The EU Regulation 655/2014 on transnational seizures on bank accounts

Pursuant to the European Directive on administrative cooperation in the field of taxation (2011/16/EU), Member States must cooperate with each other with a view to exchanging information relevant for tax purposes. The directive allows, inter alia, that a Member State (the requesting Member State) requests another Member State (the requested Member State) to provide information concerning a specific taxpayer. The requested information must be ‘ foreseeably relevant ‘ to the tax authorities of the requesting Member State.

Based on the aforementioned directive, the tax authority of the requested Member State may request information from e.g. an affiliated company, a financial institution, an employer, … of the taxpayer. The tax authority of the requested Member State forwards the collected information to its counterpart in the requesting Member State.

A question that arises is whether that affiliated company, financial institution, employer, … may ask its national courts to verify the legality of the sanction imposed by its tax authority because of an incomplete answer and whether it may ask to vary the penalty. Another question is whether a court in the requested Member State may verify the relevance for tax purposes of the requested information.

These questions were raised in the Berlioz case of the Court of Justice (judgement of 16 May 2017): Berlioz (a Luxembourg company) only partially answered the request for information from the Luxembourg authorities (at the request of France). Berlioz stated in this regard that certain questions were irrelevant for tax purposes in the requesting Member State.

The answers to the questions raised are not obvious, as the starting point is that the requesting State has a margin of discretion as to what is foreseeably relevant for its tax purposes. This explains why (in this case the Luxembourg) courts doubted whether a relevance test was possible. The questions were referred for a preliminary ruling to the Court of Justice.

In its assessment, the court took into consideration the EU Charter of Fundamental Rights and, more specifically, the right to a fair hearing by an impartial judge.

The Court of Justice ruled that courts in the requested Member State may review the foreseeable relevance for tax purposes of the requested information and that they may vary the penalty imposed. The courts in the requested Member State should be reluctant however upon review of the legality of the request for information: the review is limited to verification whether the requested information manifestly has no relevance for tax purposes.

To this end, the courts must have access to the request for information. The affiliated company, financial institution, employer, … is only entitled to receive the identity of the person under investigation and to be informed about the tax purpose for which the information is sought. The Court of Justice indeed emphasizes in the interest of the investigation the principle that the request for information must remain secret.

Relevance of the judgment: When requested by a national tax authority to respond to a request for information from another Member State, it is important to check the relevance for tax purposes of the requested information. If the information requested is irrelevant to the tax investigation, a proceeding against the request for information or against the penalty may succeed. Regarding the foreseeable relevance for tax purposes, the national courts may only review whether the requested information manifestly has no relevance to the tax investigation in the requesting Member State.

Directive (EU) 2017/1132 “relating to certain aspects of company law”, entered into force on July 20, 2017, lays the foundations for a fully harmonized European company law. The European Parliament and the Council intend to create the conditions to effectively promote the fulfillment of the freedom of establishment and of the freedom to conduct business as set out by the Treaty on the Functioning of the European Union (TFEU) and the Charter of Nice. This process of consolidation has started in 2012 by the Action Plan, which was the fruit of the public consultation on the European company law and corporate governance aiming at “a modern legal framework for more engaged shareholders and sustainable companies”.

The Directive operates in two directions: on one hand, it aims at streamlining the existing legislations consolidating – and repealing – six previous Directives on European company law:

– Directive n. 82/891/EEC concerning the division of public limited liability companies;

– Directive n. 89/666/EEC concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State;

– Directive n. 2005/56/EC on cross-border mergers of limited liability companies;

– Directive n. 2009/101/EC on coordination of safeguards which, for the protection of the interests of members and third parties, are required by Member States of companies within the meaning of the second paragraph of Article 48 of the Treaty, with a view to making such safeguards equivalent,

– Directive n. 2011/35/EU concerning mergers of public limited liability companies and

– Directive n. 2012/30/EU on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 54 of the Treaty on the Functioning of the European Union, in respect of the incorporation of limited liability companies and the maintenance and alteration of their share capital.

The Annex IV includes a correlation table linking the articles of the consolidated Directives with the new one.

