OUR INSIGHTS AT A GLANCE
- On 16 May 2017, in the well-known Berlioz case (C-682/15), the CJEU ruled that the Luxembourg rules on exchange of information upon request in force at that time were not in line with the Charter of Fundamental Rights of the European Union. As a result, several amendments to law of 25 November 2014 on exchange of information upon request were introduced by the law of 1 March 2019. Now, based on the new rules, information holders can contest information requests received from the Luxembourg tax authorities and the Luxembourg tax authorities must check the foreseeable relevance of the information requested by foreign tax authorities.
- In light of several prejudicial questions referred to the CJEU regarding the existence of a judicial remedy against information requests for information holders and third parties as well as the interpretation of the standard of foreseeable relevance for information requests, whether the amended procedure of exchange of information upon request is now in line with EU law remains to be confirmed.
- Depending on the CJEU opinion to be rendered on the series of prejudicial questions, Luxembourg tax authorities may have the obligation to notify not only the information holder but also the taxpayer(s) concerned of their information request.
On 14 March 2019, less than one month after the law of 25 November 2014 on exchange of information upon request (the “2014 Law”) was amended in order to bring it line with EU law, the Administrative Court of Luxembourg referred three interesting questions to the Court of Justice of the European Union (“CJEU”) in relation to the said law.
The answers that will be given by the CJEU to the new prejudicial questions, already called the “Berlioz 2 case law”, may lead to umpteenth amendments to the Luxembourg rules on exchange of information upon request in the near future. Thus, it is worth delving further into.
Berlioz case law - Act 1
It is not the first time that the Luxembourg rules on exchange of information upon request have been under scrutiny by the CJEU.
On 16 May 2017, in the well-known Berlioz case (C-682/15), the CJEU ruled that the Luxembourg rules on exchange of information upon request in force at that time were not in line with the Charter of Fundamental Rights of the European Union for the following reasons:
- The right to an effective remedy and to a fair trial laid down in article 47 of the Charter of Fundamental Rights of the European Union (the “Charter”) must be interpreted as meaning that a relevant person on whom a pecuniary penalty has been imposed for failure to comply with an administrative decision directing that person to provide information (“information order”) in the context of an exchange betweennational tax administrations pursuant to Directive 2011/16 is entitled to challenge the legality of that decision. However, such challenge was prohibited under the 2014 Law;
- The “foreseeable relevance” of the information requested by one Member State from another Member State is a condition which the request for information must satisfy in order for the requested Member State to be required to comply with that request. Verification of this condition by the requested authority to which a request for information has been submitted by the requesting authority is not limited to the procedural regularity of that request, but must enable the requested authority to be assured that the information sought is not devoid of any foreseeable relevance with regard to the identity of the taxpayer concerned, that of any third party asked to provide the information and to the requirements of the tax investigation concerned. Under the Luxembourg law, the verification required under the 2014 Law was only a procedural regularity check.
As a result, several amendments to the 2014 Law were introduced by the law of 1 March 2019. Now, based on the new rules, information holders can contest information requests received from the Luxembourg tax authorities and the Luxembourg tax authorities must check the foreseeable relevance of the information requested by foreign tax authorities (for more details, see our February 2019 ATOZ Insights and our June 2017 ATOZ Insights.
Berlioz case law – Act 2
In light of the new prejudicial questions referred to the CJEU, whether the amended procedure of exchange of information upon request is now in line with EU law remains to be confirmed. Indeed, even if the version of the 2014 Law under examination is the version existing prior to the 2019 changes, Luxembourg may be required to transpose, once again, the principles laid down in the decision that the CJEU will release.
Existence of a judicial remedy against information requests for the information holder
One of the prejudicial questions referred to the CJEU relates to the compliance of the 2014 Law (before being amended by the law of 1 March 2019) with the Charter to the extent that the Luxembourg rules exclude any recourse, including judicial, by the third party holder of the information against the request of the Luxembourg tax authorities to provide information in order to respond to a request for exchange information from another EU Member State.
Similarly, in a recent case involving an information request by the Swiss tax authorities, on 10 January 2019, the Luxembourg Tribunal referred two questions to the Luxembourg Constitutional Court on the conformity of the 2014 Law to the Luxembourg Constitution in so far as it does not allow for an injunction of the Luxembourg tax authorities to provide information to be challenged.
As the new version of the 2014 Law, passed on 14 February 2019, already deals with the issue, by allowing the information holder to contest information requests received from the Luxembourg tax authorities, the answers expected by both the Constitutional Court and the CJEU on this specific topic should not result in any further amendment to the 2014 Law. It is indeed no longer debatable that the right to an effective remedy implies that the national court must be able to examine the legality of the injunction decision in order to satisfy the requirements of Article 47 of the Charter.
