Chapter 5 Effectiveness of EU (Indirect Tax) Law 5 Effectiveness of EU (Indirect Tax) ... importance for the actual harmonization of indirect taxes within the European ... of the constitutional

Chapter 5Effectiveness of EU (Indirect Tax) Law

5.1 Introduction

Discipline of Member States regarding the implementation of directives is of majorimportance for the actual harmonization of indirect taxes within the EuropeanUnion.

The Court of Justice has developed in its case law, both the concept of directapplicability of EU provisions which are sufficiently precise, clear andunconditional, and the concept of precedence of EU law over domestic law.Based on these principles, an individual or an undertaking may, in proceedingsagainst a Member State, rely on a sufficiently precise, clear and unconditionaldirective provision to override incompatible domestic provisions of that MemberState which failed to implement the directive concerned correctly and in time.

A Dutch case (Van Gend & Loos)138 stood at the cradle of the doctrine of directeffect. Before the Tariefcommissie, which used to be the Netherlandsadministrative tribunal having final jurisdiction in customs cases, Van Gend & Loosargued that the charging of 8% import duty on the import of ureaformaldehydefrom Germany represented an unlawful increase within the meaning of Article 12of the EEC Treaty, prohibiting the introduction of import duties between theMember States. The government of the Netherlands and the Belgian governmentchallenged the jurisdiction of the Court of Justice on the ground that the referencerelated not to the interpretation but to the application of the Treaty in the contextof the constitutional law of the Netherlands, and that in particular the Court ofJustice has no jurisdiction to decide, should the occasion arise, whether theprovisions of the EEC Treaty prevail over Netherlands legislation or over otheragreements entered into by the Netherlands and incorporated into Dutch nationallaw.

The Court of Justice held (emphasis added):

In addition the task assigned to the Court of Justice under Article 177 [now Article 267TFEU BT/JK], the object of which is to secure uniform interpretation of the Treaty bynational courts and tribunals, confirms that the states have acknowledged thatCommunity law has an authority which can be invoked by their nationals before thosecourts and tribunals. The conclusion to be drawn from this is that the Communityconstitutes a new legal order of international law for the benefit of which the states havelimited their sovereign rights, albeit within limited fields, and the subjects of whichcomprise not only Member States but also their nationals. Independently of thelegislation of Member States, Community law therefore not only imposes obligationson individuals but is also intended to confer upon them rights which become part of

138. Case 26/62 (Van Gend & Loos).

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their legal heritage. These rights arise not only where they are expressly granted by theTreaty, but also by reason of obligations which the Treaty imposes in a clearly definedway upon individuals as well as upon the Member States and upon the institutions ofthe Community.

This ground rule of direct applicability of Community law (now EU law) to nationallegal orders was so to speak the “big bang” which created a legal Community. Asa result there is now no dispute that the European Union is a new authority,independent and not reliant on the authority of the separate Member States. Actsof the Union need not to be confirmed by the Member States nor can they beannulled by them. Law based on the Treaties flows from an independent source.But as usual the devil is in the detail. What subsequently had to be clarified iswhich provisions are directly applicable, a question which still occupies the Courtof Justice.

In the Van Gend & Loos case several criteria can be found for a provision to bedirectly applicable. According to the Court of Justice (emphasis added):

The wording of Article 12 contains a clear and unconditional prohibition which is not apositive but a negative obligation. This obligation, moreover, is not qualified by anyreservation on the part of states which would make its implementation conditional upona positive legislative measure enacted under national law. The very nature of thisprohibition makes it ideally adapted to produce direct effects in the legal relationshipbetween Member States and their subjects.

Just a year later, the Costa/ENEL case139 gave the Court of Justice an opportunityto set out its position in more detail. The facts of this case were the following. In1962, Italy nationalized the production and distribution of electricity undertakingsto the National Electricity Board (ENEL). As a shareholder of Edison Volt, one ofthe companies that was nationalized, Mr Costa considered that he had beendeprived of his dividend and consequently refused to pay an electricity bill for ITL1,926. In proceedings before the Arbitration Court in Milan, one of the argumentsput forward by Mr Costa to justify his conduct was that the nationalizationinfringed a number of provisions of the EEC Treaty. In order to be able to assessMr Costa’s submissions in his defence, the Arbitration Court requested the Courtof Justice to interpret various aspects of the EEC Treaty. In its judgment, the Courtstated the following in relation to the legal nature of the E(E)C:

By contrast with ordinary international treaties, the EEC Treaty has created its own legalsystems of the Member States and which their courts are bound to apply. By creatinga Community of unlimited duration, having its own institutions, its own personality, itsown legal capacity and capacity of representation on the international plane and, moreparticularly, real powers stemming from a limitation of sovereignty or a transfer of

139. Case 6/64 (Costa v. ENEL).

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powers from the States to the Community, the Member State have limited theirsovereign rights … and have thus created a body of law which binds both theirnationals and themselves.

Having established strongly the lex superior principle,140 the Court of Justicereached the following conclusion:

It follows from all these observations that the law stemming from the Treaty, anindependent source of law, could not, because of its special and original nature, beoverridden by domestic legal provisions, however framed, without being deprived of itscharacter as Community law and without the legal basis of the Community itself beingcalled into question. The transfer by the States from their domestic legal system to theCommunity legal system of the rights and obligations arising under the Treaty carrieswith it a permanent limitation of their sovereign rights, against which a subsequentunilateral act incompatible with the concept of the Community cannot prevail.

The Court of Justice has since consistently upheld this finding and has, in fact,developed it further in one respect. Whereas the Costa/ENEL judgment wasconcerned only with the question of the primacy of Community law over ordinarynational laws, the Court of Justice confirmed the principle of primacy also withregard to the relationship between Community law and national constitutional law.The Court found that the validity of a Community measure or its effect within theMember States cannot be affected by allegations that it runs counter to eitherfundamental rights as formulated by the constitutions of that State or theprinciples of a national constitutional structure. After initial hesitation, nationalcourts in principle accepted the interpretation of the Court of Justice.141

140. See also Declaration 17 annexed to the Final Act adopting the Lisbon Treaty, referred to insection 2.2.

141. In the Netherlands no difficulties could arise anyway because the primacy of Treaty law overnational stature law is expressly laid down in the constitution (Articles 65 to 67). In the otherMember States, the principle of the primacy of Community law over national law has likewisebeen recognized by national courts. However, the constitutional courts of Germany and Italyinitially refused to accept the primacy of Community law and international constitutional law, inparticular regarding the guaranteed protection of fundamental rights. They withdrew theirobjections only after the protection of fundamental rights in the Community legal order hadreached a standard that corresponded in essence to that of their national constitutions. In itsjudgment of 12 October 1993 concerning the Treaty on European Union (Treaty of Maastricht)however, the German constitutional court made it quite clear that it had not in any way“surrendered” its jurisdiction in determining the applicability of secondary Communitylegislation in Germany; however, it would only exercise this judicial authority “in collaboration”with the European Court of Justice, whereby the European Court would guarantee theprotection of the basic rights of all individuals throughout the Community whilst theconstitutional court in Germany would restrict itself to generally ensuring compliance withmandatory requirements regarding fundamental rights. The constitutional court also made itclear that it did not accept as valid within Germany any Community legal act which had beenadopted merely because of the “useful effect” of community powers and on the basis of a broadinterpretation for this concept, and also stated that government institutions in Germany wereprevented from applying these legal acts for constitutional reasons. It was therefore the task ofthe constitutional court to examine whether legal acts of Community bodies and institutions


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In the Van Gend & Loos case the Court of Justice ruled that the former Article 12EEC met the criteria of a clear and unconditional prohibition, and that the firm VanGend & Loos could therefore also derive rights from it which the court in theNetherlands was obliged to safeguard. As a consequence of this the Dutch courtinvalidated the customs duties levied in contravention of the Treaty. Subsequently,the Court of Justice continued to apply this reasoning with regard to otherprovisions of the EC Treaty that are of far greater importance to citizens of theCommunity than Article 12. The judgments that are especially noteworthy hereconcern the direct applicability of provisions on freedom of movement (now Article45 TFEU), freedom of establishment (now Article 49 TFEU) and freedom to provideservices (now Article 56 TFEU).

