Luxembourg must allow court challenge to validity of French tax information exchange request, CJEU Advocate General says

Luxembourg must allow a company to challenge the legality of an information order issued to implement a French tax-related exchange of information request on the grounds that the request lacks “foreseeable relevance,” Advocate General Melchior Wathelet said in an opinion issued Tuesday.

The case, Berlioz Investment Fund SA v Directeur de l’administration des Contributions directes (Case C‑682/15), involves a 2014 competent authority request issued by the French tax administration to the Luxembourg tax administration.

The French tax authority sought information from the Luxembourg tax authority to ascertain whether French stock company, Cofima SAS, was entitled to an exemption from withholding tax when it paid dividends to its Luxembourg parent, Berlioz Investment SA (Berlioz).

To comply with France’s request, Luxembourg ordered Berlioz to divulge information. Berlioz complied, in part, but refused to provide information regarding 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, the information was not foreseeably relevant to the French government’s tax inquiry within the meaning of Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation.

Berlioz was fined EUR 250 000 on account of its failure to divulge the information. It challenged the fine in Luxembourg’s tribunal administratif (Administrative Tribunal), which refused to determine the validity of the information order under Luxembourg law.

Berlioz then appealed before the Cour administrative, arguing that the administrative tribunal violated its right to an effective judicial remedy under Article 47 of the Charter of Fundamental Rights of the European Union (the Charter). The administrative court stayed proceedings, requesting a preliminary ruling from the Court of Justice of the European Union (CJEU) in the matter.

Advocate General Wathelet has concluded that the CJEU should rule that, to comply with Article 47 of the Charter, the Luxembourg administrative court must examine the legality of the information order on which the penalty is based.

“I consider that the right to an effective remedy and to an impartial tribunal enshrined in Article 47 of the Charter necessarily entails the right of access to justice, that is to say, the possibility for an individual to secure a rigorous judicial review of any act capable of adversely affecting his interest,” Wathelet said.

The Advocate General said that compliance with the “foreseeable relevance” standard is condition of the regularity of a tax information request, and thus also of a subsequent information order, so it is the criterion a court should use to examine the legality of the information order.

He added, though, that to further the legitimate objective of combating tax evasion and tax avoidance, the review of the legality of the order should be limited to “verifying, on the basis of a brief examination, that the information order is based on a request for information which demonstrates a link between, on the one hand, the information requested, the taxpayer concerned and any third party asked to provide information and, on the other, the tax objective pursued.”

The Advocate General further added that, for the information order to be illegal, any deficiency between the request for information and the tax objective must be “manifest.”

He said further that the request for information must be communicated to the court hearing the action against the pecuniary sanction, and also to the third party holding the information.

“If the administration of the requested State considers that the latter communication is capable of compromising the effectiveness of the collaboration between administrations with a view to combating tax evasion and tax avoidance (or of adversely affecting another public interest or the fundamental right of another individual), it is for that authority to adduce evidence to that effect in the context of that action and for the court to resolve the question,” the Advocate General said.

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