EU Magistrate Backs Challenges to Cross-Border Tax Disclosures

LUXEMBOURG (CN) — Residents of European Union member states can contest the release of their personal financial information as part of an exchange of data between tax authorities in different countries, an adviser to the EU’s highest court said Thursday. 

The advisory opinion of European Court of Justice Advocate General Juliane Kokott, which is not available in English, holds that when one country requests personal financial data from another country, the taxpayer has a legal right to challenge that request in court. 

“Member states should not be free to engage in pure ‘all-round searches,’” or fishing expeditions, Kokott wrote, siding with a Spanish artist, her bank and a company that hired her. They had contested a demand from the tax authorities of Luxembourg to hand over invoices, contracts and financial statements. 

In 2016 and 2017, the Spanish tax authorities requested financial information from their counterparts in Luxembourg about a Spanish artist, identified in court documents as FC. She had done work in Luxembourg and had a bank account in the country. 

The Luxembourg tax authorities did not have the data Spain wanted, so they demanded several companies, including FC’s bank, turn over financial records. Under Luxembourg law, companies and individuals cannot contest these requests and failure to comply within one month could result in a 250,000 euro ($282,000) fine. 

FC and the companies involved filed a complaint to annul the request in a Luxembourg court, which found some of the information was “likely not relevant” and partially sided with FC. She appealed and the higher court referred the matter to the Court of Justice, which happens to be based in Luxembourg.  

Kokott, whose opinion is not binding, found that under the EU charter, residents of the bloc are allowed to challenge requests for personal data from other countries. 

Luxembourg argued that a person being allowed to challenge tax assessments based on data was sufficient recourse, but Kokott disagreed. 

“The possibility of challenging any subsequent tax assessment does not provide sufficient protection of the taxpayer’s fundamental right to data protection,” according to a press release on her decision.

If tax authorities want financial data, the magistrate said they must provide compelling reasons for providing the information and be specific in their requests. Kokott cited the concern that tax authorities will use these requests to “go fishing,” a term she used multiple times throughout her opinion. 

The judges at the Luxembourg-based court are not required to follow advisory opinions but their decisions do about 80% of the time. A final ruling from the Court of Justice is expected in the coming months.

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