Eric Fort Bruno Gasparotto Alain Goebel Thierry Lesage September 4 2012 Courts clarify 'foreseeable relevance' of tax information requests Arendt & Medernach | Litigation - Luxembourg Eric Fort, Bruno Gasparotto, Alain Goebel, Thierry Lesage Litigation Request must be understandableRequest must be motivated Information exchange provisions must be verified Three recent cases have clarified the conditions under which tax authorities may reasonably request information.Request must be understandableOn May 21 2012 the Lower Administrative Court issued a decision regarding the interpretation of the 'foreseeable relevance' of information requested by the tax authorities.(1)In the case at hand, a Luxembourg company was requested by the head of the tax authorities to provide certain information (eg, a list of shareholders and assets) for 2010 in accordance with the Law of March 31 2010. The purpose of the request (initiated by the French tax authorities) was to tax the wealth of two French individual residents. The company that received the request introduced a motion before the court challenging the foreseeable relevance of the requested information.The court ruled that, on the basis of the facts described in a letter by the head of the Luxembourg tax authorities (provided by the French tax authorities), such a request was invalid, because the requested information could not be viewed as foreseeably relevant. The court held that no link (ie, participation) had been established between the individuals under examination and the company that received the request. The court thus stated that the request was not "understandable".Request must be motivatedOn May 23 2012 the Lower Administrative Court held that a request issued by the head of the tax authorities was not sufficiently or clearly motivated and constituted a 'fishing expedition'.(2)In this case, the letter included a brief description of the facts and stated that the head of the tax authorities considered that:the request complied with the conditions required for an exchange of information according to the relevant protocol; andthe foreseeable relevance of the requested information was thus proven.However, the court decided that such a statement was insufficient motivation and thus pronounced the request invalid.Information exchange provisions must be verifiedOn May 24 2012 the Administrative Court of Appeal overturned(3) a decision of the Lower Administrative Court(4) which had concluded that the criterion of foreseeable relevance of requested information is met if the formal conditions listed in the applicable tax treaty – or its relevant protocol – are fulfilled (for further details please see "Landmark exchange of information ruling overturned on appeal").The request in this case originated from the Swedish tax authorities and was made to a Luxembourg bank in respect of certain information regarding the accounts of a Malaysian company. The first part of the request stated that its aim was to obtain information on the payment of fees by the Malaysian company to consultants (mostly Swedish residents). However, the second part of the request indicated that the Malaysian company itself was under investigation. The court held that this inconsistency did not comply with the requirements concerning the "identification of the person under investigation" under the relevant information exchange provisions in the Luxembourg-Sweden double tax treaty. The court thus concluded that the information requested did not comply with the criterion of foreseeable relevance. Since the request was not covered by an information exchange provision under the applicable double tax treaty, the information remained protected by Luxembourg bank secrecy rules and the request of the Luxembourg tax authorities was ordered to be cancelled.This decision has clarified the notion of 'foreseeable relevance' of requested information. Although the court does not seem to have rejected the principle that the foreseeable relevance criterion is fulfilled if all conditions listed in the applicable tax treaty for an exchange of information are fulfilled, it nonetheless obliged the tax authorities and the lower court to verify the fulfilment of each of these conditions based on the factual background and independently of the indications made by the foreign requesting tax authority.For further information on this topic please contact Eric Fort, Bruno Gasparotto, Alain Goebel or Thierry Lesage at Arendt & Medernach by telephone (+352 40 787 81), fax (+352 40 780 4) or email ([email protected], [email protected], [email protected] or [email protected]). Endnotes(1) Case 29869.(2) Case 30177.(3) Case 30251C.(4) Case 29592a.