Acte clair and Taxation Paul Farmer

Introduction Personal impressions (not Commission position) General comments on acte clair doctrine and the attitude of national courts Application to tax

Attitude of national courts Obligation to refer often not observed by final courts Tax is no exception More generally, worrying divergence in number of references on direct taxation from different Member States

Direct tax cases before the ECJ – referred by national courts (Art. 234 EC) (End October 2006) Member State:DENLUKBESEFRLUFIATDKELESPTIEITEU- 10 Total Art 234 EC T Nr of judge- ments in cases registered …...until from Pending cases Total Art. 234 ECT

Why the divergence? Discrepancy perhaps partly explained by different depths of international tax culture and activism of tax professions But surely must also be due to different attitudes of national courts to EU law and referrals to ECJ

CILFIT Proposals to weaken CILFIT dangerous: –Some judges of EU 15 seem reluctant to refer –Wiener Opinion systematically pleaded to avoid references –Criteria based on application v. interpretation or importance for Community law are difficult and, if left to national courts, risk undermining the uniform application of Community law and the basic right of EU citizens to have their cases decided in accordance with that law –Courts of new Member States have no experience of dealing with EU law: weakening CILFIT at this stage would risk legal disintegration –Koebler action for damages or action by Commission no substitute for access of individuals to ECJ with restitutionary claims

Importance of referrals by lower courts Failure by lower courts to exercise their discretion to refer in appropriate cases results in unnecessary delay and costs and may in practice lead to denial of justice: – Marks & Spencer cross-border loss litigation (UK Special Commissioners and High Court) –Trinity Mirror (UK Court of Appeal) and Kretztechnik (ECJ) (VAT on shares issues)

Control by ECJ essential Continuation of efforts to streamline procedures in the ECJ preferable to asking for self-restraint by national courts, e.g. –Reasoned orders for more straightforward cases –More targeted use of AGs, perhaps also for specific issues as well as selected cases –Questionable whether specialised tax chambers or tax court would be desirable –But might it be worthwhile appointing assistant rapporteurs (eg from among national judges) in certain cases to assist the Court in understanding complex domestic tax legislation? –Encouraging more succinct and focused pleadings and making better use of hearings

Acte clair: secondary legislation on tax (VAT and direct taxation) Currently more scope for acte clair or acte éclairé in relation to secondary tax legislation, particularly VAT (Imperfect) rule of thumb: Acte clair only where –Wording, context and aims all point clearly in one direction –Ambiguity in wording (or differences in language versions) clearly resolved by context and aims

Acte clair: direct tax and Treaty provisions Treaty interpretation more difficult as task of ECJ is inherently more difficult: Treaty interpretation involves finding a proper balance between conflicting Community and domestic interests 20 years on the case law on direct taxation continues to evolve on the substance and is not altogether coherent Inconsistency in the ECJ’s basic analysis in the freedoms case law is confusing for the uninitiated (or even the initiated) national judge: this applies equally to direct tax case law (see e.g. Special Commissioners decision, AG’s Opinion and ECJ judgment in Marks & Spencer).

Acte clair and Treaty interpretation Courts should err on the side of caution Generally it is safe to conclude that the position is clear where there is a direct precedent or where there is a difference of treatment of the domestic and cross-border situations which cannot sensibly be explained by the need to ensure a fair and coherent tax system Otherwise, as things stand at present, it is safer for a national court to conclude that the matter is not acte clair

Has the Court become too cautious in tax matters? Reasoning in the high water mark cases of late nineties left something to be desired Application to facts is properly a matter for national court but significant dangers in giving guidance which is too general and leaving excessive margin of appreciation Has there been an overcorrection in the case law?