Foreseeable relevance in the EU: From DAC1 to DAC7, passing by the CJEU

by Marina Serrat

The purpose of this post is to revisit the evolution of the concept of “foreseeable relevance” within the EU, particularly focusing on the new criteria introduced for group requests in the recently passed Council Directive (EU) 2021/514 of 22 March 2021 amending Directive 2011/16/EU on administrative cooperation in the field of taxation. Directive 2021/514, better known as DAC7, introduces for the first time an entire article dedicated to the standard of “foreseeable relevance” in the framework of exchange of information upon request. The post will briefly analyze how the standard of “foreseeable relevance” was present in the previous versions of the Directive on Administrative cooperation, how the Court of Justice of the European Union helped framing it, and finally how the new standard for group requests could influence on the pending case C-437/19.

Before the approval of DAC7, the Directive specified that Member States could only undertake exchange of information procedures to share information foreseeably relevant for the tax administrations. However, there was no proper definition of what foreseeable relevance is. The only reference we had was Recital 9 of the Directive, which has a resemblancewiththe standard designed by the OECD that is primarily reflected in its Model Agreement on Exchange of Information on Tax Matters (TIEA) and Article 26 of the OECD Model Tax Convention on Income and on Capital.

Articles 5 and 20 of the original Directive contained procedural guidelines, which obliged the Tax Authorities initiating an exchange of information procedure to provide the identity of the person investigated, an explanation of the tax purpose for which the information is requested, and the name and address of the person in possession of the sought information. Apart from these references, CJEU case law has been, so far, the only place to seek clarity regarding the limits and interpretation of this standard.

CJEU case law: Berlioz and the joint cases of État Luxembourgeois

Case C‑682/15, Berlioz, was the first case where the CJEU was asked to interpret the concept of foreseeable relevance. Nonetheless, the Court just limited itself to follow DAC’s wording and simply set out general hallmarks for tax administrations to apply on a case-by-case basis.It gives a reasonable margin of discretion regarding the information to require, however, this does not mean that tax administrations can request information unrelated to the investigation.

In Cases C-245/19, B v État Luxembourgeois and C-246/19 État Luxembourgeois v B, C, D and FC, the Court went beyond the wording of the Directive and gave an extensive interpretation regarding third parties. While the CJEU already established in Berlioz that the identity of “third parties possibly informed” must be specified, the Court indicatedthat third parties must be in possession of information relevant to the objectives of the investigation, such as contracts, invoices and payments concluded or made during that period and related to the taxpayer under investigation. In other words, they must be third parties with some connection to the investigation and not randomly selected third parties. Moreover, the CJEU considers that such information meets the foreseeable relevance criteria only if it isrelated to the investigated taxpayer and the period on which the investigation is focused. These new nuances are intended to avoid the transfer of documentation unconnected with the investigation.

Group requests: The OECD standard update and DAC7 response

The OECD developed the interpretation of the standard of “foreseeable relevance” in its 2012 revision of Article 26 of the OECD Model Convention. The standard was extended to “group requests” and set up new criteria for tax administrations to comply with. However, at the time, EU legislation did not take over this amendment until DAC7. Directive 2021/514introduces a brand-new article 5a containing a proper and detailed standard of foreseeable relevance. Article 5a defines what foreseeable relevance is (paragraph 1) andit states more nuanced criteria regarding how the requesting authorities have to proceed in case of individual requirements (paragraph 2). However, the most remarkable novelty introduced by article 5ais the set-up of rules (paragraph 3) for the requesting tax authorities, regarding how to correctly proceed whenever they need the information of a group of taxpayersin order not to fall into fishing expeditions. Basically, the requiring authorities need to provide:

– “a detailed description of the group; 

– an explanation of the applicable law and of the facts based on which there is reason to believe that the taxpayers in the group have not complied with the applicable law; 

– an explanation of how the requested information would assist in determining compliance by the taxpayers in the group; 

– where relevant facts and circumstances related to the involvement of a third party that actively contributed to the potential non-compliance of the taxpayers in the group with the applicable law.’;”

The pending case C-437/19 État du Grand-duché de Luxembourg v L

The criteria and guidelines provided by DAC7 might be applicable in the Pending case C-437/19, État du Grand-duché de Luxembourg v L. The facts of the case revolve around the appellant’s intention to know whether a group request which does not identify a group of taxpayers under investigation by name but refers to their status as shareholders and beneficial owners meets the identification requirements of Directive 2011/16 and, if so, whether it meets the criterion of foreseeable relevance. The questions here are: Will the Court rule the sentence applying the new criteria for group requests? Will the Court give further interpretation and guidance on these new criteria widening the standard of foreseeable relevance?

In my opinion, according to article 5a.1, taxpayers need to be identified either by “name or otherwise”. However, we do not know what “otherwise” means. Here, the CJEU position could play a crucial role to delimitate what other types of identification “otherwise” covers. Yet, it is highly probable that a sole reference to the status as shareholders and/or of a company belonging to a group of taxpayers does not match the European concept of foreseeable relevance, if this reference is not accompanied by other means of identification of who these taxpayers are. On the contrary, if a requesting authority makes reference to the status of the group but is at the same time able to describe it with details that allow for an indirect identification of the group of taxpayers, then the group request may not be considered as fishing expedition.

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