The Tax Disputes and Litigation Review: Tax Appeals To The European Court Of Justice
I ACCESS THROUGH NATIONAL COURTS AND PRELIMINARY RULINGS
European Union law has primacy over the national law of EU Member States. This applies to both primary EU law, in particular the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU), and secondary law, such as the EU legislation on value added tax (VAT) and excise duties.
For most tax cases involving EU law, access to the Court of Justice of the European Union (CJEU) is via the national courts. A tax appeal brought in the national courts of a Member State may raise questions concerning the interpretation of EU law. This arises most commonly in cases where a taxpayer claims that national tax provisions are contrary to superior rules of EU law, for example, a claim that a corporation tax provision is contrary to Article 49 TFEU on freedom of establishment, or that a VAT provision is contrary to the EU VAT legislation. National courts, as courts of EU law as well as national law, have the obligation to ensure proper application of EU law in disputes falling within their jurisdiction. Under Article 267 TFEU a lower national court may, where a question of EU law is raised before it, refer the case to the CJEU to obtain a preliminary ruling on that question if it considers that it needs to be determined in order for the court to be able to give judgment. A national court may refer the matter to the CJEU at the request of the parties or on its own motion.2 Lower courts have wide discretion about whether to refer, and may do so even where they would otherwise be bound by a decision of a superior national court, including in connection with decisions given in the same proceedings.3 Moreover, the lower courts' right to refer remains notwithstanding any decision of a superior court quashing a reference that they have made.4
Under Paragraph 3 of Article 267 TFEU, a national court against whose decision there is no judicial remedy under national law (i.e., the highest appellate court), is obliged to refer to the CJEU any question concerning the interpretation of EU law that is necessary to enable it to render judgment. Where a national supreme court has discretion whether to hear an appeal from the lower courts, the supreme court acts as the final court for the purposes of Article 267 TFEU in hearing the application for permission to appeal.
The only cases where the obligation to refer does not apply are where the CJEU has already ruled on the question or on a materially identical question in a similar case, or where the correct application of EU law is so obvious as to leave no scope for any reasonable doubt (acte clair).5 The threshold for acte clair is a high one. The national court 'must be convinced that the matter is equally obvious to the courts of the other Member States and to the Court of Justice'.6
Where a supreme court fails to make a reference, it may be open to a taxpayer to bring a case in damages in respect of that failure.7 However, such a case must again be brought in the national courts and will succeed only if it is found that the failure to refer constitutes a manifest breach of EU law.
The obligation to refer is imposed on national supreme courts because, in most cases, individual taxpayers do not have direct access to the CJEU. Tax appeals against decisions of national tax authorities must be brought in the national courts using domestic remedies and procedures. It is for the national courts to apply EU law to the facts of the case after, where necessary, seeking guidance from the CJEU. Where they do so, the interpretative guidance given by the CJEU is binding on them.
An order for reference must meet the requirements of Article 267 TFEU. If it does not, the CJEU will lack jurisdiction and will decline to provide a response other than on the question of jurisdiction.8 An important requirement for Article 267 to be engaged is that the reference must be from a court or tribunal that requires a ruling to determine a genuine dispute. Thus, the Court of Justice does not accept references from a body that does not meet the necessary standard of impartiality and independence from the decision-maker whose decision is challenged. Under many continental systems, the first level of tax appeals is to a higher administrative authority that is not a court or tribunal for the purposes of Article 267. A reference can only be made when a further appeal is made to the courts. To determine whether the body making the reference is a court or tribunal that may make such a reference, the court will consider a number of factors, including 'whether the body is established by law, whether it is permanent, whether its jurisdiction is compulsory, whether its procedure is inter partes, whether it applies rules of law and whether it is independent'.9
While the CJEU largely leaves the national court to determine whether it needs a ruling, it will refuse to provide a ruling in extreme cases where the reference manifestly has no relevance to the facts or the dispute is clearly hypothetical.10 It is nevertheless possible for the court to rule upon a reference where on the facts EU rights are not engaged at all, provided that guidance on the interpretation of EU law is required by the national referring court to give its judgment. This will arise, for example, where a national provision applies in both a domestic and an EU context, and the correct interpretation of EU law will inform the interpretation to be given in a domestic context.11
The order for referral from the national referring court must be accompanied by sufficient factual and legislative material to enable the Court of Justice to understand the context in which the issue for determination arises. However, it is only in the most extreme cases, where the absence of material would risk rendering the ruling hypothetical, that the court will reject the order for reference for this reason.12 Although not a requirement of EU procedure, advocates general of the court have indicated a preference that the referring court also provide what it believes to be the likely answer to the questions referred as a useful guide to the CJEU as to how the referring court regards the questions to be relevant.
