Judicial Control of Administrative Cooperation in Tax Matters, Taxpayers’ Rights and the Notion of “Foreseeable Relevance” in light of the CJEU’s case law: Concluding Remarks, by Mariolina Eliantonio and Marina Serrat Romaní

1. Introduction

This is the last blog post of a series stemming from the virtual seminar ‘Judicial Control of Administrative Cooperation in Tax Matters, Taxpayers’ Rights and the Notion of “Foreseeable Relevance” in light of the CJEU’s case law’, organised on 8 February 2022 by Maastricht University. The event and the blog posts were dedicated to the analysis of recent Court of Justice of the European Union case law: from Case C-682/15 Berlioz to the Luxembourg cases, C- 245/19 and C-246/19 État luxembourgeois v B and Others and C‑437/19 État luxembourgeois v L and its impact on taxpayers’ rights. This post aims to highlight the most relevant findings of the series of blog posts. To this end, we discuss four main points linked to the system of multi-level tax governance which pose challenges and opportunities for the development of both a legitimate and effective tax policy.

2. The standard of foreseeable relevanceat the global and EU levels and the independence of the EU before the OECD standards

The OECD is the main standard-setter in the field of international taxation. The OECD’s output has been considered input for EU legislation on several occasions and the concept of ‘foreseeable relevance’ is not an exception, as it finds its originsinArticle 26 of the OECD Model Tax Convention.In the field of European tax law, whenever States provide mutual assistance within the scope of the Directive on Administrative Cooperation (DAC), the OECD’s standard sowed the seeds of foreseeable relevance for mutual assistance procedures.

As mentioned by Pistone, the concept of foreseeability has been traditionally used in other fields of law, as a term of reference to assess likelihood. Yet, within the field of EU tax law, there was originally no specific definition of foreseeability or tradition to apply it. Under Article 26 of the OECD Model Convention, foreseeable relevance prevents the use of exchange of information for open-ended outsourcing of fact-finding to the requested authorities. Thus, Article 26 OECD Model Convention established the pattern that has been used for both EU secondary law and case law. The most important reference to foreseeable relevance in tax matters is included in the context of the cross-border exchange of information between tax authorities.

The fact that Article 26 of the OECD Model Tax Convention establishes interpretative guidelines does not, however, necessarily mean that the OECD guidelines should be copied straight into EU secondary law, potentially jeopardizing the primacy of EU Law. In that sense, Korving shares Pistone’s position and highlights that the EU is a supranational body with its own legal order. Yet, he considers that “the OECD guidelines should […] be granted more relevance for interpretational issues” and in this line he nuances that “that does not automatically mean that OECD texts should be copied into any Directive, but where definitions are concerned that should certainly be considered. Moreover, a more direct reference to OECD positions for interpretational issues should be considered by both the European Commission when making legislative proposals and the CJEU”.

3. Taxpayers’ rights are human rights

As mentioned above, the DAC – a piece of EU secondary law– regulates the notion of foreseeable relevance. However, secondary law needs to be interpreted in line with EU primary law, and in particular, EU fundamental rights. Compliance with EU fundamental rights is particularly important for the reasonableness test applied under the DAC in connection with the specific meaning of foreseeable relevance.

The determination of the level of reasonableness to frame when information would be relevant for tax purposes is crucial to guarantee sufficient protection for taxpayers’ rights, especially in mutual assistance procedures where taxpayers cannot access their data that is being exchanged between tax authorities. According to Pistone, this right to judicial review should be accompanied by a right to an ex ante protection within mutual assistance procedures, which means that taxpayers should have the opportunity to have access to judicial review procedures before mutual assistance takes place. To  illustrate this statement, Pistone refers to CJEU’s cases Berlioz and the Luxembourg vs B and others (also known as Berlioz II) by indicating that“in Berlioz we saw that such review could take place in connection with the levying of a penalty. However, judicial review should not just be in connection with penalties, but in a more general way. Moreover, it should not only be limited to third party holders of information, but also be made available to the affected persons with an ex ante approach (which the Court denied in the Berlioz II case)”.

4. The role of Article 47 of the EU Charter of Fundamental Rights in taxation: slowly getting there?

The adoption of amendments to the DAC in the area of administrative cooperation and taxpayers’ information exchange have generated a series of CJEU rulings concerning the protection granted to taxpayers and information holders under Article 47 of the Charter.

As discussed by Pantazatou, this recent line of case law (inaugurated by Berlioz and followed by État luxembourgeois v B and others and État luxembourgeois v L), which Article 47 is slowly establishing itself as a benchmark for national action when it comes to administrative cooperation in tax matters, stands in stark contrast with the field of indirect taxation. In the latter field, Article 47 plays a well-established role, leading to increased judicial protection for taxpayers.

