The EU Mutual Assistance Directive will continue to be extended. As a result, European authorities are obliged to exchange information among themselves. However, the question arises when and to what extent a restriction of fundamental rights can exist. We get to the bottom of this and give some introductions to tax procedural law and the associated enforcement at the beginning.

To begin with, tax procedural law must be understood in relation to and within the framework of EU law. Logically, tax procedural law means that tax administrations can actually enforce the tax claim arising from substantive law in their own country through their tax jurisdiction. Procedural law thus ensures tax enforcement. This concerns in particular the determination of the tax due. However, a distinction must be made between the subsequent collection, i.e. its recovery and the enforcement of the tax.

The decisive task of tax procedural law is to ensure the enforcement of substantive tax laws in a constitutional procedure. This includes the legality of taxation under Article 20(3) GG. As a result, the tax administration is not only entitled but also obliged to collect the tax owed by law. In addition, taxation must take precedence over the principle of uniformity under Article 3(1) GG. This means that there is not only equality in the application of legislation, but also equality in the application of law. Accordingly, the applicable tax laws must be applied and enforced equally. Finally, it is important to emphasise that the fundamental rights of taxpayers must be taken into account in the investigation.

In order for the material tax claim to be enforced, the domestic tax administration must know of the realization of a fact. This requires cross-border information gathering.

There are various principles and principles for this in tax law. Accordingly, the principle of administrative investigation applies according to §§ 85, 88 AO. In addition, the duty of taxable persons to declare is of crucial importance. In principle, the declaration principle applies here, i.e. the obligation to submit a tax declaration, provided the conditions for it are met.

Nevertheless, a state must not rely on this information alone, but must also be able to verify it according to the verification principle. But in the international context there is a divergence between material universality and formal territoriality. This means that the material universality links the substantive tax entitlement to the realities worldwide. Whereas for reasons of international law, formal territoriality restricts the scope for action outside its own territorial jurisdiction. In principle, a state may not carry out its own investigative measures outside its own territory. This includes domestic external audits or other intelligence measures. However, financial administrations must cooperate across borders in order to fulfil their constitutional obligations.

Since it has now been clarified to what extent the enforcement of tax law within the EU is structured and this is the responsibility of the Member States, the question arises whether the national tax administrations are bound only by national fundamental rights or by the Union fundamental rights, in the form of the Charter of Fundamental Rights (GrCh).

Article 51 (1) sentence 1 GrCh is the starting point. It states that the Charter of Fundamental Rights applies only in the implementation of Union law. The “law of the Union” encompasses all primary and secondary Union law, with the exception of the GrCh itself. But the ECJ interprets the feature of implementation broadly. In this respect, EU fundamental rights apply in all cases governed by EU law, but not outside the same. It is also important and logical that the commitment to the fundamental rights of the Union affects all three powers, i.e. legislative, executive and judicial. Accordingly, in the area of cross-border tax enforcement, the Member States are bound by fundamental Union rights to the extent to which they act on the basis of secondary law, i.e. the EU Administrative Assistance Directive (EU-AHiRL, DAC) and the VAT Cooperation Regulation (VAT Regulation).

The EU Administrative Assistance Directive is intended to ensure the functioning of national tax systems through a cross-border exchange of information between the financial administrations of the European Member States. In addition, however, it is also about combating tax fraud and tax evasion, preventing profit shifts and aggressive tax arrangements.

Since the Mutual Assistance Directive also restricts freedom, it can therefore also lead to interference with the rights of taxpayers and information subjects, similar to ATAD. The legal basis for the EU-AHiRL is Article 113, 115 TFEU. In addition, Article 288(3) TFEU requires transposition into national law. Now this has been done in Germany by the EUAHiG. The material scope is for income, corporate business and inheritance tax. However, not within the scope of VAT, as this is subject to the VAT Regulation.

The EU-AHiRL regulates in particular the exchange of information between Member States, but this can be distinguished into three different types. First, the exchange of information on request pursuant to Article 5 continues following EU-AHiRL. In addition, there is the mandatory automatic exchange of information pursuant to Article 8 of the following EU-AHIRL. It should be noted that this in particular has been greatly expanded in recent years. There is a common standard for the automatic exchange of information on financial accounts, on the exchange of advance cross-border rulings and advance pricing arrangements, and a duty of notification for certain cross-border tax arrangements. In addition, there is the spontaneous exchange of information under Article 9 following EU-AHiRL.

