ECJ challenges the Luxembourg law on exchange of information

On 16 May 2017, the Court of Justice of the European Union ("ECJ") delivered its long- awaited judgment in the Berlioz case  regarding the compliance of the Luxembourg Laws of 29 March 2013 implementing the Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation ("Directive") and of 25 November 2014 on the procedure applicable to the exchange of information in tax matters, with respect to the Charter of Fundamental Rights of the European Union ("Charter").

In an action before the Luxembourg courts, Berlioz Investment Fund S.A. disputed the administrative fine received from the Luxembourg tax authorities following its refusal to provide the names and addresses of the shareholders of its French subsidiary (being audited by the French tax authorities), and the proper basis of the injunction, on the grounds that the requested information was not "foreseeably relevant" for the purpose of the tax investigation. According to the current Luxembourg Law of 25 November 2014, no remedy is granted against the injunction or the request for information and the Luxembourg tax authorities shall only perform a formal review of the request for information from the foreign tax authorities which the Luxembourg tax authorities implement by verifying only the name of the foreign tax authorities and a reference to the legal basis for the exchange (e.g. relevant double tax treaty).

In this context, a preliminary ruling was referred to the ECJ which has responded as follows:

• The ECJ confirmed the applicability of the Charter in the context of a litigation regarding the administrative fine applied to an information holder refusing to provide the information requested by the injunction arising from an exchange of information procedure based on the Directive.
• The ECJ ruled that Art. 47 of the Charter grants an information holder the right to discuss the proper basis of such an injunction.
• The ECJ ruled that the foreseeable relevance of the requested information is a condition of the proper basis of the request for information and, as a result, of the injunction.
• The ECJ concluded that, according to Art. 47 of the Charter guaranteeing the right to an effective remedy and to a fair trial, national courts do not only have jurisdiction to discuss the administrative fine but also jurisdiction to review the proper basis of the injunction in the context of a request for exchange of information.
• The ECJ ruled that (i) the review expected from the national authorities to ensure that the requested information is not devoid of any foreseeable relevance, and that (ii) the review by national courts must be limited to the verification that the requested information manifestly does not have foreseeable relevance, in order  not to interfere with the effectiveness of the provisions of the Directive combating tax avoidance and tax evasion, and in particular the procedures for the exchange of information. Such "foreseeable relevance" should be established (or its absence) based on the identity of the taxpayer concerned and the purpose of the relevant tax investigation.
• The ECJ ruled that, a national court must have access to the foreign request for information without allowing the information holder to access to the whole of the request of information to the information holder as regards the confidentiality of the document. The information holder shall only have access to the essential information of the request for information and, if not sufficient, shall be provided with further information by the national court.