The case that led to the decision rendered by the European Court of Justice (the “ECJ”) on 25 November 2021 in case C-437/19 concerns a request for exchange of information by the French tax authorities aiming at identifying the shareholders and ultimate beneficial owners of a Luxembourg public limited company. The request dated 2018 was issued before the introduction, in Luxembourg, of the beneficial ownership register, which nowadays grants access to the public at large to a large part of the requested information.
Validity of group requests
In its response to the first two questions, referred to it by the Luxembourg Higher Administrative Court (Cour administrative), the ECJ confirms that a request for exchange of information does not need to identify the taxpayers, which are subject to investigation in the requesting state, individually by their names. Requests concerning groups of persons which can be identified based on common capacities / characteristics should – according to the ECJ – not as such be considered as manifestly devoid of any foreseeable relevance. This conclusion is however only true to the extent that the requesting authority provides a clear and sufficient explanation that it is conducting a targeted investigation into a limited group of persons, justified by reasonable suspicions of non-compliance with a specific legal obligation.
The answer of the Court to these questions is not surprising, in that it is in line with the latest OECD comments to the provisions on exchange of information upon request in the OECD model convention (which are roughly identical in wording and spirit to those of the Directive 2011/16/EU on administrative cooperation in the field of taxation). It was also anticipated by the Council of the European Union, which decided to amend Directive 2011/16/EU, earlier this year (by its Directive 2021/514 dated 22 March 2021), by adding an article 5a to the existing text, which now enshrines in binding legislation the same principles as those set out by the ECJ.
In the case at hand, it will now be up to the Luxembourg court to determine whether the French authorities’ group request was backed by sufficiently clear explanations and justified by reasonable suspicions of non-compliance with applicable French legislation.
Application of sanctions on the information holder
The response given by the ECJ to the third question relates to a procedural specificity encountered under Luxembourg domestic law as it stood at the time the dispute arose. Back then, the only way to challenge the foreseeable relevance of a request for exchange of information was to refuse to comply with the order notified by the local tax authorities to the holder of the information and wait for these authorities to impose a financial penalty, which then led to legal remedies being available (cf. the Berlioz case, C-682/15, which dealt with the scope of these legal remedies). The ECJ now clarified that, should the Luxembourg domestic courts uphold the legality of the order to provide the requested information, the person holding the information would need to be given the opportunity to comply with the order within the time limit initially prescribed, without the appealed penalty being applied.
In the case at hand, this now means that the penalty, which the applicant had to incur in order to be able to exercise its right to judicial remedy, should not be maintained, irrespective of a possible unfavourable outcome on the question of the merits of the request for exchange of information, provided that, in the case of such an unfavourable outcome, the applicant provides the requested information within the deadline initially set by the Luxembourg tax authorities. This solution preserves the applicant’s right to effective judicial remedy in the very difficult procedural circumstances that applied at the time in Luxembourg.