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Saturday, 27th April 2024 |
| EU and retrospective legislation |
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| A European Court of Justice case may reinforce objections to retrospective taxation legislation . The case is based on EU principles of law which are similar to provisions of our Irish constitution and therefore has a potentially wide scope. |
The Advocate General of the European Court of Justice has given his opinion in the Marks & Spencer case. Marks & Spencer had overpaid VAT for many years. A subsequent clarification in a court case of the VAT on certain of its products highlighted this fact. Marks & Spencer applied to have the overpayments repaid to them.
Before their application was dealt with the UK retrospectively amended the law to limit applications for repayments to overpayments in the previous three years. This effectively denied Marks & Spencer much of their entitlement to repayment.
Marks & Spencer appealed to the ECJ on the grounds that the retrospective shortening of the time limit for making claims was illegal under EU law. The issue was not whether having a time limit for the making of claims was illegal. The Advocate General noted that prior case law of the ECJ clearly permitted member states to introduce their own rules regarding time limits for claims. The issue rather was that an existing time limit was curtailed with retroactive effective.
Effectiveness principal
The Advocate General reviewed case law on retrospective national measures. He said ‘The ratio of that case law is that conferring retroactive effect on national legislative provisions, which makes the bringing of claims under community law for repayment of charges levied in breach of that law subject to stricter conditions, renders it wholly or in part impossible in practice for taxpayers to exercise their rights in that connection. Consequently the rights which did derive from the direct effect of community law lose their effectiveness.
The principle of effectiveness does not merely preclude the retroactive limitation of claims for recovery in the case of persons who under the currency of the previously applicable rules had already made a claim for payment as in the case of Marks & Spencer, but also of claims which could still validly have been made under the terms of the previously applicable rules.’
The principle of effectiveness referred to above is one of the principles of law discovered by the ECJ. It could be broadly described as a prohibition on national legislative measures which in effect, deny rights conferred under community law even though they may not formally appear to do so. The obvious example above is the imposition of a time limit for making a claim for rights under community law where the time limit is such that it is practically impossible to comply with. The fact that national law has not over-ridden the rights under community law will not then be sufficient - if the net effect is that the rights can’t be claimed in practice, then the national law is invalid.
Legitimate expectation
The Advocate General went on to consider an alternative grounds of claim by Marks & Spencer. This was that their legitimate expectations were being breached. The Advocate General said ‘The principal features of the ECJ’s case law on the principle of protection of legitimate expectations are as follows:
• First of all the court has held in a series of judgements that the principle, which stems from the principle of legal certainty, forms part of the community legal order. The principle requires legal rules to be precise and legal situations and relationships governed by community law to be foreseeable;
• Secondly, individuals cannot legitimately expect that the legal rules applicable to them will not be amended. The community legislature retains competence to adapt existing legislation to alter economic circumstances and to alter political, policy and social views;
• Thirdly, individuals may legitimately expect that rights created under existing rules will not be retroactively abridged. Only in very exceptional cases is it possible to derogate from this general principle, for example in the case of over-riding economic necessity relating to the management of common organisation of agricultural markets or on grounds of over-riding public interest.’
The Advocate General concluded that Marks & Spencer had a legitimate expectation that their right to make a claim for overpaid VAT within a six year period would not be retroactively removed and that therefore the limitation with retroactive effect to three years was a breach of their legitimate expectations.
Human rights
The Advocate General declined to consider whether the retroactive legislation was also a breach of the Convention on Human Rights. The European Court of Human Rights has recently held that taxation per se is not within the convention (although taxation penalties are). The Advocate General did not refer to this recent decision. Instead he noted that ‘The European Court of Justice has noted that human rights form part of the general principles of community law and on that basis also affect the transposition and application of the community law by national authorities in the national legal order. This could provide grounds for examining whether and if so which fundamental rights are at stake in regard to the retroactive effect of United Kingdom legislation.
The principles of law that the Advocate General was setting out relate only to those areas which involve rights granted under European law. However many of the basic principles which under lie European community law (legitimate expectation, proportionality, human rights) are enshrined in our own constitution. Statements of the European Court of Justice on these principles can therefore be a very good guide to the position under the Irish constitution of other legal measures which are purely domestic in Ireland.
An opinion of an Advocate General can be overturned by the European Court of Justice. |
Niall Campbell is a ta partner with KPMG specialising in indirect taxes.
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| Article appeared in the February 2002 issue.
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