With regard to the guarantees concerning freedom of movement, the Court ofJustice delivered a judgment declaring them directly applicable in the Van Duyncase.142 The facts of this case were as follows. Ms Van Duyn, a Dutch national,was in May 1973 refused permission to enter the United Kingdom in order to takeup employment as a secretary with the Church of Scientology, an organizationconsidered by the Home Office to be “socially harmful”. Relying on theCommunity rules on freedom of movement for workers, Ms Van Duyn brought anaction before the High Court seeking a ruling that she was entitled to stay in theUnited Kingdom. In answer to a question referred by the High Court, the Court ofJustice held that (what is now) Article 45 was directly applicable and henceconferred on individuals rights that are enforceable before the courts of a MemberState.

The Court of Justice was asked by the Belgian Conseil d’État to give a ruling onthe direct applicability of provisions guaranteeing freedom of establishment.143

The Conseil d’État had to decide on an action brought by a Dutch Lawyer, J.Reyners, who wished to assert his rights arising out of (what is now) Article 49. MrReyners felt obliged to bring the action after he had been denied admission to thelegal profession in Belgium because of his foreign nationality, despite the fact thathe had passed the necessary Belgian examinations.

In its judgment of 21 July 1974, the Court of Justice held that unequal treatmentof nationals and foreigners as regards establishment could no longer bemaintained as (now) Article 49 had been directly applicable since the end of thetransitional period and hence entitled Community citizens to take up and pursuegainful employment in another Member State in the same way as a national of that

remained within or exceeded the limits of their sovereign rights. Only when this thinking is putinto practice will it become clear whether and to what extent the German constitutional courtis actually undermining the primacy of Community law and the Court of Justice’s exclusivepower to reject illegal Community provisions. Derived from: The ABC of Community Law, DrKlaus Borchardt, DG for Education and Culture.

142. Case 41/74 (Yvonne van Duyn).143. Case 2/74 (Jean Reyners).


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State. As a result of this judgment Mr Reyners had the right to be admitted to thelegal profession in Belgium.

The Court of Justice was given an opportunity in the Van Binsbergen case144

specifically to establish the direct applicability of provisions relating to the freedomto provide services. These proceedings involved among other things the questionof whether a Dutch legal provision to the effect that only persons habituallyresident in the Netherlands could act as legal representatives before an appealcourt was compatible with the Community rules on freedom to provide services.The Court of Justice ruled that is was not compatible, on the grounds that allrestrictions to which Community citizens might be subject by reason of theirnationality or place of residence infringe the Treaty and are therefore void.

Also of considerable importance in practical terms is the recognition of the directapplicability of provisions on the free movement of goods (now Article 34 TFEU),the principle of equal pay for men and woman (now Article 157 TFEU) the generalprohibition of discrimination (now Article 18 TFEU, see section 2.2.3) and freedomof competition (now Article 101 TFEU).

As regards secondary legislation, the question of direct applicability only arises inrelation to directives and decisions addressed to the Member States given thatregulations and decisions addressed to individuals already derive their directapplicability from their very nature based on the Treaty (see Article 288 TFEU).

Since 1970, the Court of Justice has extended its principles concerning directapplicability to provisions in directives (and in decisions145) addressed to the

144. Case 33/74 (Van Binsbergen). However, taking into account the particular nature of the servicesto be provided, specific requirements imposed on the person providing the service cannot beconsidered incompatible with the Treaty where they have as their purpose the application ofprofessional rules justified by the general good – in particular rules relating to organization,qualifications, professional ethics, supervision and liability – which are binding upon any personestablished in the state in which the service is provided, where the person providing the servicewould escape from the ambit of those rules being established in another Member State. Seealso section 2.4.1.

145. As early as 1970 the Court of Justice already held with regard to decisions the following: “5.However, although it is true that by virtue of Article 189, regulations are directly applicable andtherefore by virtue of their nature capable of producing direct effects, it does not follow from thisthat other categories of legal measures mentioned in that Article can never produce similareffects. In particular, the provision according to which decisions are binding in their entirety onthose to whom they are addressed enables the question to be put whether the obligationcreated by the decision can only be invoked by the Community institutions against theaddressee or whether such a right may possibly be exercised by all those who have an interestin the fulfilment of this obligation. It would be incompatible with the binding effect attributed todecisions by Article 189 to exclude in principle the possibility that persons affected may invokethe obligation imposed by a decision. Particularly in cases where, for example, the Communityauthorities by means of a decision have imposed an obligation on a Member State or all theMember States to act in a certain way, the effectiveness (l’effet utile) of such a measure wouldbe weakened if the nationals of that State could not invoke it in the courts and the national


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Member States, as discussed in the next section. (Obviously, it would not makeany sense if the general principles of law, see section 2.4, concerned with therights of individuals were not directly applicable. By their nature they are rules thatindividuals can invoke in national courts.)

5.2 Direct effect of directives

The first VAT case clearly illustrating the direct effect of directives is Becker.146 Itremains a leading case. Ursula Becker was a self-employed credit negotiator. Sheinvoked, before her national tax court, Article 13B(d)(1) of the Sixth Directive (nowArticle 135(2), first subparagraph, point (a) RVD), which required Member Statesto exempt from VAT, inter alia, “the granting and the negotiation of credit”.Germany was 2 years late in transposing this exemption into its national tax law.Becker wished to apply the exemption in the year between the expiry of theimplementation period and the date on which the German implementingprovisions came into force. The Court of Justice held:

The effect of Directives in general

17. According to the third paragraph of Article 189 of the Treaty,147 “a Directive shallbe binding, as to the result to be achieved, upon each Member State to which it isaddressed, but shall leave to the national authorities the choice of form and methods”.

18. It is clear from that provision that States to which a Directive is addressed are underan obligation to achieve a result, which must be fulfilled before the expiry of the periodlaid down by the Directive itself.

19. It follows that wherever a Directive is correctly implemented, its effects extend toindividuals through the medium of the implementing measures adopted by the MemberState concerned (judgment of 6 May 1980 in Case 102/79 Commission v. Belgium).

20. However, special problems arise where a Member State has failed to implement aDirective correctly and, more particularly, where the provisions of the Directive have notbeen implemented by the end of the period prescribed for that purpose.

21. It follows from well-established case-law of the Court and, most recently, from thejudgment of 5 April 1979 in Case 148/78 Pubblico Ministero v. Ratti, that whilst underArticle 189 Regulations are directly applicable and, consequently, by their naturecapable of producing direct effects, that does not mean that other categories ofmeasures covered by that Article can never produce similar effects.

courts could not take it into consideration as part of Community Law. Although the effects of adecision may not be identical with those of a provision contained in a regulation, this differencedoes not exclude the possibility that the end result, namely the right of the individual to invokethe measure before the courts, may be the same as that of a directly applicable provision of aregulation.” Case 9/70 (Franz Grad).

