It also decided that that the tax authority receiving the request for information must check that the information requested is 'foreseeably relevant' to the tax investigation.
Berlioz, a company established in Luxembourg, received dividends from its French subsidiary, which were paid under an exemption from withholding tax. The French tax authorities did not think the conditions for the exemption had been satisfied and sent the Luxembourg tax authorities a request for information concerning Berlioz.
The Luxembourg tax authorities directed Berlioz to supply specified information about its structure and activities. This included a request for details of 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.
Berlioz supplied most of the information, but did not supply the details of its members on the grounds that the information was not 'foreseeably relevant' to the question of whether the dividend distributions made by its subsidiary should be subject to withholding tax. The Luxembourg authorities imposed a financial penalty on Berlioz for its failure to supply all the requested information. Berlioz challenged the penalty and the validity of the information request and the Luxembourg court referred the matter to the CJEU.
The CJEU decided that it was lawful for a member state to impose a penalty on a taxpayer who did not comply with an information request relating to a request from a foreign tax authority, but the taxpayer had a right to challenge the penalty. The court said that the foreign tax authority could only request information that was foreseeably relevant and a penalty for non-compliance with a request could be challenged on the basis that the information was not foreseeably relevant.
The court said that the tax authority receiving the information request had go beyond a brief and formal verification of the regularity of the request. It had to satisfy itself that the information sought was foreseeably relevant having regard to the identity of the taxpayer and any third party asked to provide the information, and to the requirements of the tax investigation concerned.
The requesting authority had to provide an adequate statement of reasons explaining the purpose of the information sought in the context of the tax procedure underway in respect of the taxpayer, the court said. The requested authority could ask for further information.
However, the court decided that, although a court deciding on the validity of an information request could see the text of the request for information from the overseas tax authority, the taxpayer was not entitled to see it. The person being asked to supply the information was entitled to know the identity of the taxpayer concerned and the tax purpose for which the information was sought. However, the CJEU said that if the court considering the validity of the information request considers that that minimum information is not sufficient and it asks the requested authority for additional information, the court is obliged to provide that additional information to the taxpayer, taking into account the possible confidentiality of the information.
The request for information by the French tax authorities was made under the EU Administrative Cooperation Directive. This enables one EU member state to request information from another about a taxpayer. If the other tax authority does not hold the information, it is obliged to request it from the taxpayer using its domestic powers. Information can be requested if it is of 'foreseeable relevance' to the administration and enforcement of member states' tax laws.
As well as providing for 'on request' exchanges of information between member states the Directive also provides a framework within the EU for annual automatic exchange of information about financial accounts as part of the Common Reporting Standard . The Administrative Compliance Directive also provides for the automatic exchange of information regarding cross-border tax rulings and advance pricing arrangements with effect from 1 January 2017.