The case C-682/15 Berlioz Investment Fund S.A., lodged on 19 December 2015, concerns the application of EU law in relation to administrative penalties for holders of information questioning the foreseeable relevance of information to be transferred to third countries.

Advocate General Wathelet in the Opinion issued on 10 january 2017 confirmed that the taxpayer has the right to challenge a request for information issued by Luxembourg pursuant to Directive 2011/16, on request from the French competent authority.

Berlioz Investment SA had to deal with a request for information sent to Luxembourg by the French competent authority in relation to dividends received from Cofima, Luxembourg subsidiary of Berlioz.

Berlioz had requested exemption from withholding taxes related to the inbound dividends received from Cofima, whilst the French tax authorities wanted to ascertain whether relevant conditions of French law have been fulfilled.

The requested information from Luxembourg on behalf of the French authorities concerned in particular whether the company has place of effective management in Luxembourg, list of employees with link to company’s registered office in Luxembourg, contractual relations between Berlioz and Cofima with any supporting documentation, information on shareholdings, amount of capital held by participants with percentage of capital held by each member etc. Berlioz objected to providing the latter information based on it lacking ‘foreseeable relevance’.

As part of the domestic litigation in Luxembourg, Berlioz brought an appeal to the Administrative court in Luxembourg alleging breach of Article 6 ECHR.

The Administrative court filed a preliminary ruling to CJEU bringing in by its own motion Article 47 of the EU Charter of Fundamental Rights, which as binding EU law guaranteeing the ‘right of effective remedy and to a fair trial’.

Advocate General Wathelet is of the opinion that the requested authority must be in a position to determine whether the requested information is foreseeably relevant, i.e. whether a nexus exists between the request for information and the factual situation of a particular taxpayer.

There must be a possibility for judicial review of the legality of the information on which the fine was based, in order to comply with Article 47 of the Charter.

This needs to be balanced with the legitimate objective of combating tax evasion and tax avoidance pursued by the Directive, so the deficiency must be manifest.

This type of review according to the Advocate General complies with Article 47 of the Charter and the principle of proportionality.

The concept of foreseeable relevance, as a ‘yardstick’ to judge the legality of information requests, prevents tax authorities from ‘fishing expeditions’, i.e. making requests that have no apparent nexus to an open inquiry or tax investigation with a particular taxpayer.

According to AG Wathelet, this approach is also supported by Article 26 OECD Model Tax Convention, by which this EU legislation was inspired.

It remains to be seen whether the legal reasoning by the Advocate General will eventually be upheld by the Court of Justice.

Source: CFE’s Tax Top 5 News