II THE CJEU: COMPOSITION AND PROCEDURE13
The CJEU comprises a higher court (the Court of Justice) and a lower court (the General Court). Referrals for preliminary rulings from national courts are heard by the Court of Justice. Although not explicitly laid down, in practice there is one judge per EU country. The court is assisted by 11 advocates general whose job is to present opinions on the cases brought before the court. The opinions are not binding on the court but provide an impartial view intended to assist it in coming to its decision. Each judge and advocate general is appointed for a six-year term, which can be renewed.
A judge and an advocate general are assigned to each case that is referred to the Court of Justice. Cases are dealt with in two phases: a written phase and an oral phase. In the written phase, the parties to the dispute before the national court, any EU Member State and the European Commission all have the right to submit written observations to the court. There is no right to respond in writing to any submissions. The oral stage is a relatively short public hearing of the case. Depending on the nature and complexity of the case, this can take place before a panel of three, five or, very rarely, in a Grand Chamber of 15 judges, or before the whole court (28 judges). Those entitled to submit written observations can also appear at the hearing, regardless of whether they have in fact lodged written submissions.
Oral submissions before the Court of Justice are expected not to exceed 15 to 20 minutes, although on written application the court can grant an extension to a maximum time limit of 30 minutes on grounds of complexity and the multiplicity of questions and parties. It is also possible on written application to enable more than one advocate to appear, particularly when representations are to be made on behalf of more than one party, but all submissions must in principle be made within the same 15 to 30-minute time limit. The taxpayer must deliver oral submissions in the language of the case. The order of oral submissions is first the taxpayer, then the Member States in alphabetical order of country name in the language of the country, and finally the Commission. Reply submissions are possible, but are expected to be limited to a few minutes only.
The jurisdiction of the Court of Justice in preliminary ruling cases is limited to providing guidance on the interpretation of EU law. It has no jurisdiction to make findings of fact or national law. Where there are factual disputes or disputes as to the meaning of national legislation that are material to the court's ruling, the court generally endeavours to provide the national court with sufficient guidance to cover the respective positions.
After the hearing, and usually a few months later, the advocate general gives his or her opinion. There is no procedure as such for commenting on opinions. If, however, the advocate general makes a material error in understanding the national legislation or facts, it is possible to alert the court to the error by writing to the registry, and very exceptionally parties have successfully sought a reopening of the oral procedure. Where such an error occurs, the advocate general may revise the opinion, or where the oral procedure is reopened, give a second opinion.14 The possibility of alerting the court to errors is not to be used by the parties as an excuse to seek to argue the case further.
Following the opinion, the judges deliberate on the case and give their judgment. The judgment is a single judgment, if necessary arrived at by majority decision.
The court's Rules of Procedure, which were substantially revised in 2012, allow the court considerable flexibility in dealing with cases. It may, for example, dispense with an oral hearing or with the advocate general's opinion,15 and in very simple cases may simply issue a reasoned order rather than giving a full judgment.16
At the request of the referring court (or exceptionally by his or her own motion), and where the nature of the case requires that it be dealt with in a shortened time frame, the president of the court may order an expedited procedure and set the relevant time limits. However, if a case follows its normal course, then judgment can be expected within two years of the referral being made by the national court.
III PROCEEDINGS BY THE COMMISSION
In addition to the preliminary ruling procedure under Article 267 TFEU, it is open to the European Commission (the Commission) to institute proceedings before the Court of Justice for a declaration that a Member State has failed to fulfil its obligations under EU law. These proceedings may also be started by another EU country, although this is comparatively rare. Where the Commission brings such an action, it must follow the procedure set out in Article 258 TFEU. This provides that it must first give the Member State concerned the opportunity to submit its observations on the supposed breach of EU law and, if the Commission is not satisfied, issue a formal reasoned opinion on the matter. If the Member State fails to comply with the opinion within the period laid down by the Commission, the Commission may then institute proceedings before the CJEU.
Where the court finds that a Member State is in breach of EU law, the latter is obliged to amend its legislation to remedy the situation. In some circumstances the legislation may have already been amended, with retrospective effect, before the court's decision has been made.17 If the Member State fails to amend the relevant legislation following the court's decision, the Commission may bring a further action under Article 260 TFEU against the Member State seeking the imposition of a fine. A judgment of the court under Article 258 TFEU may also provide the basis for claims by taxpayers through their national courts. However, while in bringing a case the Commission often acts upon complaints received by individual taxpayers or associations of taxpayers,18 it is not directly concerned with the rights of individual taxpayers. The Commission's concern is purely with the prospective rectification of the national law. Even where the Commission brings a case, it is important for taxpayers to ensure that they make the necessary claims using domestic procedures within the time limits laid down by national law. While Commission action is not a substitute for making a claim using domestic remedies, it may nonetheless be helpful for taxpayers litigating in their national courts.
