Retroactivity of ECJ Judgments EATLP 2010

1. Retroactivity of ECJ Judgments EATLP 2010 Peter J. Wattel University of Amsterdam Hoge Raad der Nederlanden

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

3. 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;

4. 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);

5. 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;

6. 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.

7. 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.

8. 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?

9. 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)

10. 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;

11. 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.