146. Case 8/81 (Becker).147. Now Article 288 TFEU [BT/JK].


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22. It would be incompatible with the binding effect which Article 189 ascribes toDirectives to exclude in principle the possibility of the obligations imposed by thembeing relied on by persons concerned.

23. Particularly in cases in which the Community authorities have, by means of aDirective, placed Member States under a duty to adopt a certain course of action, theeffectiveness of such a measure would be diminished if persons were prevented fromrelying upon it in proceedings before a court and national courts were prevented fromtaking it into consideration as an element of Community law.

24. Consequently, a Member State which has not adopted the implementing measuresrequired by the Directive within the prescribed period may not plead, as againstindividuals, its own failure to perform the obligations which the Directive entails.

25. Thus, wherever the provisions of a Directive appear, as far as their subject-matteris concerned, to be unconditional and sufficiently precise, those provisions may, in theabsence of implementing measures adopted within the prescribed period, be reliedupon as against any national provision which is incompatible with the Directive or in sofar as the provisions define rights which individuals are able to assert against the state.

(For a similar dispute decided by the ECtHR, see the case of S.A. Dangeville insection 5.8.2.1.)

In the Becker case the Finanzamt drew particular attention to the margin ofdiscretion reserved to the Member States by the introductory sentence of part Bof Article 13, where it is stated that the exemption is to be granted by the MemberStates “under conditions which they shall lay down for the purpose of ensuring thecorrect and straightforward application of the exemptions and of preventing anypossible evasion, avoidance or abuse”. It was submitted that in view of that riderthe exemption provisions contained in Article 13 (now Article 131 RVD) are notunconditional; consequently, they may not be relied upon until the conditionsreferred to have been laid down. The Court of Justice held:

32. It should first be observed in that regard that the “conditions” referred to do not inany way affect the definition of the subject-matter or the exemption conferred.

33. The “conditions” referred to are intended to ensure the correct and straightforwardapplication of the exemptions. A Member State may not rely, as against a taxpayer whois able to show that his tax position actually falls within one of the categories ofexemption laid down in the Directive, upon its failure to adopt the very provisions whichare intended to facilitate the application of that exemption.

34. Moreover, the “conditions” refer to measures intended to prevent any possibleevasion, avoidance or abuse. A Member State which has failed to take the precautionsnecessary for that purpose may not plead its own omission in order to refuse to grantto a taxpayer an exemption which he may legitimately claim under the Directive,particularly since in the absence of specific provisions on the matter there is nothingto prevent the State from having recourse to any relevant provisions of its general taxlegislation which are designed to combat evasion.


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35. The argument based on the introductory sentence of Article 13B [now Article 131RVD BT/JK] must therefore be rejected.

Thus, in order for the provisions of a directive to have direct effect they must besufficiently precise and unconditional.148 However, although the Court of Justicegenerally refers to those criteria before ruling on the direct effect of a directive, thatis not always so.149 It has been the case that, when asked specifically about thedirect effect of a directive the Court of Justice, after referring to the binding effectof directives and the need to protect their effectiveness, has abandoned the dualrequirement of precision and unconditionally and merely concerned itself with thelevel of discretion available to Member States under the directive.150 Instead ofanalysing the content of the provisions in question in order to establish or denytheir applicability, the Court of Justice has called on the national court todetermine “... whether the national legislature, in exercising its choice as to theform and methods for implementing the directive, had kept within the limits of itsdiscretion set out in the directive”. This originates from the judgment in Case51/76 (Verbond van Nederlandse Ondernemingen (VNO)).

That judgment was given in a case arising from a challenge to a decision of thetax authorities. One of the questions submitted concerned the interpretation ofArticle 11 of the Second VAT Directive, which dealt with the right to deduct VATinvoiced to a taxable person in respect of capital goods supplied to him. The Courtof Justice first considered direct effect, from the point of view of the principle ofdirect effect with regard to directives but opted for review by the national court ofthe legality of the national measure in question in light of the margin of discretionwhich the directive leaves to the Member States. The judgment in VNO containsa special feature, in that it combines two approaches. On the one hand, the Courtof Justice noted the explicit and precise nature of the principle of deduction atissue, as laid down in Article 11(1) of the Second Directive. On the other hand,pointing out that that principle was subject to certain derogations and exceptionswhich the Member States had the power to determine and that exercise of those

148. In Joined Cases C-246 to C-249/94 (Cooperativa Agricola Zootecnica S. Antonio), dealing withspecial import arrangements in respect of certain young male bovine animals for fattening, theCourt of Justice observed: “18. A Community provision is unconditional where it sets forth anobligation which is not qualified by any condition, or subject, in its implementation or effects,to the taking of any measure either by the Community institutions or by the Member States (see,in particular, Case 28/67 Molkerei-Zentrale Westfalen Lippe, at 153)”.

149. See extensively on the doctrine of direct effect the Opinion of AG Léger delivered on 11 January2000 in Case C-287/98 (Berthe Linster, Aloyse Linster and Yvonne Linster). This case deals withthe legality of a procedure for the expropriation in the public interest, in connection with theconstruction of a motorway, of immovable property belonging to a private individual, andwhether the national legislature kept within the limits of the discretion set by Directive 85/337on the assessment of the effects of certain public and private projects on the environment.

150. Case C-435/97 (WWF and Others), paragraph 69. This case deals with the decision to transformthe Bolzano St. Jacob military airport into a commercial airport without a by Directive requiredenvironmental assessment procedure.


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powers was a matter for the discretion of the national authorities, it held that it wasthe duty of the national court before which the case had been brought todetermine whether the disputed national measure fell outside the margin of thediscretion of the Member States.

In Case C-141/00 (Ambulanter Pflegedienst Kügler GmbH) the Court of Justicefurther elaborated on conditional provisions. As regards the direct effect, so thatit may be relied upon by a taxable person before the national courts, Article13A(1)(g) of the Sixth Directive (now Article 132(1)(g) RVD) grants the MemberStates a discretion for the purpose of according certain organizations suchrecognition. According to the Court of Justice, as long as the Member Statesobserve the limits of the discretion which is accorded to them by Article 13A(1)(g)of the Sixth Directive, persons cannot rely on that provision in order to acquire thestatus of charitable organization as against the Member State concerned.

The Court of Justice added the following. Where a person seeks the status ofcharitable organization, it is for the national courts to examine whether thecompetent authorities have observed those limits while applying Communityprinciples, in particular the principle of equal treatment. It will accordingly be forthe national authorities, in accordance with Community law and subject to reviewby the national courts, to determine, in the light in particular of practice followedby the competent administrative body in analogous situations, whichorganizations should be recognized as charitable within the meaning of Article13A(1)(g) of the Sixth Directive. In the main proceedings, the national court willthus be able to take into account the existence of specific provisions, be theynational or regional, legislative or administrative, or tax or social securityprovisions, the fact that associations carrying on the same activities as theclaimant in the main proceedings (i.e. Ambulanter Pflegedienst Kügler) are alreadyentitled to a similar exemption, given the public interest inherent in those activities,and the fact that the costs of the services supplied by the claimant in the mainproceedings may be largely met by statutory health funds or by social securitybodies with which private operators such as the claimant in the main proceedingshave contractual relations.

Thus, the Court of Justice (re)qualified the circumstances in which a provision canhave direct effect. Not only can a clear and unconditional provision be relied onbut also a clear and conditional provision. The principle of equality may overridethe precondition that an organization must be recognized in order to benefit fromthe exemption. Furthermore, the adoption of national measures correctlyimplementing a directive does not exhaust the effects of a directive. It would beinconsistent with the EU legal order to be able to rely on a directive where it hasbeen implemented incorrectly, but not to be able to do so where the nationalauthorities apply the national measures implementing the directive in a mannerincompatible with it.