In addition, active administrative cooperation is also gaining importance, especially coordinated audits, because these are carried out simultaneously and jointly. DAC 7 recently introduced a new legal basis for joint audits.

2.2.1. Exchange of information on request to the Mutual Assistance Directive

In particular, the exchange of information on request is of interest, which takes place in four steps. First, a request for information from the requesting financial authority is addressed to the requested financial authority. Unless the requested financial authority is already in possession of the requested information, it shall take its own investigative measures. Mainly by orders to information agents. Subsequently, the information is transmitted by the requested financial authority to the requesting financial authority. This is the real exchange of information. In addition, the information is expected to be significant. The requesting State shall subsequently use the information in the context of tax assessment.

Now, in the course of the sixth amendment of the EU Administrative Assistance Directive, DAC 6, there was a special new reporting obligation. This is aimed at cross-border tax arrangements.

The requirements for the existence of a reportable transaction are the following. First, there must be a cross-border tax arrangement according to § 138d paragraph 2 AO.

Furthermore, either a conditionally reportable arrangement according to § 138e paragraph 1 AO must be present, i.e. either a confidentiality clause has been agreed or a remuneration depending on the tax savings established by the arrangement. In addition, in this case the Main Benefit test must also be fulfilled in accordance with § 138d paragraph 3 AO. This means that either a tax refund is made, the arising of tax claims is prevented or the arising of tax claims is postponed to other taxation periods or to other taxation times.

Otherwise, an unconditionally reportable arrangement according to § 138e paragraph 2 AO must exist.

However, the compatibility of DAC 6 with the Charter of Fundamental Rights is controversial and the outcome of pending proceedings at the ECJ is open.

In the case of the Luxembourg State case, orders were issued by the Luxembourg tax administration following a request from the Spanish tax administration. No appeal was allowed against these orders, which violated Article 47 (1) GrCh. This states that the information provider must be able to lodge an appeal. On the other hand, this is not necessary for the taxpayer and third parties who are located in the state of the requesting tax administration.

The VAT Cooperation Regulation regulates administrative cooperation in the field of VAT. In fact, it is also about combating VAT fraud, i.e. models such as the VAT carousel, for example.

As always, this requires a legal basis, which is regulated for the VAT Regulation in Article 113 TFEU. Furthermore, as a regulation directly applicable in the Member States, it is not necessary to transpose it into national law in accordance with Article 288(2) TFEU. The regulation has a similar structure to the EU-AHiRL, since the exchange of information between the financial authorities is structured exactly the same.

There is also the exchange of information on request under Article 7 following VAT Regulation, the automatic exchange of information under Article 14 VAT Regulation and the spontaneous exchange of information under Article 15 VAT Regulation.

Finally, there are coordinated checks between several Member States as another form of administrative cooperation in the VAT Regulation. This can be found in Article 29 of the following VAT Regulation.

The Recovery Directive (EU-Association Directive) regulates intergovernmental assistance in the collection of taxes. It is therefore considered to be an instrument of enforcement. This must be distinguished from the other procedures. While the EU-AHiRL and the VAT Regulation apply to the fixing procedure, the EU-BeitrRL concerns the subsequent collection procedure. In this regard, it should be emphasised that, in fact, all types of taxes are covered by the Directive in accordance with Article 2(1) of the EU Guidelines, i.e. both direct and indirect taxes.

Now the legal basis of the EU Advisory Council is based on Article 113, 115 TFEU. In addition, any Directive under Article 288(3) TFEU requires transposition into national law. This was done through the implementation in Germany by the EUBeitrG.

Enforcement assistance under the EU Agency shall include in particular the recovery of claims of the applicant State, measures to secure claims of the applicant State. It also includes the provision of information necessary for recovery and the service of documents relating to enforcement.

The Administrative Assistance Directive is intended to secure the control substrate in an increasingly global market environment. Tax authorities have the right and sometimes even the obligation to exchange information with cross-border authorities. However, the Charter of Fundamental Rights of the European Union must be respected.