New rules are directed in particular to coordinate safeguards and guarantees that must be provided – as well as the information that must be disclosed – to shareholders and third parties in order to the make them equivalent throughout the Union. As matter of fact, the recitals of the Directive emphasise the need for specific harmonised safeguards to be in place, especially with respect to limited liability companies, notably because of their frequent cross-border business and their predominant feature in the economy of the Member States, more dynamic over last decades.

To date, due to the lack of a uniform discipline, there are indeed 28 different national company laws, which address domestic companies as well as foreign entities operating in another Member State to the detriment – indirectly of course – of freedom of establishment for companies, which, according to art. 54.1 of the TFEU, are to “be treated in the same way as natural persons who are nationals of Member States”.

The Directive consists of 168 articles, four Annexes and three titles that encompass different themes: from the incorporation of public limited liability companies, to companies’ representation, companies registers, branches of companies based in a Member State although govern by the law of another, capital requirements and even mergers (domestic and cross-border) or divisions of companies.

In more detail, the main innovations introduced by the Directive concern:

The incorporation of public limited companies, where the articles of incorporation and the articles of association shall be drawn up and certified in due legal form in all Member States whose laws do not provide for pre-emptive administrative or judicial control at the time the company is actually incorporated.

The implementation of a central companies register – resulting from the interconnection of the existing national registers – that enables users to access from a single web portal.

Capital requirements for public limited liability companies, which shall be not less than euro 25,000.00.  The Commission will regularly examine the economic and monetary trends and, as the case may be, revise this requirement accordingly with a view to devoting this type of company to medium-sized/large undertakings.

Acts of the organs of the company, which shall be binding regardless of the validity of the appointment of the person serving in the organ itself and despite the fact that the acts actually carried out exceed the company’s corporate scope (on this issue, Member States may provide otherwise: for example providing that he company shall not be bound where such acts are outside the objects of the company, if it proves that the third party knew that the act was exceeding those objects or could not in view of the circumstances have been unaware of it, bearing in mind that the pre-emptive disclosure of this information will not suffice as it will always be necessary an assessment on case by case basis.

Disclosure requirements concerning branches of companies set up in another Member State’s territory. These branches will be subject to disclose information to the national register (which, in the meantime, will have become interconnected Europe-wide) in order to offer the public reliable and certain corporate information and data. In particular branches shall disclose information relating to the activity they carry out; the name and legal form of the company and the name of the branch, whenever they differ with one another; the relevant accounting documents along with the identity of the subjects authorized to represent the company in legal proceedings and deal with third parties (it will also be necessary to specify whether they have to operate jointly or not). Likewise, it will be necessary to disclose the information regarding the bankruptcy/winding-up procedures the company may go through along with the identity and the powers of the receiver or, in any case, the person in charge of the winding-up procedure/bankruptcy procedure.

Mergers and companies divisions that will have to be carried out taking into account the safeguards provided by the Directive 2001/23/EC to protect the workers of the companies involved. In this case, the Directive provides a discipline that, similarly to the companies’ incorporation procedure, requires that the document regulating the merger (deeds, contracts depending on the national rules on this matter) shall be drawn up and certified in due legal form whenever the laws of the Member State do not proved for judicial or administrative pre-emptive supervision as to the lawfulness of the whole operation. The same rule shall apply in the event the national laws required that the merger project is approved by the general shareholders meeting of the company.

In the end, if the Directive will have a partial impact on the development a uniform European company law, it is worth noticing that this consolidation project has excluded the harmonization of several further EU Directives concerning the Company Law. As far as the Italian Law it can be said as it is almost entirely compliant already with the Directive excluding those rule on capital requirement (in Italy nowadays the minimum share capital of società per azioni is fixed in 50 thousand euro) and the implementation of the European companies register and the company’s representation rules.. As it does not introduce any new provision, there is no date for the Member States to transpose it at a national level, however, the Annex III remarks the time limit to incorporate the abolished Directives into the domestic legal systems.

