In a judgment dated 4 December 2020, the Lower Administrative Court (Tribunal administratif) annulled an injunction issued by the Luxembourg tax administration (“LTA”) pursuant to a request for information from the Spanish tax authorities. The injunction was addressed to a Luxembourg company and requested information regarding, inter alia, the company’s shareholders, dividend distributions to its shareholders and loans granted by its shareholder(s).
The company sought an annulment of the injunction on the grounds that the request did not specify the purpose for which the information was requested. In this regard, the Lower Court found that there was no obligation for the injunction to contain a description of the purpose of the request so long as, in the context of a legal challenge, the LTA provided information regarding the identity of the taxpayer, the tax purpose of the requested information and the reasons why this information justified the foreseeable relevance of the requested information. The Lower Court considered that the LTA had, in its reply, adequately explained that the purpose of the information request was to identify the income of an individual taxpayer, whom the Spanish authorities considered tax resident in their jurisdiction on the basis of the location of his economic interests.
However, the company also argued that the information requested was not foreseeably relevant to establish the taxpayer’s tax residence in Spain since tax residency is principally determined according to physical presence on Spanish territory rather than economic or financial interests. In that regard, the company submitted evidence that the taxpayer had spent more than 183 days a year in the Dominican Republic in 2016 and 2017 so that he could not be resident in Spain during those periods.
The Lower Court held that in such cases, the scope of its juridical review is subject to three limitations (i) the Lower Court can only affirm or annul the decision but cannot conduct a fresh review of the facts, (ii) the LTA’s injunction is based on a foreign tax authority’s decision, the legality and opportunity of which cannot be reviewed by the Luxembourg courts and (iii) the Lower Court is limited to determining whether the information is foreseeably relevant. In addition, the Lower Court remarked that it could not examine the taxpayer’s situation under the laws of the requesting state.
However, these limitations do not prevent the taxpayer from presenting detailed information, which undermines essential aspects of the situation at the heart of the exchange of information request and which seriously affects the reasonable foreseeability of the information requested.
In the case at hand, the Lower Court accepted evidence presented by the company that the individual taxpayer could not a priori be tax resident in Spain. Therefore, the Spanish tax authorities were not competent to issue a request for information to the Luxembourg tax authorities, which necessarily called into doubt the foreseeable relevance of the request for information. The Lower Court therefore annulled the injunction issued by the Luxembourg tax administration for absence of foreseeable reasonableness