Most countries have legislation governing taxpayers’ rights and obligations in relation to taxation. One of the basic taxpayer rights is the right to be informed, assisted and heard. The extent of the right to be informed, however, varies in interpretation in different states.
While it is generally acknowledged that taxpayers are entitled to information on the operation of the tax system by means simple enough to enable them to understand complex tax treatments, the right to confidentiality and secrecy and the right to certainty as to the tax consequences of their actions, tax authorities may be reluctant to divulge information on the manner in which taxpayers’ assessments have been drawn up.
This is the context that led a Romanian couple to file proceedings before their local courts against their domestic VAT authorities. They were subject to a tax inspection that had concluded that they had failed to declare their VAT obligations correctly. In consequence of this, the Romanian VAT authorities issued tax assessments against the couple, indicating the VAT amounts that the couple was obliged to pay.
The couple, dissatisfied with the assessments, filed proceedings to challenge the administrative process that led up to these assessments. They argued that the principle of fair administrative procedure had been violated. Their main contention revolved around their right of defence during the tax assessment process which they felt had been breached as they were withheld access to the entire content of their file held with the tax authorities.
The Romanian court made a preliminary reference to the Court of Justice of the European Union (CJEU) for a ruling on the standards for fair protection of the right of defence within tax administrative procedures as protected by EU law. It has been established in the caselaw of the CJEU that one of the fundamental principles of EU law is the respect to a fair hearing in any procedure brought against a person that may lead to penalties being imposed. Such principle requires that taxpayers facing penalty imposition must be placed in a position in which their views may be made known and can produce evidence relevant to their defence.
The couple argued that the principle of fair administrative procedure had been violated
Prior to the delivery of the ruling by the CJEU, the Advocate General issued his opinion on the matter at issue.
Advocate General Bobek considered that access to the documents and information that form the basis of an administrative decision is closely connected with the effective respect for the rights of the defence. Consequently, taxpayers affected by such decision must be placed in a position in which they can effectively make known their views on the information on which the authorities base their decision.
The logical conclusion is that a taxpayer has the right, upon request, to have access to information forming the basis of that administrative decision.
Advocate General Bobek, however, rejected the submission made by the taxpayers that they were entitled to access the entire file comprising the complete set of documents and information in possession of the tax authorities, including all the information not directly related to the decision.
Although such information might have contributed to triggering the adoption of the proposed adjustment by the tax authorities, the Advocate General opined that the information or documents that form the basis of an administrative decision need to be disclosed to a taxpayer to enable the latter to correct an error or submit contrary information.
In this manner, Advocate General Bobek tried to strike a fair balance in administrative processes within the context of taxation by respecting, on the one hand, the right of defence of taxpayers and, on the other hand, the tax authorities’ discretion in reaching an administrative decision based on the data and other information they may have obtained throughout the course of their investigation.
Dr Josette Grech is adviser on EU law at Guido de Marco & Associates.
jgrech@demarcoassociates.com