As clearly set forth by the Directive “this Directive is not aimed at establishing any centralised registers database storing substantive information about companies. At the stage of implementation of the system of interconnection of central, commercial and companies registers (‘the system of interconnection of registers’), only the set of data necessary for the correct functioning of the platform should be defined”. Surely, the leading aim of the Directive is to improve the certainty of the disclosure and the cross-border access to company and its brunches information, this purpose is very challenging considering the national system of the company registers which are quite fragmented at a local level.

The author of this post is Milena Prisco.

From 18 January 2017, the new European Regulation 655/2014 establishing a European Account Preservation Order procedure to facilitate cross-border debt recovery in civil and commercial matters will enter into force.

The Regulation foresees in a procedure to seize bank accounts of your debtor in other EU Member States (except when your debtor is domiciled in United Kingdom or Denmark), without that the debtor is notified hereof. The debtor will only notice once the seizure is into force.

Such cross-border seizure can be obtained before the Courts of an EU Member State who would have jurisdiction on the merits of the case under the EU Regulation 1215/2012 (Brussels I bis).

The seizure can be requested before, during or even after the procedure on the merits of the case. The request has to be filed using a standard document.

To grant the request, the Court will have to examine 1) if there is urgency (periculum in mora) and 2) if there is on basis of the provided evidence enough reason to assume the Court will also decide in favor of the creditor in the proceedings concerning the merits of the case (fumus boni iuris). Although these principles are not unknown to national legislation, both will have to await the autonomous interpretation by the European Court of Justice.

The new EU Regulation 655/2014 is however not created to bully any unwilling debtor by filing preservation order after preservation order. The Regulation foresees 2 mechanisms to avoid such practices:

• According to art. 12, the creditor can be required to provide a security when he has not obtained any judgment in favor yet;
• The creditor will also receive a fixed delay in which he has to undertake a proceedings about the merits of the case.

The new European Regulation 665/2014 also foresees a mechanism where a creditor can request information about his debtor’s bank account(s) in a certain Member State. 

Not unimportant, as the creditor needs to indicate the bank account number in his request for a transnational seizure (under Belgian national law, the indication of the name of the Bank would already be sufficient).

Art. 14 of the Regulation now foresees what one could call a bank account disclosure mechanism:

“Request for the obtaining of account information

Where the creditor has obtained in a Member State an enforceable judgment, court settlement or authentic instrument which requires the debtor to pay the creditor’s claim and the creditor has reasons to believe that the debtor holds one or more accounts with a bank in a specific Member State, but knows neither the name and/or address of the bank nor the IBAN, BIC or another bank number allowing the bank to be identified, he may request the court with which the application for the Preservation Order is lodged to request that the information authority of the Member State of enforcement obtain the information necessary to allow the bank or banks and the debtor’s account or accounts to be identified”.

In a few Member States (including Belgium), such disclosure mechanism is completely new.  The Regulation leaves it up to the Member States how they will organize this new disclosure, by giving a few examples:

“Each Member State shall make available in its national law at least one of the following methods of obtaining the information referred to in paragraph 1:

(a) an obligation on all banks in its territory to disclose, upon request by the information authority, whether the debtor holds an account with them;

(b) access for the information authority to the relevant information where that information is held by public authorities or administrations in registers or otherwise;

(c) the possibility for its courts to oblige the debtor to disclose with which bank or banks in its territory he holds one or more accounts where such an obligation is accompanied by an in personam order by the court prohibiting the withdrawal or transfer by him of funds held in his account or accounts up to the amount to be preserved by the Preservation Order; or

(d) any other methods which are effective and efficient for the purposes of obtaining the relevant information, provided that they are not disproportionately costly or time-consuming.

Does this mean any creditor can just run to the Court and ask information?

No, some conditions apply:

• the creditor needs to be in possession of an enforceable judgment;
• there need to be reasons to believe the debtor holds bank accounts in this Member State.

Conclusion: it will be interesting to see how the Member States will apply this new mechanism.  Whether it will be effective, will also depend on the interpretation of ‘reasons to believe the debtor holds bank accounts in this Member State’.  This will probably be the key to the question if this will end the Pyrrhus decisions, where a creditor is accorded his claim but cannot find assets to seize.

The author of this post is David Diris.