Bad news for the Luxembourg legislator: The Luxembourg law on the exchange of tax information on request called into question…

The judgement of the Court of Justice of the European Union (CJEU) of 16 May 2017 challenges the Luxembourg law of 25 November 2014 laying down the procedure applicable to the exchange of information on request in tax matters (hereinafter the “Law of 25 November 2014”).

The CJEU was called to check the compliance of the Law with the European Directive 2011/16 on the exchange of information on request and the Charter of Fundamental Rights of the European Union and in particular the right to an effective remedy.

The matter opposed a Luxembourg entity to the Luxembourg tax authorities concerning a pecuniary penalty which the latter imposed on the Luxembourg entity for its refusal to respond to a request for information in the context of an exchange of information with the French tax authorities.

The judgement of the CJEU is in accordance with the views of the Advocate General of the CJEU (see our newsletter Q1 2017), according to which both the Luxembourg tax authorities and the requested third party should have an effective opportunity to each summarily review and challenge in court the foreseeable relevance of the requested information from another Member State tax authorities.

The conclusions of the Court are the following:

  1. The Luxembourg law is implementing the Directive 2011/16 and therefore the Charter of Fundamental Rights of the European Union is applicable.
  2. In application of article 47 “Rights to an effective remedy and to a fair trial” of the Charter of Fundamental Rights of the European Union, the national court hearing an action against the pecuniary administrative penalty imposed for failure to comply with an information order, must be able to examine the legality of that information order.
  3. Contracting Member states are not at liberty “to engage in fishing expeditions”, nor to request information that is unlikely to be relevant to the tax affairs of a given taxpayer. On the contrary, there must be a reasonable possibility that the requested information will be “foreseeably relevant”.
  4. Verification by the requested authority is not limited to the procedural regularity of the request, but must enable the requested authority to satisfy itself that the information sought is not deprived of any foreseeable relevance. When an action is brought by a relevant person against a penalty which was imposed on him/her by the requested authority for non-compliance with an information order issued by that authority, the national court not only has jurisdiction to vary the penalty imposed, but also has jurisdiction to review the legality of that information order (which relates to the foreseeable relevance of the requested information).
  5. In case of a judicial review by a national court of a Member State to which the request was addressed, that court must have access to the request for information which addressed by the requesting Member State to the requested Member State. The relevant person does not have a right of access to the entirety of that request for information, but it should contain the “minimum information” in order to properly  present his/her case before the court.

This decision could lead to a radical change of the approach of the requested third parties in Luxembourg when receiving a request for information which they consider to be obviously abusive.