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5.3 Reverse direct effect

A directive does not have direct applicability in the opposite direction, meaningthat a defaulting Member State cannot rely on an unimplemented directive inproceedings. Nor does it have horizontal direct effect between two non-publicparties, see section 5.4.

A good example of the non-applicability of the reverse direct effect is Case 80/86(Kolpinghuis) in which criminal proceedings were brought against an undertaking,running a café, for stocking for sale and delivery a beverage which it called“mineral water” but which consisted of tap-water and carbon dioxide. Theundertaking was charged with infringing Article 2 of the Keuringsverordening(Inspection regulation) of the municipality of Nijmegen in the Netherlands, whichprohibited the stocking and sale of goods intended for trade and humanconsumption which are of unhealthy composition.

Before the politierechter (magistrate dealing with commercial offences), theofficier van justitie (public prosecutor) relied inter alia upon Council Directive80/777/EEC of 15 July 1980 on the approximation of the laws of the MemberStates relating to the exploitation and marketing of natural mineral waters.151 TheDirective provides in particular that the Member States are to take the measuresnecessary to ensure that only water extracted from the ground in a Member Stateand recognized by the responsible authority of that Member State as naturalmineral water satisfying the provisions of Annex I, section I, of the Directive maybe marketed as natural mineral water. That provision of the Directive ought to havebeen implemented within 4 years after the Directive was notified, that is to say by17 July 1984, but the Netherlands legislation was amended only with effect from8 August 1985. The offences with which the accused in the main proceedings wascharged took place on 7 August 1984. The Court of Justice held:

6. The first two questions concern the possibility whether the provisions of a Directivewhich has not yet been implemented in national law in the Member State in questionmay be applied as such.

7. In this regard it should be recalled that, according to the established case-law of theCourt (in particular its judgment of 19 January 1982 in Case 8/81 Becker v. FinanzamtMünster-innenstadt), wherever the provisions of a Directive appear, as far as theirsubject-matter is concerned, to be unconditional and sufficiently precise, thoseprovisions may be relied upon by an individual against the state where that state failsto implement the Directive in national law by the end of the period prescribed or whereit fails to implement the Directive correctly.

8. That view is based on the consideration that it would be incompatible with thebinding nature which Article 189 confers on the Directive to hold as a matter of principlethat the obligation imposed thereby cannot be relied on by those concerned. From that

151. OJ 1980, L 229, p. 1.


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the Court deduced that a Member State which has not adopted the implementingmeasures required by the Directive within the prescribed period may not plead, asagainst individuals, its own failure to perform the obligations which the Directive entails.

9. In its judgment of 26 February 1986 in Case 152/84 Marshall v. South-westHampshire area health authority, the Court emphasized, however, that according toArticle 189 of the EEC Treaty the binding nature of a Directive, which constitutes thebasis for the possibility of relying on the Directive before a national court, exists onlyin relation to “each Member State to which it is addressed”. It follows that a Directivemay not of itself impose obligations on an individual and that a provision of a Directivemay not be relied upon as such against such a person before a national court.

10. The answer to the first two questions should therefore be that a national authoritymay not rely, as against an individual, upon a provision of a Directive whose necessaryimplementation in national law has not yet taken place.

The Marshall case referred to by the Court of Justice in point 9 above concernedunequal treatment of men and women. Ms Marshall who liked to continue toteach, argued that the social security act 1975, the United Kingdom legislationgoverning pensions, providing that State pensions are to be granted to men fromthe age of 65 and to women from the age of 60 was discriminatory. She relied onArticle 5(1) of Directive 76/207 which provides that: “application of the principle ofequal treatment with regard to working conditions, including the conditionsgoverning dismissal, means that men and women shall be guaranteed the sameconditions without discrimination on grounds of sex.” The United Kingdomproposed, conversely, that a directive can never impose obligations directly onindividuals and that it can only have direct effect against a Member State quapublic authority and not against a Member State qua employer. (In other words itcannot have horizontal effect, see section 5.4.) As an employer a State is nodifferent from a private employer. It would not therefore be proper to put personsemployed by the State in a better position than those who are employed by aprivate employer. The Court of Justice pointed out that where a person involvedin legal proceedings is able to rely on a directive as against the State he may doso regardless of the capacity in which the latter is acting, whether employer orpublic authority. In either case it is necessary to prevent the State from takingadvantage of its own failure to comply with Community law.

In a similar case where discriminatory retirement was required by the British GasCompany the Court of Justice concluded that a body, whatever its legal form,which has been made responsible, pursuant to a measure adopted by the State,for providing a public service under the control of the State and has for thatpurpose special powers beyond those which result from the normal rulesapplicable in relations between individuals is included in any event among the


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bodies against which the provisions of a directive capable of having direct effectmay be relied upon.152

5.4 Horizontal effect

Although many commentators have felt it would be appropriate for directives alsoto have horizontal direct effect, the Court of Justice has explicitly rejected the idea(see for example the Faccini Dori case below) because directives are addressedto Member States and should therefore not be capable of creating of themselvesobligations for individuals or corporations who would be unaware of suchobligations on the basis of national law.

Case C-91/92 (Faccini Dori) dealt with the following. An Italian companyInterdiffusion Srl concluded a contract with Ms Faccini Dori at Milan CentralRailway Station for an English language correspondence course. Thus thecontract was concluded away from Interdiffusion’s business premises. Some dayslater, by registered letter, Ms Faccini Dori informed that company that she wascancelling her order. The company replied that it had assigned its claim to Recreb.On 24 June 1989, Ms Faccini Dori wrote to Recreb confirming that she hadcancelled her subscription to the course, indicating inter alia that she relied on theright of cancellation provided for by Directive 85/577/EEC to protect the consumerin respect of contracts negotiated away from business premises. At the materialtime Italy had not taken any steps to transpose the Directive into national law,although the period set for transposition had expired. The question before theCourt of Justice was whether the provisions of the Directive concerning the rightof cancellation may be invoked in proceedings between a consumer and a trader.The Court held:

23. It would be unacceptable if a State, when required by the Community legislature toadopt certain rules intended to govern the State’s relations – or those of State entities– with individuals and to confer certain rights on individuals, were able to rely on its ownfailure to discharge its obligations so as to deprive individuals of the benefits of thoserights. Thus the Court has recognised that certain provisions of directives onconclusion of public works contracts and of directives on harmonisation of turnovertaxes may be relied on against the State (or State entities) (see the judgment in Case103/88 Fratelli Costanzo v. Comune di Milano and the judgment in Case 8/81 Beckerv. Finanzamt Münster-Innenstadt).

24. The effect of extending that case-law to the sphere of relations between individualswould be to recognize a power in the Community to enact obligations for individualswith immediate effect, whereas it has competence to do so only where it is empoweredto adopt regulations.

152. Case C-188/89 (Foster).


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25. It follows that, in the absence of measures transposing the directive within theprescribed time-limit, consumers cannot derive from the directive itself a right ofcancellation as against traders with whom they have concluded a contract or enforcesuch a right in a national court.

The conclusion is that even if the conditions for direct effect are met, the ability toplead application of the provisions is not available in all circumstances, sincedirectives cannot produce horizontal direct effect. In Faccini Dori, the relevantArticles of the directive were deemed to be unconditional and sufficiently precisebut an individual was not granted the right to rely on provisions of that type againstanother individual. What was left to Ms Faccini Dori was the national court’s dutyof reconciliatory interpretation, see section 5.5 directly below.

