Berlioz case: rule of law supersedes the exchange of information


With the development of the European Union (“EU”) and its four freedoms (i.e. capital, goods, services, and labour) cross-border movements have become faster and easier. This development comes side-by-side with an increase in tax abuse and tax fraud. To tackle such fraud and abuse EU Member States have, in addition to the requirements laid down by the OECD in this area, improved exchange of information between Member States by introducing two directives, Council Directive 77/799/EEC which was superseded by Council Directive 2011/16/UE, (the “Relevant Directive”), which have since been implemented into Luxembourg law.

The main aim of the Relevant Directive (and the preceding Directive which it repealed) is to permit tax authorities of EU Member States to exchange information of foreseeable relevance to their enquiries, but only to the extent that the request for information made by a foreign tax authority is not simply a “fishing expedition”.

In transposing the Relevant Directive and thereby introducing measures authorising the exchange of information with other tax authorities, Luxembourg did not give the right for a tax payer or third party, who is required to furnish information to the national tax authorities upon request, to have access to a judicial remedy against the legality of the request itself. Only the Luxembourg tax authorities had the right to review the legality of the request made by a foreign authority.

Furthermore, the Luxembourg tax authorities had authority to levy a fine on a tax payer or third party who failed to provide information upon request. The levying of a fine without the possibility of a judicial remedy was at the heart of the Berlioz case.


Following a request for information from the French tax administration to the Luxembourg tax administration relating to a dividend distribution received by Berlioz, a Luxembourg resident company, from its French resident subsidiary, Berlioz was requested by the Luxembourg tax authorities to provide information in particular with regard to its shareholders. Berlioz provided some but not all of the requested information and consequently was fined by the Director of the Luxembourg tax authorities, in the maximum authorised amount, of EUR 250,000.

Berlioz took the case to the Luxembourg Administrative Court, which partially reduced the amount of the fine but did not consider the validity of the information request under Luxembourg law. Arguing that the failure to determine the validity of the information request under Luxembourg law was a violation of its right to an effective judicial remedy, Berlioz appealed to the Higher Administrative Court. This question was then referred to the European Court of Justice (“ECJ”) for a preliminary ruling. 


The ECJ had to consider whether the Charter of Fundamental Rights of the European Union (the “Charter”), providing a right to an effective remedy, is also applicable within the framework of the exchange of information between tax authorities of EU Member States, or if the need for maintaining efficiency and discretion within such framework should prevail.

Unsurprisingly, the ECJ followed the Advocate General Wathelet in his conclusion from January 2017 and ruled that, according to the Charter, a national court entitled to review a fine imposed on a tax payer or on a third party could only do so if it was also able to investigate the legality of the information request made by the foreign tax authorities (i.e. review the foreseeable relevance of the requested information). The basis for this conclusion by the ECJ was that, as a Union of Member States all governed by the rule of law, the European Union necessarily also was governed by that principle. This principle implies that any decision taken by an administrative authority must be open to judicial review. Therefore, the Luxembourg courts, in the case at hand, must have a chance to review the legal merits of the information request made by a foreign tax authority.


The ECJ ruling seems to be the appropriate response to the question at hand. Indeed, the mere fact that the fight against tax fraud is a major concern for a Member State is not a reason to undermine the rule of law.

As a consequence of the ECJ ruling, Luxembourg will now need to review and revise its legislation which transposed the Relevant Directive so that a tax payer has a judicial remedy to challenge the validity of an information request made by a foreign tax authority.