Existence of a judicial remedy against information requests for any person concerned (and not only the information holder)
The draft law released at the end of 2017 in reaction to the Berlioz case law in respect of the lack of an effective judicial remedy initially reintroduced a possibility for any person concerned by the information request to contest the information request (e.g. on the ground that the information request would not meet the foreseeable relevance principle) before Luxembourg courts. However, over the legislative process, the Luxembourg legislator decided to go a step back and to grant this possibility only to the information holder and no longer to any other person concerned (such as the taxpayer itself).
Nevertheless, one of the questions now referred to the CJEU refers precisely to the question as to whether the Charter prohibits a rule that precludes any recourse, including judicial, by the taxpayer under investigation in the requesting Member State and by any third party concerned, against a decision through which the competent authority of that Member State requires an information holder to provide information with a view to respond to a request for exchange of information from another Member State.
According to Article 47 of the Charter which enforces the right to an effective remedy and to a fair trial, anyone whose rights and freedoms guaranteed by the law of the EU are violated has the right to an effective remedy before a tribunal. As a result, Member States are under the duty to provide remedies sufficient to ensure effective legal protection in the fields covered by EU law.
That protection may be invoked by any relevant person in respect of a measure adversely affecting him or her. Such person can thus rely on the right to an effective remedy. The European Court of Human Rights (“ECtHR”) has already recognised that a taxpayer, subject to tax investigation, has the right to effective and real procedural safeguards to challenge the surrender of his bank details, thereby protecting him against arbitrary implementation of the agreements concluded by two States in relation to exchange of information.
It must also be concluded from the case law of the ECtHR that a third party whose documents and information concerning economic operations, have been obtained from an information holder by the authorities to be transferred to the authorities of another State, may in principle invoke an interference with their private life within the meaning of Article 8 of the European Convention on Human Rights and must be able to benefit from recourse to ensure the effective control of the measures taken.
The fact that the information holder is entitled to challenge the injunction of the Luxembourg tax authorities to provide information should not, in our view, be considered as sufficient to ensure the effective control of the information injunction. Indeed, if the information holder is not the taxpayer, it may not have any interest in challenging the tax authorities’ injunction which constitute an interference with the private life of the taxpayer or of a third party but not of its own, and might find it easier to provide the requested information. Thus, the fact that the information holder is entitled to challenge the injunction does not efficiently prevent any potential harmful consequences of such injunction for the related taxpayer or a third party, nor does it put an end to any alleged violations raised by these latter parties.
Foreseeable relevance of information requests
The “foreseeable relevance” of the information requested from one Member State by another Member State is a condition which the information request must satisfy in order for the requested Member State to be required to comply with that request, and thus a condition for assuring the legality of the information order addressed by that Member State to any relevant person as well as of the potential penalty imposed on that person for failure to comply with that information order.
As a consequence of the Berlioz case law, an obligation has been reintroduced into the Luxembourg information exchange upon request legal framework according to which the tax authorities have to verify that the condition of foreseeable relevance is met prior to sending an information request to the information holder.
The last question referred to the CJEU relates to the interpretation of the standard of foreseeable relevance. The debate is whether a request for information exchange, together with an injunction decision from the authority of the requested Member State, satisfy the standard of “foreseeable relevance” where the applicant Member State indicates i) the identity of the taxpayer concerned, ii) the period covered by the investigation in the Member State and iii) the identity of the holder of the information concerned, while requesting information concerning contracts and related invoices and payments not specified but which are delimited by the criteria relating, firstly, to the fact that they would be held by an identified holder of information, secondly, to the taxation years concerned by the investigation by the authorities of the requesting State and, thirdly, to their link with the identified taxpayer concerned.
The position to be taken by the CJEU in this respect will be useful to define the scope of the standard of foreseeable relevance in Luxembourg as well as in any other EU jurisdiction.
Implications and next steps
At the time of the modification of the 2014 Law, we were of the opinion that, while the changes introduced by the Luxembourg legislator were globally positive, it would have been wiser to introduce the possibility to challenge information requests (as was the case under the procedure applicable prior to the 2014 Law) for the taxpayer concerned. Even if the Luxembourg legislator took the decision not to introduce such rights for the taxpayer, it might be required to do so in the near future, as a result of the CJEU’s opinion to come on the prejudicial questions in Berlioz 2. In this case, and contrary to what is currently happening, Luxembourg tax authorities would have the obligation to notify not only the information holder but also the taxpayer(s) concerned of their information request. We will update you as soon as the CJEU decision has been made available.