5.5 Reconciliatory interpretation

There is also the duty to give an interpretation in conformity with a directive, theso-called reconciliatory interpretation (also referred to as the principle ofcompatible interpretation). The Court of Justice found the basis for this in Article10 EC (now Article 4(3) TEU, dealing with the principle of sincere cooperationformerly referred to as Community loyalty, see section 2.2.2). In the Kolpinghuiscase mentioned in section 5.3 the Court of Justice held:

11. The third question is designed to ascertain how far the national court may or musttake account of a Directive as an aid to the interpretation of a rule of national law.

12. As the Court stated in its judgment of 10 April 1984 in Case 14/83 Von Colson andKamann v. Land Nordrhein-Westfalen, the Member States’ obligation arising from aDirective to achieve the result envisaged by the Directive and their duty under Article5 of the Treaty to take all appropriate measures, whether general or particular, to ensurethe fulfilment of that obligation, is binding on all the authorities of Member Statesincluding, for matters within their jurisdiction, the courts. It follows that, in applying thenational law and in particular the provisions of a national law specifically introduced inorder to implement the Directive, national courts are required to interpret their nationallaw in the light of the wording and the purpose of the Directive in order to achieve theresult referred to in the third paragraph of Article 189 of the Treaty.

13. However, that obligation on the national court to refer to the content of the Directivewhen interpreting the relevant rules of its national law is limited by the generalprinciples of law which form part of Community law and in particular the principles oflegal certainty and non-retroactivity. Thus the Court ruled in its judgment of 11 June1987 in Case 14/86 Pretore de Salo v. X ... that a Directive cannot, of itself andindependently of a national law adopted by a Member State for its implementation,have the effect of determining or aggravating the liability in criminal law of persons whoact in contravention of the provisions of that Directive.

14. The answer to the third question should therefore be that in applying its nationallegislation a court of a Member State is required to interpret that legislation in the lightof the wording and the purpose of the Directive in order to achieve the result referredto in the third paragraph of Article 189 of the Treaty, but a Directive cannot, of itself and


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independently of a law adopted for its implementation, have the effect of determiningor aggravating the liability in criminal law of persons who act in contravention of theprovisions of that Directive.

Thus, a court of a Member State is required to interpret the legislation in the lightof the wording and the purpose of the Directive. In Case C-106/89 (Marleasing)153

the Court of Justice added the nuance that this interpretation should be “as far aspossible” in the light of the wording and the purpose of the Directive to beinterpreted. We emphasize the importance of the reconciliatory interpretation byreferring to the following observations of the Court of Justice in Faccini Dori(emphasis added):

26. It must also be borne in mind that, as the Court has consistently held since itsjudgment in Case 14/83 Von Colson and Kamann the Member States’ obligation arisingfrom a directive to achieve the result envisaged by the directive and their duty underArticle 5 of the Treaty to take all appropriate measures, whether general or particular,is binding on all the authorities of Member States, including, for matters within theirjurisdiction, the courts. The judgments of the Court in Case C-106/89 Marleasing andCase C-334/92 Wagner Miret make it clear that, when applying national law, whetheradopted before or after the directive, the national court that has to interpret that lawmust do so, as far as possible, in the light of the wording and the purpose of thedirective so as to achieve the result it has in view and thereby comply with the thirdparagraph of Article 189 of the Treaty.

The Court of Justice added that, “[i]f the result prescribed by the directive cannotbe achieved by way of interpretation, ... in terms of the judgment in ... Francovichand Others, Community law requires the Member States to make good damagecaused to individuals through failure to transpose a directive”, see section 5.7.

Case C-60/02 (Criminal proceedings against X) deals with directly applicableCommunity law (regarding pirated goods) and the limits of reconciliatory (orcompatible) interpretation and criminal charges. Mr X in Austria was caught redhanded with pirated goods which were in transit. In Austrian law the mere transitof goods manufactured/distributed in contravention of provisions of the law ontrademarks is not punishable under criminal law. The Austrian LandesgerichtEisenstadt asked the Court of Justice whether this is contrary to Article 2 ofCouncil Regulation (EC) No. 3295/94 of 22 December 1994 laying down measures

153. This case deals the scope of Directive 68/151 on the coordination of safeguards which, for theprotection of the interests of members and others, are required by Member States ofcompanies, with a view to making such safeguards equivalent throughout the Community.National law even when the directive has not been timely implemented must be interpreted inthe light of the purpose and the wording of that directive in order to preclude a declaration ofnullity of a public limited company on a ground other than those listed in Article 11 of thatdirective. Those grounds must themselves be strictly interpreted, in the light of that purpose,so as to ensure that nullity on the ground that the objects of the company are unlawful orcontrary to public policy must be understood as referring exclusively to the objects of thecompany as described in the instrument of incorporation or the articles of association.


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to prohibit the release for free circulation, export, re-export or entry for asuspensive procedure of counterfeit and pirated goods.

According to the Court, the duty to reconciliatory interpretation of national law soas to be compatible with EU law, in the light of its wording and purpose, in orderto attain the aim pursued by the latter, cannot, of itself and independently of a lawadopted by a Member State, have the effect of determining or aggravating theliability in criminal law of an entity which has failed to observe the requirements of(even directly applicable) EU law.

According to Article 4(5) of the Sixth VAT Directive (now Article 13 of the RecastVAT Directive) the State and its bodies are not, in principle, to be consideredtaxable persons where they exercise public authority. The interpretation of thisprovision in the context of the auctioning of the UMTS licences formed thecornerstone of the proceeding in Case C-369/04 (Hutchison 3G UK Ltd andOthers),154 see also section 9.5.5.

One of the questions the UK VAT and Duties Tribunal referred to the Court ofJustice was to what extent importance is to be attached, when applying thenational legislation, to the principle of interpretation of national law in accordancewith directives, as expounded in Marleasing.

It should be noted that on the basis of section 41(2) of the VAT Act 1994 the UKTreasury issued Treasury Directions under which certain activities on the part ofthe public administration – including the award of licences andtelecommunications – are to be considered activities liable to VAT.

In her Opinion, delivered on 7 September 2006, AG Kokott noted that when anational court applies domestic law, and in particular legislative provisionsspecifically adopted for the purpose of implementing the requirements of adirective, it is bound to interpret national law, so far as possible, in the light of thewording and the purpose of the directive concerned, in order to achieve the resultsought by the directive and consequently comply with the third paragraph ofArticle 249 EC [now Article 288 TFEU] and that this principle must be observed inapplying all domestic legislation. It also applies to directions given by theadministration that, in implementation of Article 4(1) and (5) of the Sixth Directive(now Articles 9(1) and 13 RVD), specify which goods and services supplied bypublic authorities are to be treated as taxable supplies.

The appellants in Hutchison 3G contended that the principle of interpretation ofnational law in accordance with directives does not apply to Treasury Directionsas the tax authority was thereby exercising the discretion afforded to it under theDirective. The AG did not accept this argument since in her opinion nationalauthorities are bound by the legal requirements of the Directive, where in

154. See also Case C-284/04 (T-Mobile Austria GmbH and Others).


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transposing the second subparagraph of Article 4(5) of the Sixth Directive (nowArticle 13(1) second subparagraph RVD), they classify certain activities of a publicbody as subject to tax. The Directive does not afford national authorities the powerto make goods or services supplied by the State in the exercise of its publicauthority subject to value added tax even where for legal reasons there is no suchcompetitive relationship and the case does not fall within the third subparagraphof Article 4(5) of the Sixth Directive in conjunction with Annex D (now Annex I RVD).

