CJEU Delivers New Landmark Ruling in the Aftermath of the 2017 Berlioz Case

On 6 October 2020, the Court of Justice of the European Union (“CJEU”) delivered a landmark ruling in Joined Cases C-245/19 and C-246/19 about the fundamental right to a judicial remedy against an information order issued by the national tax authorities of a Member State in the application of Directive 2011/16/EU on administrative cooperation in the field of taxation (“DAC3”).

In contrast with the Opinion of Advocate General Kokott, the CJEU ruled that, when other remedies are available, the taxpayer subject to an investigation bringing forth the request for exchange of information and other third parties involved do not have the right to a direct judicial remedy against the information order. In the aftermath of the notorious Berlioz case of 2017 (C-682/15), the case at hand sets new standards for fundamental rights in the era of information exchange.

Background

In October 2016 and March 2017, the Spanish tax authorities (“Requesting Tax Authorities”) sent requests for exchange of information to their Luxembourg counterparts (“Requested Tax Authorities”) in the context of an investigation about a Spanish tax resident (“Taxpayer”) based on DAC3 and the Luxembourg-Spain Bilateral Tax Treaty of 1986.

Since the Requested Tax Authorities did not possess the demanded information, they addressed an information order – with a possible fine of maximum €250.000 for non-compliance – to a Luxembourg based company and a Luxembourg based bank (“Addressees of the Information Orders”). The former was asked to provide copies of contracts involving the Taxpayer, while the latter was ordered to share information concerning the bank accounts, account balances and other financial assets held (or beneficially owned by) the Taxpayer.

The Addressees of the Information Orders, the Taxpayer, and other third parties involved challenged the legality of the information orders before the Luxembourg Administrative Court (Tribunal administratif), which partly annulled the orders. The Luxembourg tax authorities then lodged an appeal before the Luxembourg Higher Administrative Court (Cour administrative), which stayed the proceedings and referred two questions for a preliminary ruling to the CJEU.

With the first question, the referring Court asked whether the Luxembourg legislation, which precludes a judicial remedy against an information order under DAC3, entails a violation of the fundamental rights of the Addressees of the Information Orders, the Taxpayer and other parties involved, pursuant to Article 47 (right to an effective remedy and to a fair trial) of the Charter of Fundamental Rights of the European Union (“Charter”), read in parallel with Articles 7 (right to privacy), 8 (right to protection of personal data) and 52(1) (restriction of fundamental rights in specific circumstances) of the Charter.

With the second question, the referring Court asked how specific and precise the request for exchange of information must be, since DAC 3 only covers “foreseeably relevant” information.

Ruling of the CJEU

          A. The In(direct) Right to Judicial Review

In the Berlioz case, the CJEU stated that under Article 47 of the Charter, an information holder subject to a pecuniary fine is entitled to challenge the legality of the information order in the framework of this appeal (indirect judicial remedy). The Berlioz case, however, did not address the right to judicial review in the sole presence of an information order, issued without the application of a pecuniary fine (direct judicial remedy).

In the subject case, the request for a preliminary ruling relates to the possibility of direct judicial remedy against the information order issued by the Requested Tax Authorities, without having to wait for a fine. In her Opinion, Advocate General Kokott had held that the Addressees of the Information Orders, the Taxpayer, and third parties involved should all have a right to a direct judicial remedy against the orders.  The CJEU, however, took a slightly different approach by making a distinction between each of them and ruled that:

• The Addressees of the Information Orders have the right to challenge the orders directly, without having to wait for a fine. In the case at hand, though, the CJEU found that Addressees of the Information Orders only had the right to challenge the orders indirectly, in the context of an action brought against the penalty imposed for the non-fulfillment of that order, and not directly against the information orders themselves. Hence, the Court ruled that the Luxembourg national legislation did not comply with Article 47 and Article 52(1) of the Charter.
  
  
• The Taxpayer also has the right to a judicial remedy under Article 8 of the Charter (protection of personal data). However, such right is preserved when other remedies are available (such as the right to challenge a tax adjustment or a tax reassessment). In other words, national legislation preventing the Taxpayer from bringing a direct action against an information order does not breach the right to an effective remedy if an effective judicial review may be triggered incidentally, which is the case in Luxembourg.
  
  
• The third parties involved also have a right to direct judicial remedy under Article 8 of the Charter (protection of personal data) or, as the case may be, under Article 7 of the Charter (right to privacy), regardless of the circumstance that (i) the requested information is sensitive or not, (ii) the exchange of information could have drawbacks or not, or (iii) they may or may not suffer a financial or moral prejudice in the aftermath. Nevertheless, like the Taxpayer, the right of the third parties to an effective remedy may be limited by national legislation by excluding the right to activate a direct action against an information order, provided that such third parties may obtain the effective respect of their fundamental rights through other actions (such as an action to ascertain liability).

          B. The “Foreseeably Relevant” Information

Pursuant to Article 1 of the Directive, “[the] Directive lays down the rules and procedures under which the Member States shall cooperate with each other with a view to exchanging information that is foreseeably relevant to the administration and enforcement of the domestic [tax] laws of the Member States” (emphasis added).

In particular, Recital 9 of the Directive states: “Member States should exchange information concerning particular cases where requested by another Member State and should make the necessary enquiries to obtain such information. The standard of ‘foreseeable relevance’ is intended to provide for exchange of information in tax matters to the widest possible extent and, at the same time, to clarify that 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 a given taxpayer” (emphasis added).

In the Berlioz case, the CJEU explained that the concept of “foreseeable relevance” enables the Requesting Tax Authorities to obtain any information necessary for an investigation, while preventing them to exceed the parameters of that investigation or to place an excessive burden on the Requested Tax Authorities. It is also a condition of the validity of an information order addressed by the Requested Tax Authorities to an information holder, and thus of the decision to impose a penalty for failure to comply with that information order.

In the subject case, Advocate General Kokott held in her Opinion that in order for the Requested Tax Authorities to verify whether the requested information is “foreseeably relevant” for the taxation of the concerned Taxpayer, the Requesting Tax Authorities must provide concrete elements of information. This may include, according to the magistrate, the purpose and current result of the investigation, the former attitude of the taxpayer, the list of infringement(s) of tax obligations by the taxpayer or the current objections raised for tax purposes.

Building on the analysis in the Berlioz case, the CJEU followed the Opinion of the Advocate General and ruled that an information is “foreseeably relevant” within the meaning of Directive 2011/16 when it does not “manifestly lack any realistic importance" and where it:

• States the identity of the person holding the information and of the taxpayer subject to the investigation giving rise to the request for exchange of information, and the period covered by that investigation, and;
  
  
• Relates to contracts, invoices, and payments that – although not expressly identified – are defined by personal, temporal, and material criteria establishing their links with (i) the investigation, and (ii) the taxpayer subject to that investigation.

For more information, please contact Werner Heyvaert or Vicky Sheikh Mohammad.