Retroactivity of ECJ Judgments
EATLP 2010
Peter J. Wattel
University of Amsterdam
Hoge Raad der Nederlanden
1
Propositon for debate:
“The ECJ should more often limit the
retroactive effect of its judgements in the
field of direct tax law.”
2
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;
3
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 illreasoned (e.g. X Holding);
4
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;
5
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.
6
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.
7
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?
8
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)
9
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;
10
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.
11