The appellants also contended that the State cannot rely on an interpretation inaccordance with the Directive to the detriment of private individuals, i.e. on thereverse direct effect. The AG reacted to this argument as follows:

147. … This view is not correct either. The courts’ obligation to interpret domestic lawin accordance with a directive applies irrespective of whether it adversely affectsprivate individuals. The Court has emphasised the obligation of interpretation inaccordance with directives even in cases between private individuals, in which takingaccount of Community law thus necessarily has an adverse effect on one of the privateindividual parties. It has also acknowledged that reliance on a directive may indirectlyhave adverse repercussions on the rights of individuals.155

148. This does not conflict with established case-law to the effect that a directivecannot of itself impose obligations on an individual and cannot therefore be relied uponas such against an individual.156 This rule only applies to the direct application ofdirectives and not to interpretation in conformity with a directive. In the case ofinterpretation in conformity with a directive the directive does not itself imposeobligations on the individual; this is done by the national law which is being applied inconformity with the directive.

149. It is for the national court to decide whether an interpretation of national law inconformity with the directive is possible in the present case. Regard should thereforebe had not only to the Treasury Directions themselves. The national court has toconsider national law as a whole in order to assess to what extent it may be appliedso as to not to produce a result contrary to that sought by the directive.157

150. If the application of interpretive methods recognised by national law enables, incertain circumstances, a provision of domestic law to be construed in such a way asto avoid conflict with another rule of domestic law or the scope of that provision to berestricted to that end by applying it only in so far as it is compatible with the rule

155. judgment in Case C-201/02 (Wells), paragraph 57.156. judgments in Case 152/84 (Marshall) paragraph 48, Case C-106/89 (Marleasing), paragraph 6,

Case C-91/92 (Faccini Dori), paragraph 20, Case C-201/02 (Wells), paragraph 57 and JoinedCases C-397/01 to C-403/01 (Pfeiffer and Others), paragraph 113.

157. See in this vein the judgments in Case C-131/97 (Carbonari and Others), paragraphs 49 and 50,and Joined Cases C-397/01 to C-403/01 (Pfeiffer and Others), paragraph 115.


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concerned, the national court is bound to use those methods in order to achieve theresult sought by the directive.158 However, Community law does not demandinterpretation of national law in conformity with directives contra legem.159

There are (at least) three important differences between direct applicability of adirective on the one hand and reconciliatory interpretation and application ofnational law on the other:

(1) The obligation to apply national law in conformity with a directive appliesirrespective of whether the directive provisions involved have direct effect.Reconciliatory interpretation therefore has a wider scope than simply thedirect applicability of an unimplemented directive.

(2) Direct effect is possible only after the expiry date of the implementation periodof a directive; also the requirement to interpret national law in conformity withthe directive applies immediately from the date of expiry of theimplementation period however, before that time the principle of sincerecooperation (Article 4(3)TEU) obliges to refrain from courses of action thatwould frustrate the effectiveness of EC law.160

(3) Direct effect of directives only exists in vertical relations (between MemberStates and their subjects) and it is a one way street (Member States cannotrely on direct effect of directives as against their subjects; only these subjects,individuals and undertakings, can rely on directly applicable directiveprovisions as against their Member State failing to implement them correctly).It follows that direct effect of a directive will never work to the detriment of anindividual. Reconciliatory interpretation, on the other hand, may be appliedirrespective of the quality of the parties to the dispute. It may therefore alsobe applied to the detriment of the individual in litis against his nationaladministration, and it may also be applied in a dispute between two privateparties, provided the fundamental principle of legitimate expectations (seesection 2.2) is respected.

5.6 National time-limits

In its Emmott judgment,161 the Court of Justice held that a Member State whichhas failed to transpose a directive correctly cannot rely on its national time-limits

158. Pfeiffer and Others, paragraph 116.159. See judgment in Case C-105/03 (Pupino), paragraph 47. That judgment related to a Framework

Decision based on the EU Treaty. However, the quotation also applies to directives under theTFEU.

160. The Court of Justice has held that “[t]he principle of interpretation in conformity with directivesmust be followed [by a national court] in particular where a [Member State] considers ... that thepre-existing provisions of its national law satisfy the requirements of the directive concerned”with the result that it did not believe it necessary to transpose the directive into national law.Case C-334/92 (Wagner Miret), paragraph 21. See also Case C-212/04 (KonstantinosAdeneler).

161. Case C-208/90 (Emmott).


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to bar proceedings by individuals claiming their Community rights under a directlyapplicable directive provision (see further this section below). In its Francovich andBonifaci judgments,162 the Court of Justice further held that a Member State may,under certain conditions, be held liable for damages arising from the failure of thatMember State to transpose correctly a directive into national law by the end of theperiod prescribed. (See further section 5.7. In section 5.8 we deal with theobstacles which Member States have put forward against their liability to paydamages.)

The Emmott case concerned Irish national Theresa Emmott, who claimed socialsecurity benefits under a directly applicable provision of the Equal TreatmentDirective163 which had not been correctly transposed into Irish law. She failed,however, to do so within the national statutory time-limit for bringing such claim.It was only after the delivery on 24 March 1987 of the judgment of the Court ofJustice in the McDermott and Cotter case164 that she seems to have realized thatthe Directive had given a right to equal treatment which she had been entitled toexercise since 23 December 1984. Some days after the delivery of that judgmentshe entered into correspondence with the Minister for Social Welfare to obtain thebenefit of the provisions of the Directive with effect from 23 December 1984. TheIrish authorities replied that, so long as the High Court had not settled the questionof the retroactivity of the benefits to 23 December 1984 in the McDermott andCotter case, no decision could be taken in her case at the same time they let it beunderstood that her application would be considered as soon as that case wassettled. In January 1988, Ms Emmott finally instructed solicitors who in Julyobtained leave to bring an action before the High Court subject to therespondents’ right to plead failure to observe the procedural time-limits. When thelatter did so plead, the High Court referred its question to this Court of Justice. TheCourt held:

18. According to the third paragraph of Article 189 of the EEC Treaty, a directive is tobe binding, as to the result to be achieved, upon each Member State to which it isaddressed, but is to leave to the national authorities the choice of form and methods.Although that provision leaves Member States free to choose the ways and means ofensuring that a directive is implemented, that freedom does not affect the obligation,imposed on all the Member States to which a directive is addressed, to adopt, withinthe framework of their national legal systems, all the measures necessary to ensure thatthe directive is fully effective, in accordance with the objective which it pursues (seejudgment in Case 14/83 Sabine van Colson and Elisabeth Kamann v. LandNordrhein-Westfalen).

162. Joined Cases C-6/90 and C-9/90 (Francovich and Bonifaci).163. Council Directive 79/7/EEC of 19 December 1978 on the progressive implementation of the

principle of equal treatment for men and women in matters of social security, OJ 1979,. L 6, p.24.

164. judgment of 24 March 1987, in Case 286/85 (Norah McDermott and Ann Cotter).


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19. In this regard it must be borne in mind that the Member States are required toensure the full application of directives in a sufficiently clear and precise manner sothat, where directives are intended to create rights for individuals, they can ascertainthe full extent of those rights and, where necessary, rely on them before the nationalcourts (see, in particular, judgment in Case 363/85 Commission v. Italy).

20. Only in specific circumstances, in particular where a Member State has failed totake the implementing measures required or has adopted measures which are not inconformity with a directive, has the Court recognized the right of persons affectedthereby to rely, in judicial proceedings, on a directive as against a defaulting MemberState. This minimum guarantee, arising from the binding nature of the obligationimposed on the Member States by the effect of directives, cannot justify a MemberState absolving itself from taking in due time implementing measures appropriate to thepurpose of each directive (see judgment in Case 102/79 Commission v. Belgium).

