The Court of Justice of the European Union (CJEU) has handed down a ruling that the courts of one member state may review the legality of requests for tax information sent by another member state, but cannot conduct ‘fishing’ requests which are devoid of any foreseeable relevance to the tax investigation concerned
The ruling was the result of case involving the Berlioz Investment Fund and the Luxembourg tax authorities. [Berlioz Investment Fund v. Director of the Direct Taxation Administration, Luxembourg (Case C-682/15)].
In the course of a review of the tax affairs of French company Cofima, in 2014 the French tax administration sent to the Luxembourg tax administration a request for information concerning Cofima’s Luxembourg parent company, Berlioz Investment Fund.
In response to the Luxembourg tax authorities’ request, Berlioz provided all the information sought, except for the names and addresses of its members, the amount of capital held by each member and the percentage of share capital held by each member. According to Berlioz, that information was not foreseeably relevant to the checks being carried out by the French tax administration.
As a result of Berlioz’ refusal to provide that information, in 2015 the Luxembourg tax administration imposed an administrative fine of €250,000 (£215,270). Berlioz applied to the Luxembourg administrative courts for cancellation of the fine and annulment of the ‘information order’ (the decision of the Luxembourg authorities directing Berlioz to provide the information at issue).
The administrative tribunal of Luxembourg reduced the fine to €150,000 but declined to determine whether the information order was well founded. The tribunal was relying on Luxembourg law, under which it is possible to apply for cancellation or reduction of the fine, but not annulment of the request for the exchange of information or of the information order.
Berlioz then lodged an appeal, arguing that its right to an effective judicial remedy, as guaranteed by the Charter of Fundamental Rights of the EU, had been infringed, and the case was referred to the CJEU.
The CJEU has now found that the Charter of Fundamental Rights of the EU is applicable, since, by imposing a fine on Berlioz because of its refusal to provide the information sought, the Luxembourg tax authorities implemented the EU directive on administrative cooperation in the field of taxation.
The court went on to argue that the national court hearing an action against a fine imposed on a person for failure to comply with an information order must be able to examine the legality of that order if it is to comply with the right to an effective judicial remedy.
However, the CJEU noted that such an information order can be lawful only if the requested information is ‘foreseeably relevant’ for the purposes of the tax investigation in the member state seeking it.
Accordingly, member states are not at liberty to engage in ‘fishing expeditions’ or to request information that is unlikely to be relevant to the tax affairs of the taxpayer concerned. While it is up to them to determine the information they consider that they would need, they may not request information that is of no relevance to the investigation concerned, since the person to whom an information order is addressed must be entitled to rely in court on the non-compliance of the request for information with the directive and, therefore, on the resulting illegality of the information order.
Finally, the CJEU said that, if the court of the requested state is to be able to conduct its judicial review, it must have access to the request for information and to any additional information which the authorities of the requested state may have been able to obtain from the authorities of the requesting state.
The person to whom the information order is addressed may, however, be barred from having access to the request for information because it is secret, and that that person does not therefore have a right of access to the whole of that request. Nevertheless, in order to be given a fair hearing, that person must have access to key information in the request for information (namely the identity of the taxpayer concerned and the tax purpose for which the information is sought), and the court may provide that person with certain other information if it considers that the key information is not sufficient.
Berlioz Investment Fund v. Director of the Direct Taxation Administration, Luxembourg (Case C-682/15) is here.
