Luxembourg court confirms the power of the tax administration to request information from lawyers – MNE Tax


By Rafael Rivera, Managing Partner and Tax & Legal Partner at BDO Panama, Panama City

On July 13, the High Administrative Court of Luxembourg, in decisions relating to the so-called “Panama Papers” cases, quashed a lower court and found that the tax administration had used its powers to obtain relevant tax information in accordance with legal provisions and regulatory, and therefore, this information should be transmitted by the lawyers concerned.

Legal dispute concerning a request for information

On September 29, 2020, the Lower Administrative Court of Luxembourg rendered several decisions (cases 45185C, 45186C, 45187C, 45188C, 45189C, 45190C and 45191C) relating to legal appeals filed in relation to orders for request for information issued by the Luxembourg tax administration against several lawyers who appeared in the press investigation documents relating to the Panama Papers.

The Luxembourg Bar Association, at this stage, has sent notices to its members reminding them of their obligations under the rules of professional secrecy covering the lawyer-client relationship and the fact that any violation thereof may lead to legal action. civil, criminal and disciplinary.

The lower administrative court ruled in favor of the lawyers involved in the information request processes, noting that the information request did not refer to any particular taxpayer (resident or non-resident) but referred to any information disclosed in the Panama Papers investigation and, therefore, it could be considered a “fishing expedition”. The court also considered that it was important that the request for information did not originate from a particular tax audit carried out by the Luxembourg tax administration and that the request for information did not refer to any tax claim (i.e. (i.e. to a tax litigation procedure initiated by the Luxembourg tax administration). .

As might be expected, the Luxembourg tax administration appealed against the decisions of the lower administrative court.

The decision of the High Court

An interesting aspect of the decision of the High Court is that it reflected certain precedents of the Luxembourg Constitutional Court, dated January 22, 2021 and March 19, 2021. In doing so, it concluded that the obligation to exchange tax information at the international level, when it is confronted with the rights to confidentiality and the right to privacy, cannot lead to a restriction of the mission of the Luxembourg tax administration to prevent, in general principle, any undue reduction of the tax (on income) payable or tax evasion of Luxembourg taxes.

Regarding the information from the Panama Papers database, the decision of the High Court addresses the role of several lawyers and law firms based in Luxembourg who acted as intermediaries between their clients and the Panamanian law firm Mossack Fonseca in the design and implementation of offshore structures for their clients. The High Court concluded that the active participation of said Luxembourg lawyers resulted in offshore structures aimed at reducing or eliminating the tax burden of economic beneficiaries resident in Luxembourg.

According to the High Court, these findings must be considered as concrete and sufficient elements to justify a request for tax information by the Luxembourg tax administration in order to prevent any potential tax evasion for the purposes of Luxembourg tax legislation. In reaching this conclusion, the High Court relied on publicly available information on the website of the International Consortium of Investigative Journalists.

From the decision, it can be concluded that the High Court is of the opinion that Luxembourg administrative tax procedures do not require the tax administration to predetermine a possible tax assessment or a tax audit in order to exercise its power to request and collect information from third parties to conduct tax investigations. Conversely, the minimum requirement is to have information on transactions or structures aimed at reducing or eliminating Luxembourg tax obligations or avoiding these taxes and with the knowledge of third parties having access to the data or information relating to these taxes. maneuvers.

The High Court also discussed solicitor-client privilege and made a distinction between, on the one hand, information that is obtained and used by the lawyer in the context of legal representation in litigation. judicial or administrative or other forms of representation of a client by his lawyers and, on the other hand, other information available to the lawyer in other capacities such as director or director of a company or ‘other structures. The court clarified that the privilege does not cover the latter.

Finally, it is interesting to note that the High Court decided to partially uphold the annulment ordered by the decisions of the Lower Administrative Court on a specific aspect. limited to information relating to offshore companies and structures whose final beneficiaries reside in Luxembourg and are therefore potentially subject to Luxembourg tax, and which could potentially benefit from tax evasion or Luxembourg tax evasion. Other unrelated structures should be excluded.

Rafael Rivera is Managing Partner and Tax & Legal Partner at BDO Panama, Panama City


Esther L. Steinbach

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