21. So long as a directive has not been properly transposed into national law,individuals are unable to ascertain the full extent of their rights. That state of uncertaintyfor individuals subsists even after the Court has delivered a judgment finding that theMember State in question has not fulfilled its obligations under the directive and evenif the Court has held that a particular provision or provisions of the directive aresufficiently precise and unconditional to be relied upon before a national court.

22. Only the proper transposition of the directive will bring that state of uncertainty toan end and it is only upon that transposition that the legal certainty which must exist ifindividuals are to be required to assert their rights is created.

23. It follows that, until such time as a directive has been properly transposed, adefaulting Member State may not rely on an individual’s delay in initiating proceedingsagainst it in order to protect rights conferred upon him by the provisions of the directiveand that a period laid down by national law within which proceedings must be initiatedcannot begin to run before that time.

24. The answer to the question referred to the Court must therefore be that Communitylaw precludes the competent authorities of a Member State from relying, inproceedings brought against them by an individual before the national courts in orderto protect rights directly conferred upon him by Article 4(1) of Directive 79/7, on nationalprocedural rules relating to time-limits for bringing proceedings so long as that MemberState has not properly transposed that directive into its domestic legal system.

Thus, the Court of Justice decided that until a State has transposed a directiveproperly it cannot invoke its national time-limits. In later decisions, starting withCase C-338/91 (Steenhorst-Neerings)165 the Court has limited the scope of

165. Ms Steenhorst-Neerings gave up work altogether in 1963 on account of a lung complaint and,for that reason, received invalidity benefits. She was, however, not entitled to benefits forincapacity for work because the Nederlandse Algemene Arbeidsongeschiktheidswet (“theAAW”), which came into force in 1976, applied only to men and unmarried women. A law of 20December 1979, which came into force on 1 January 1980, extended that entitlement tomarried women provided that their incapacity for work commenced after 1 October 1975, sothat Ms Steenhorst-Neerings did not in principle qualify. The Court of Justice held thatCommunity law does not preclude the application of a national rule of law according to which


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Emmott and allows a Member State to invoke national time-limits whenrepayments are claimed of taxes levied contrary to Community rules. CaseC-228/96 (Aprile II) concerned the repayment of customs duties, which the Courthad previously ruled were excessively high and unlawful. The Court of Justiceheld:

34. … Community law does not preclude the application of a national provision which,for all actions for repayment of customs charges, imposes a special time-limit of five,and subsequently three, years, instead of the ordinary limitation period of 10 years foractions for the recovery of sums paid but not due, provided that that time-limit, whichis similar to that imposed for certain taxes, applies in the same way to actions basedon Community law for repayment of such charges as to those based on national law.…

40. It is true that in paragraph 23 of Emmott, cited above, the Court held that, until suchtime as a directive has been properly transposed, a defaulting Member State may notrely on an individual’s delay in initiating proceedings against it in order to protect rightsconferred on him by the provisions of a directive and that a period laid down by nationallaw within which proceedings must be initiated cannot begin to run before that time.

41. However, as was confirmed by the Court in paragraph 26 of Johnson, it is clear fromthe judgment in Steenhorst-Neerings, that the solution adopted in Emmott was justifiedby the particular circumstances of that case, in which a time-bar had the result ofdepriving the plaintiff in the main proceedings of any opportunity whatever to rely onher right to equal treatment under a Community directive (see also Haahr Petroleum,paragraph 52, and Joined Cases C-114/95 and C-115/95 Texaco and OlieselskabetDanmark, paragraph 48).

42. The Court thus held in Fantask and Others, cited above, that Community law doesnot prevent a Member State which has not properly transposed Council Directive69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital (OJ,English Special Edition 1969 (II), p. 412) from resisting actions for repayment of dutieslevied in breach thereof by relying on a limitation period under national law of five yearsreckoned from the date on which those duties became payable.

43. In this case, it does not appear from the documents before the Court and thearguments presented at the hearing that the conduct of the Italian authorities, inconjunction with the existence of the contested time-limit, had the effect, as it did inEmmott, of depriving the plaintiff company of any opportunity of enforcing its rightsbefore the national courts.

44. Moreover, it is clear from the case-law of the Court (Haahr Petroleum, paragraph 53,and Texaco and Olieselskabet Danmark, paragraph 49) that the solution adopted inEmmott is not applicable to claims for repayment not based on the direct effect of a

benefits for incapacity for work are payable no more than 1 year before the date of claim, in thecase where an individual seeks to rely on rights conferred directly, with effect from 23 December1984, by Article 4(1) of Council Directive 79/7/EEC concerning the prohibition of discriminationon grounds of sex in matters of social security and where, on the date the claim for benefit wasmade, the Member State concerned had not yet properly transposed that provision intonational law.


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directive. Even though the Court, in Aprile I, gave a ruling as to the scope of Directive87/53, it is clear from the documents now before the Court that the incompatibility ofthe charges at issue with Community law derives not from a failure to implement, orincorrect transposition of, that directive but from infringement of the provisions of theTreaty or of other directly applicable Community instruments.

45. The answer to the third and fourth questions must therefore be that, incircumstances such as those of the main proceedings, Community law does notprohibit a Member State from resisting actions for repayment of charges levied inbreach of Community law by relying on a time-limit under national law even if thatMember State has not yet amended its national rules in order to render themcompatible with those provisions.

The Emmott case is limited to its facts, i.e. to a situation in which the MemberState had given the citizen the impression there would be no problem withtime-limits, thereby later making it impossible for her to claim her Communityrights.

The Metallgesellschaft case166 suggests that the Court of Justice in certaincircumstances may still bypass national procedural access limitations.Metallgesellschaft had not applied for group income election, as it was notavailable for groups with foreign parent companies, resulting in an obligation topay advance corporation tax (ACT). Under group income election a subsidiarydoes not pay ACT on the dividends which it pays to its parent company. The UKgovernment argued that Metallgesellschaft could not claim damages as it hadfailed to apply for group income election. Although that application would certainlyhave been turned down, the decision of the tax administration would haveprovided it with access to a procedure in which it would have been able to invokeits alleged EC rights. Its claim should therefore not be admissible. Moreover, suchclaim would circumvent the liability conditions set by the Court of Justice in itsFrancovich and Brasserie judgments (see further section 5.7). The Courtdismissed the plea:

105. It ... appears that ... the United Kingdom Government is blaming the plaintiffs forlack of diligence and for not availing themselves earlier of legal remedies other thanthose which they took to challenge the compatibility with Community law of thenational provisions denying a tax advantage to subsidiaries of non-resident parentcompanies. It is thus criticising the plaintiffs for complying with national legislation andfor paying ACT without applying for the group income election regime or using theavailable legal remedies to challenge the refusal with which the tax authorities wouldinevitably have met their application.

106. The exercise of rights conferred on private persons by directly applicableprovisions of Community law would, however, be rendered impossible or excessivelydifficult if their claims for restitution or compensation based on Community law wererejected or reduced solely because the persons concerned had not applied for a tax

166. Joined Cases C-397/98.


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advantage which national law denied them, with a view to challenging the refusal of thetax authorities by means of the legal remedies provided for that purpose, invoking theprimacy and direct effect of Community law.