Commission action is delimited by a letter of formal notice sent by the Commission to the Member State concerned and the reasoned opinion issued by the Commission, which cannot be extended. Subsequent changes in the law thereafter are ignored.19
IV ACTIONS BY MEMBER STATES AGAINST THE INSTITUTIONS
A less common form of proceedings before the Court of Justice in tax cases are actions brought by Member States to challenge acts of the EU institutions under Article 263 TFEU. An example of this is the challenge brought by the UK in 2013 to the then proposed financial transactions tax (FTT), which led to a CJEU judgment of 30 April 2014 in case C-209/13 UK v. Council. The UK sought the annulment of a decision authorising 11 participating Member States to introduce a common FTT through the enhanced cooperation procedure. The CJEU dismissed the UK's application, noting that it was premature and that the review of the decision authorising the use of enhanced cooperation should not be confused with any subsequent review undertaken in the context of an application for annulment of measures adopted for the purposes of implementing such enhanced cooperation. The FTT remains under discussion.20
V DIRECT ACCESS BY TAXPAYERS TO THE GENERAL COURT
The main tax cases that are brought directly before the CJEU are those in which the taxpayer takes action not against the decisions of national tax authorities but against the Commission to seek the annulment of a Commission decision addressed to it or directly affecting it (for example, in the field of fiscal state aid or competition). Such cases are heard first by the General Court. From there, an appeal lies on a point of law to the Court of Justice. Appeals against such a decision must be brought within the two-month time limit laid down by Article 263 TFEU. Care must be taken because if a litigant fails to bring an action in the General Court that was clearly open to it, there is a risk that it may be unable to challenge the validity of the decision in the course of national proceedings implementing the decision.21
1 Paul Farmer is a founding partner at Joseph Hage Aaronson LLP. The author gratefully acknowledges the contributions of Megan Durnford to the eighth edition of this chapter.
2 Case C-210/06 Cartesio  ECR I-9641, Paragraph 88.
3 Case 146/73, Rheinmühlen-Düsseldorf v. Einfuhr-Und Vorratsstelle für Getreide und Futtermittel  ECR 139, Paragraph 3.
4 See C-210/06 Cartesio, Paragraphs 88–98.
5 Case 283/81 CILFIT v. Ministry of Health  ECR 3415, Paragraphs 16–21.
6 ibid., Paragraph 16.
7 Case C-224/01 Köbler v. Republik Österreich  ECR I-10239, Paragraph 30.
8 Case C-516/99 Walter Schmid  ECR I-04573.
9 Case C-205/08 Umweltanwalt von Kärnten v. Kärntner Landesregierung  ECR I-11525, Paragraph 35 and case law referred to therein.
10 Case 244/80 Foglia v. Novello  ECR 3045.
11 Case C-28/95 Leur Bloem  ECR I-4161, Paragraph 34.
12 Joined cases C-320/90–322/90 Telemarsicabruzzo v. Circostel  ECR I-393.
13 See further the Statute of the Court of Justice of the European Union at Protocol (No 3) to the TFEU (Consolidated version), Official Journal of the EU (26 October 2012) C326/01, as most recently amended on 9 April 2019 (OJ L 111, 25.4.2019, p. 73); Rules of Procedure of the Court of Justice (Consolidated version), Official Journal of the EU (26 June 2013) L173, as most recently amended on 9 April 2019 (OJ L 111, 25.4.2019, p. 73); Supplementary Rules of the Court of Justice, Official Journal of the EU (1 February 2014) L32/37.
14 For example, case C-35/98 Staatssecretaris van Financiën v. BGM Verkooijen  ECR I-4071 (Opinions of Advocate General La Pergola of 24 June 1999 and 14 December 1999).
15 Article 59, Rules of Procedure of the Court of Justice (Consolidated version).
16 id., Article 99.
17 For example, case C-112/14 European Commission v. UK, judgment of 13 November 2013.
18 The procedure for making such a complaint to the Commission is explained on its website at https://ec.europa.eu/info/about-european-commission/contact/problems-and-complaints/complaints-about-breaches-eu-law/how-make-complaint-eu-level_en. An optional form for that purpose can also be found on the website.
19 For example, case C-38/10 European Commission v. Portuguese Republic, judgment of 6 September 2012.
20 See the European Commission's web page 'Taxation of the financial sector' at https://ec.europa.eu/taxation_customs/taxation-financial-sector_en.
21 Case C-188/92 TWD Textilwerke Deggendorf  ECR I-833. See also case C-222/04 Cassa di Risparmio di Firenze  ECR I-289.