), but also the legality of the demand itself. The CJEU found that the condition in the EU DAC regarding the ‘foreseeable relevance’ of the information was also a necessary condition of the legality of the demand addressed by the Luxembourgish tax authorities to the company.
In this case Berlioz, the Luxembourgish parent company received dividends paid to it by its French subsidiary, Cofima SAS (‘Cofima’), on the basis that they were exempt from French withholding tax. In order to ascertain whether the relevant conditions of French law for the exemption had been complied with, the French tax authorities requested certain information from the Luxembourg tax authorities which, in turn, issued an information order to Berlioz. Berlioz refused to provide certain information on the grounds that it was not foreseeably relevant within the meaning of the EU DAC for the verification carried out by the French tax authorities. As a result, a fine was imposed on Berlioz in Luxembourg. Berlioz obtained a reduction of the fine in local court proceedings but the local court, basing itself on Luxembourgish procedural law, refused to determine whether the information order was well founded. Berlioz appealed, and the appeal court referred questions to the CJEU as to whether the refusal to determine the latter question infringed its rights under the Charter.
In line with General Advocate (‘AG’) Wathelet’s opinion of January 10, 2017, the Court held that Berlioz could invoke the Charter. A condition for invoking the Charter is that the rule in question applies EU law. Even though the penalty in question was based on Luxembourgish law, since it was imposed in the context of the implementation of the EU DAC, the rule in question applied EU law. The Court went on to conclude that Berlioz was entitled to challenge the legality of the information order. In this context, the CJEU distinguished the current case from an earlier case, Sabou C-276/12, in which it had ruled that a taxpayer who was the subject of a tax investigation without being informed did not have the right to be involved in the related administrative proceedings between the two national tax administrations. In the current case, however, the information request was directed to the relevant person in question.
The Court further ruled that the ‘foreseeable relevance’ of the requested information referred to in the EU DAC is a condition, not only for the request for information requested by one Member State from another, but also for the legality of the information order under which the latter State demands the information from a relevant person. As regards the scope of that condition, the Court noted that recital 9 of the EU DAC does not allow Member States to engage in ‘fishing expeditions’ or to request information that is unlikely to be relevant to the tax affairs of a given taxpayer. What is more, there must be a ‘reasonable possibility’ that the requested information will be relevant for the requesting authority.
The CJEU added that the requested authority also has an obligation to check whether the information requested has any foreseeable relevance for the purposes of the tax investigation, having regard to the identity of the taxpayer under investigation and the purpose of that investigation. The CJEU went on to say that the national (Luxembourgish) court had a similar obligation to verify the relevance of the information in question.
The Court also made clear that while the local court should have access to the request for information in order to conduct its judicial review, that request was subject to secrecy as provided by the EU DAC, and, while the relevant person should have a reasonable opportunity to present its case, it was not necessary for them to have access to the whole request, but, in principle, merely to the identity of the taxpayer and the tax purpose for which the information was sought.
It is our understanding that some of the disputed provisions (including those allowing the tax authorities to charge an administrative fine up to a maximum of EUR 250,000 and those disallowing the taxpayer the option to file an appeal against a request for information) were introduced by Luxembourg in 2014 as a result of negative feedback received during the peer review performed by the Organisation for Economic Co-operation and Development (OECD) Global Forum on Tax Transparency. The CJEU’s decision in the Berlioz case provides some clarity on a taxpayer's right to challenge an administrative decision directing them to provide information and the necessary characteristics of information requested by another Member State (and hence requested from the taxpayer).