On the contrary, in litigation concerning direct taxation the applicability of Article 47 has only recently been recognized by the CJEU and, as Pantazatou shows, there is quite some way to go before taxpayers’ rights are fully upheld in this field.Indeed, in this line of cases, the CJEU has granted information holders the right to an effective remedy, in the sense of granting national courts the possibility to review the legality of an information order coming from the tax authorities of other Member States, in order to ensure that the requested information is not manifestly devoid of a foreseeable relevance.

However, the CJEU has not granted the same level of protection to taxpayers and third parties. Whereas in Berlioz and the État luxembourgeois v. B and others cases, the Court is required to provide the information holder with the right to an effective remedy, it has not done the same for the taxpayer or even for third parties concerned by the exchange of information procedure.  In the case of the taxpayer, as Pantazatou notes,“ the CJEU opted for a rather limited reading of the essence of the right enshrined in Article 47. By considering that an indirect remedy in the context of an appeal against the adjustment decision (if there is one) satisfies the essence of the right, the Court has failed to effectively prevent the public authority’s interference with the taxpayer’s protection of personal data which took place already when the request of the personal data was made”. This same logic applied in the case of the third parties concerned. As they do not have any legal obligation within the information exchange procedure, the Court considered that their right to an effective remedy would be satisfied whenever they brought an action for damages whenever these administrative acts and decisions might violate their rights, such as the right to personal data protection or the right to privacy.

For this reason, as argued by Pistone, a system ofex ante protection through judicial review before mutual assistance takes place would guarantee not only better supervision of the relevance of the information exchanged, but also would allow evaluation of the proportionality of the measures regarding other taxpayers’ rights. Article 47, therefore, seems not to have displayed its full potential in exchange of information procedures yet.

5. Transnational judicial review:the quest for balance between effective judicial protection and territoriality

The rulings in Berlioz and the Luxembourg cases have also given rise to several questions regarding the balance between the need to ensure effective judicial protection of individuals and the principle of sovereignty within the territorial boundaries of Member States within the exchange of information procedures. These procedures belong to the so-called ‘horizontal composite administrative procedures’, namely decision-making processes where national authorities cooperate in the implementation of EU law (the DAC in this case). Composite procedures and the gaps in judicial protection have been extensively examined in the literature (see, for example, the works of Brito Bastos and Eliantonio). The fundamental problem with respect to composite procedures, in general, seems to be a division of jurisdiction between national and EU courts.Horizontal procedures bring an additional layer of complexity to the quest for effective judicial protection, which is given by the principle of territoriality. The latter principle would seem to prevent a national court from assessing the validity of a measure adopted by a foreign authority. However, the Berlioz line of case law seems to indicate that the CJEU is of the opinion that the requirement of territoriality needs to give way to the need to ensure effective judicial protection. While this development might constitute a step in the direction of ensuring greater protection of taxpayers’ rights, Brito Bastos reminds us that it might interfere with the sovereignty of Member States, since there are reasons to believe that subjecting administrative decisions to judicial review by the courts of another Member State is difficult to square with essential principles of national constitutional laws.

In his contribution, Brito Bastos suggests reviewing the information request in the Member State of the requesting authority, while assigning the review of the information order (and penalties in case of non-compliance) to the Courts of the requested authority’s own Member State, as a viable alternative that might be more respectful with the principle of territoriality.

According to Brito Bastos, this does not appear to be an entirely unreasonable solution given that,in État luxembourgeois v L, the Court itself suggests that the requested authority bears significant responsibility for the observance of procedural requirements.

6. Conclusion

The multi-level system of tax governance poses several challenges in terms of effective judicial protection and for the EU constitutional order as a whole.

While the OECD’s notion of foreseeable relevance should be considered at the European Union level to align EU tax law to globally recognised standards, it is clear that the European Union, as a supranational body with its own legal system, has to regulate the notion of foreseeable relevance for tax purposes respecting its core values and fundamental rights.

This idiosyncratic nature of the EU legal order challenges the direct adaptation of the OECD’s guidelines regarding transparency and administrative cooperation on tax matters and at the same time it brings to the fore the importance of Article 47 of the EU Charter a point of reference to delimit the protection granted to taxpayers and information holders within exchange of information procedures. However, notwithstanding the consolidation of Article 47, there is still room for improvement to guarantee a sufficient protection for taxpayers’ rights in mutual assistance procedures. One step in the correct direction would be the right to an ex-ante protection, which would provide a better supervision of the relevance for the information to be exchanged. Finally, Article 47 might still need to give way to the principle of territoriality in information exchange procedures to ensure a sufficient protection of the national constitutional frameworks. Where to find the correct balance is an exercise which the Court will certainly be called to perform in the near future.

Posted by Mariolina Eliantonio and Marina Serrat Romaní (Maastricht University)

Suggested citation: M Eliantonio and M Serrat Romani, ‘Judicial Control of Administrative Cooperation in Tax Matters, Taxpayers’ Rights and the Notion of “Foreseeable Relevance” in light of the CJEU’s case law: Concluding Remarks’, REALaw.blog available at https://realaw.blog/2022/04/05/1151/