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Retroactivity of ECJ Judgments EATLP 2010

Peter J. WattelUniversity of Amsterdam

Hoge Raad der Nederlanden

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Propositon for debate:

“The ECJ should more often limit the retroactive effect of its judgements in the field of direct tax law.”

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Trois actes clairs préliminaires:

• Member States should apply sensible time limits;

• and Courts should act more reasonably than tornadoes (Vording and Lubbers, BTR 2006/1, p. 111);

• the ECJ case law on the temporal effect of its judgments is entirely of its own making; it is political rather than legal; it is neither inevitable nor imperative; it is a (political) choice;

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Legal Certainty• Is a principle of EU law;• The ECJ must respect that principle;• Unfortunately, ECJ case law in direct tax matters

is sometimes ultra vires (e.g. De Groot, Bosal, Marks & Spencer, Renneberg), inconsistent and contradictory (e.g. Bachmann/Commission v Denmark and De Groot/Amurta), self-contradictory within the same judgment (e.g. Schumacker, Marks&Spencer, X Holding BV), erroneous (e.g. FII GLO, De Groot, Renneberg) or manifestly ill-reasoned (e.g. X Holding);

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Legal Certainty (cntd)

• The ECJ introduces intolerably vague concepts, like fiscal coherence and (balanced?) allocation of taxing power; nobody knows what they mean in a concrete technical international tax case;

• The ECJ has been shifting from discrimination to justification to just proportionality; it is essentially judging, in a an unsystematic, case-by-case manner and without Treaty guidance, the reasonableness of national tax measures, which is both unpredictable and outside its competence;

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Legal Certainty (cntd)

Conclusions: • ECJ judgments in direct tax matters are

often not declaratory, but constitutive, or at least quite a surprise;

• Therefore, the ECJ itself is a source of legal uncertainty;

• Therefore, the very reason for retroactivity of judgments (their declaratory nature) is often absent.

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Economic inefficiency

• Retroactive effect of judgments is economically irrational if the judgments are unpredictable. If accurate anticipation (adaptation of behaviour) is not possible, there is no learning effect and no economic efficiency;

• Without predictability, unlimited retroactivity of judgments produces the same results as gambling: arbitrary windfall profits for the lucky and arbitrary budgetary shifts and losses for the unlucky.

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Criteria for limitation: good faith• Limitation of retroactivity is justified if the position

that the national measure is EU law compatible, was objectively tenable;

• This means that the Member State involved should not have known better; that is the case if there were no consistent and concrete indications to the contrary; if there was no case law or only contradictory or enigmatic case law;

• The Member State should have known better if the issue was clair or éclairé.

• If the judiciary has to refer the question and therefore does not know the answer now, then how should the legislature have known then?

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Limits to the limitation: ius vigilantibus est

• in good faith cases, the ECJ should limit the effect of its direct tax case law to the future;

• except for taxpayers who brought claims before the date of referral by the national court on the same point of EU law;

• There is no reason to protect free riders and windfall profiteers (but Member States should apply sensible time limits)

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Rewarding the bad?

• Does limitation of retroactivity on grounds of serious budgetary difficulties protect the bad guys/the larger infringements?

• No: they always have to pass the good faith test; • rather, it protects the other taxpayers against arbitrary

tax increases which are necessary to remedy the budgetary deficit caused by ECJ judgments involving huge tax revenue if retroactivity is not limited;

• the larger the amount, or the group of taxpayers taking a positive interest in an ECJ finding of incompatibility, the larger also the group of totally innocent taxpayers having a positive interest in an opposite finding or temporal limitation;

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Conclusions

• No retroactivity without predictability;• ECJ case law in direct tax matters is too

inconsistent to merit unlimited retroactivity;• Unlimited retroactivity produces too much

windfall effect and too little learning effect; • Where the Member State involved acted in good

faith, the effects of a finding of incompatibility should be limited to the future, except for taxpayers who brought claims - on the basis of the same point of EU law - before the date of referral.