The Berlioz Case

On the 16 May 2017, the Court of Justice of the European Union (the "ECJ") rendered its decision in the Berlioz case (C-682/15) in relation to administrative cooperation between European Member States in taxation matters. 


In this case, Cofima SAS, a French simplified joint stock company, distributed a dividend to its parent company, Berlioz S.A., a Luxembourg joint stock company (“Berlioz”). No withholding tax was levied on the dividend distribution based on an exemption from withholding tax. In this context, the French tax authorities sought to ascertain whether the conditions of the French tax law were complied with to benefit from the exemption of withholding tax. The competent authority of the French tax administration sent the Luxembourg tax administration a request for information, on the grounds of the Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in taxation matters (the “Directive”). Consequently, the Director of the Luxembourg direct taxation administration (the "Director") requested Berlioz to communicate certain information to him, including the names and addresses of the shareholders of Berlioz as well as the capital amount and share capital percentage held by each shareholder (the "Information Order"). 

Berlioz replied to the Information Order by providing all the information requested, except the names and addresses of the shareholders of Berlioz as well as the capital amount and share capital percentage held by each shareholder. In fact, Berlioz considered this piece of information as not foreseeably relevant to verify whether the conditions for the exemption of the French withholding tax had been satisfied or not. 

As Berlioz persisted in its refusal to provide such information, notwithstanding requests received to do so, the Director imposed an administrative fine of EUR 250,000 on Berlioz, equivalent to the maximum amount provided for in the Luxembourg law dated 25 November 2014 which implements the Directive (the “Law”).  

Berlioz brought an action before the Administrative Tribunal against the Director’s decision imposing the fine and asked the tribunal to verify the validity of the Information Order and, notably, whether all the pieces of information requested by the French tax authorities were foreseeably relevant for the purposes of the withholding tax exemption. 

In its judgment of 13 August 2015, the Administrative Tribunal agreed to reduce the fine to EUR 150,000 (since Berlioz provided most of the information requested) but refused to verify the validity of the Information Order. This decision relied on article 6 of the Law which provides that no recourse may be introduced against a request from the Director based on a request for an exchange of information from foreign tax authorities. The holder of information may thus only challenge in the courts the decision by which the tax authorities pronounced the administrative fine. 

Berlioz lodged an appeal with the Administrative Court arguing that such refusal to examine the validity of the Information Order constituted a breach of article 6 (1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms, signed in Rome on 4 November 1950 (the “ECHR”), which guarantees the right to an effective judicial remedy. The Administrative Court considered that it would be more appropriate to consider article 47 of the Charter of Fundamental Rights of the European Union (the “Charter”) which mirrors the rights referred to in article 6 (1) of the ECHR, and requested the European Court of Justice (the "ECJ") to give a preliminary ruling on the six questions that it raised.

The decision of the ECJ

In its judgment, the ECJ decided the following: 

1) On the first question: 

The ECJ ruled that the Charter is applicable when a Member State makes provision in its legislation for a pecuniary penalty to be imposed on a relevant person who refuses to supply information in the context of an exchange between tax authorities based on the provisions of the Directive, even if the latter does not make an express reference to penalties per se.

2) On the second question: 

The ECJ confirmed that a person on whom a pecuniary penalty has been imposed for failure to comply with an administrative decision directing that person to provide information in the context of an exchange between national tax administrations pursuant to the Directive is entitled, based on article 47 of the Charter, to challenge the validity of that decision.

3) On the fourth question: 

The ECJ decided that the "foreseeable relevance" of the information requested by one Member State from another Member State, as referred to in the  Directive, is a condition which the information request must satisfy in order for the requested Member State to have to comply with that request. It is also a condition of the validity of an information order addressed by that Member State to a relevant person and thus of the decision to impose a penalty for failure to comply with that information order.

4) On the third and fifth questions: 

The ECJ specified that the authority to which a request for information has been submitted pursuant to the Directive must verify not only the procedural regularity of that request but also whether the information sought is not devoid of any foreseeable relevance. Therefore, a national court has jurisdiction to review not only the penalty imposed but also the validity of the content of the information request. However, the ECJ indicated that the courts’ review is limited to verification that the requested information manifestly has or has not such foreseeable relevance.

5) On the sixth question:

The ECJ considered that the information holder does not have an access right to the entire information request of the requesting Member State, which is to remain a secret document according to the Directive. In order for that person to be given a full hearing of his case in relation to the lack of any foreseeable relevance of the requested information, it is sufficient, in principle, that he is in possession of the information referred to in article 20 (2) of the Directive (i.e. the identity of the taxpayer concerned and the purpose for which the information is sought).

The impact of the ECJ's decision

The decision of the ECJ is welcomed since it emphasises that fishing expeditions in the context of exchange of information are not acceptable and it further preserves the fundamental right to an effective judicial remedy if an administrative fine is pronounced. It is interesting to note that the absence of such right in the Law had been heavily criticised during the preparatory works, especially by the Luxembourg Bar Council. Although tax transparency has been in the recent past a leitmotif in international taxation matters and a priority for the Luxembourg government to comply with international standards, the ECJ's decision puts a damper to this trend by pointing out that the tax transparency principle is not absolute, which needs indeed to comply with fundamental rights, such as the right to an effective judicial remedy. 

The rights of the information holder to challenge the validity of an information order are however limited in comparison to the situation that existed under the law of 31 March 2010 introducing the procedure in the context of an exchange of information and then modified by the Law. Indeed, the courts’ review is limited to a verification that the requested information manifestly has no foreseeable relevance. As a result, the information holder should not be able to challenge the validity of an information order in cases where the absence of the foreseeable relevance would not be obvious. The Luxembourg courts will consequently have to determine whether an information request manifestly has a foreseeable relevance or not, which might be difficult to assess in practice. This will likely increase the administrative burden and may lead to delays in processing since additional information will probably be required by the judge. 

In the Berlioz case, it will consequently fall on the Administrative Court to decide whether or not information sought (i.e. the names and addresses of the shareholders of Berlioz as well as the capital amount and share capital percentage held by each shareholder) has foreseeable relevance. 

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