This suggests that a taxpayer does not need to challenge a tax assessment heconsiders incompatible with EC law if he may reasonably assume that the taxadministration will surely not concur with his objections, and may apply fordamages caused by a breach of EC law irrespective of the fact that within a certainnational time-limit, he could have raised objections to the assessment. Apparently,a Member State cannot blame a taxpayer for not entering into an objectionprocedure against an assessment which is in accordance with national law if it iscertain that the tax administration will not share his view that national law is atodds with EC law. This would partly re-enter Emmott on the scene.

It has been suggested that probably the Court of Justice consideredMetallgesellschaft to be in a position comparable to Ms Emmott, unable toexercise its EC rights under the normal national procedures available.167 The UKnational tax procedure, therefore, did not comply with the effectivenessrequirement. The facts of the case thus after all proved Metallgesellschaft not tobe a bomb under the Member State’s time-limits for appeals againstadministrative decisions, but rather just another application of the Court’seffectiveness doctrine. However, the Court reiterated paragraph 106 ofMetallgesellschaft in the recent Case C-524/04 (Thin Cap GLO), although in thatcase simple filing of the required tax return or the self-assessment would seem tohave availed the taxpayer of fully effective appeal possibilities. Future case law willhave to clarify the scope of this development.

In section 2.4, we have seen that the Court of Justice held in Marks & Spencer Ithat national legislation curtailing the period within which recovery may be soughtof sums charged in breach of Community law is, subject to certain conditions,compatible with Community law. First, it must not be intended specifically to limitthe consequences of a judgment of the Court of Justice to the effect that nationallegislation concerning a specific tax is incompatible with Community law.Secondly, the time set for its application must be sufficient to ensure that the rightto repayment is effective. In that connection, the Court of Justice has held thatlegislation which is not in fact retrospective in scope complies with that condition.The following case deals with the question whether the time set is sufficient.

Case C-255/00 (Grundig Italiana)

In this case the Tribunale di Trento (District Court, Trento) referred to the Court ofJustice for a preliminary ruling a question on the interpretation of the principles ofCommunity law relating to the recovery of sums paid but not due. That questionarose in proceedings between Grundig Italiana and the Ministero delle Finanze

167. See Terra/Wattel, European Tax Law, fifth edition, Kluwer Deventer 2008, chapter 3.5.3.2.


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(Finance Ministry) concerning the reimbursement of sums paid by way of aconsumption tax on audiovisual and photo-optic goods introduced by Article 4 ofDecree-Law No. 953 of 30 December 1982, converted into Law No. 53 of28 February 1983. The consumption tax was levied from 1 January 1983 to31 December 1992. By summons served on 22 July 1993, Grundig Italianaclaimed repayment of the consumption tax which it had paid throughout thatperiod in respect of audiovisual goods coming from Member States other than theItalian Republic, and in the main from the Federal Republic of Germany. Thedispute in the main proceedings had already led the Tribunale di Trento to referone question to the Court of Justice for a preliminary ruling. That referenceresulted in the Court’s judgment of 17 June 1998 in Case C-68/96 (GrundigItaliana).

The Tribunale di Trento’s question in that reference was whether Article 95 of theEC Treaty (now Article 110 TFEU) must be interpreted as prohibiting a MemberState from introducing and collecting a national consumption tax of the kindreferred to above, in so far as different taxable amounts are determined fordomestic products and for those imported from other Member States anddifferent procedures are laid down for collection of the tax on the same products.

In answer to that question the Court of Justice ruled that Article 95 of the ECTreaty must be interpreted as precluding a Member State from introducing andlevying a consumption tax in so far as the taxable amount and the procedure forcollecting the tax are different for domestic products and for products importedfrom other Member States.

Following that reply from the Court of Justice, Grundig Italiana applied to theTribunale di Trento for the proceedings to be continued. The Ministry of Finance,however, objected that Grundig Italiana had applied for reimbursement out of timein so far as concerned some of the payments. It is on the basis of the provision,Article 29(1) of Law No. 428/1990, that the Ministry of Finance sought adeclaration that the action in the main proceedings was time-barred in so far asit related to taxes paid more than 3 years before the action was brought, that isto say, payments made before 22 July 1990. The Ministry of Finance also pleaded,in the alternative, the 5-year limitation period laid down in the last paragraph ofArticle 4 of Law No. 53/1983. The Tribunale di Trento had already ruled in theMinistry’s favour on the latter point. The national court did, however, entertaindoubt as to whether the 3-year time-limit laid down in Article 29(1) of Law No.428/1990 was consistent with the principles of Community law relating to therecovery of payments made but not due, in that it has been pleaded in oppositionto a claim for reimbursement of sums paid before its entry into force.

The national court emphasized that the Court of Justice has itself held time-limitsof 3 years and even 1 year to be reasonable, but that, in view of the 90-daytransitional period preceding the shortening of the time-limit in the present case,it found it necessary to refer the question for a preliminary ruling whether a


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national provision is compatible with Community law and in particular with theoften stated principle of effectiveness (inter alia, referring to Case C-231/96(Edis)168) where it lays down a period of grace of 90 days within which, in order toavoid the 3-year time-limit [decadenza triennale] introduced retroactively in placeof a previous 5-year limitation period [prescrizione quinquennale], a party enjoyinga right under Community law to recover a sum paid but not due resulting from apayment made prior to the entry into force of the said provision must bring a legalaction.

The Court of Justice observed the following. In the absence of Community ruleson the recovery of national charges levied though not due, it is for the domesticlegal system of each Member State to designate the courts and tribunals havingjurisdiction and to lay down the detailed procedural rules governing actions forsafeguarding rights which individuals derive from Community law, provided, first,that such rules are not less favourable than those governing similar domesticactions (principle of equivalence) and, secondly, that they do not render virtuallyimpossible or excessively difficult the exercise of rights conferred by Communitylaw (principle of effectiveness).169

As regards the latter principle, the Court of Justice has held that it is compatiblewith Community law to lay down reasonable time-limits for bringing proceedingsin the interests of legal certainty which protects both the taxpayer and theadministration concerned. Such time-limits are not liable to render virtuallyimpossible or excessively difficult the exercise of rights conferred by Communitylaw. In that regard, a time-limit of 3 years under national law, reckoned from thedate of the contested payment, appears reasonable.170

Nor does the principle of effectiveness present an absolute bar to the retroactiveapplication of a new period for initiating proceedings that is shorter and, as thecase may be, more restrictive for the taxpayer than the period previouslyapplicable, and that is so where such application concerns actions for therecovery of internal taxes contrary to Community law which have not yet been

168. In this case questions were raised in proceedings between Edilizia Industriale Siderurgica Srl(Edis), previously a public limited company and now a private limited company, and the ItalianMinistry of Finance concerning the tassa di concessione governativa (administrative charge) forentering companies on the register of companies. The Court of Justice held: “26. The answerto the first question must therefore be that the fact that the Court has given a preliminary rulinginterpreting a provision of Community law without limiting the temporal effects of its judgmentdoes not affect the right of a Member State to impose a time-limit under national law withinwhich, on penalty of being barred, proceedings for repayment of charges levied in breach ofthat provision must be commenced. … 44. It is clear from the answer given to the secondquestion that Community law does not in principle prohibit a Member State from resistingactions for repayment of duties levied in breach of Community law by relying on a time-limitunder national law of three years.” [BT/JK]

169. See, inter alia, Case C-228/96 (Aprile), paragraph 18.170. See Aprile, paragraph 19.


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Documents

Chapter 5 Effectiveness of EU (Indirect Tax) Law 5 Effectiveness of EU (Indirect Tax) ... importance for the actual harmonization of indirect taxes within the European ... of the constitutional