Saturday, July 15, 2006

Aren’t we all part of the same (EU) boat!

Hungary applies a registration tax on motor vehicles on their first entry into circulation in Hungary whether they are new or second-hand, purchased in Hungary or imported and/or brought in from another EU Member State *apparently this rule was changed or will be in the near future). The amount of the tax depends on the engine capacity, type of fuel used and emission standards. Nevertheless, the Hungarian registration tax does not take account of the depreciation undergone by the second-hand vehicle imported from another EU Member State. According to the recently issued opinion of Advocate General Sharpston (recently nominated to replace the former Advocate General Francis Jacobs, who retired at the end of December), it is clear from the Court’s case-law [that such treatment] is in principle contrary to the first paragraph of Article 90 EC (see point 62 of AG opinion on Case C-290/05).

But what grabbed my attention in this judgment was the part concerning the issue of limitation of the temporal effects. It is important to recall that this issue is central to two landmark cases still to be decided, the German Meilicke case and the Italian IRAP case. In the Meilicke the problem concerns the lack of tax credit in Germany for dividends received from foreign companies. In that case the Advocate General suggested that the ECJ put a temporal limitation to the application of its judgment to claims for reimbursement of unduly paid taxes. In the IRAP case regarding the incompatibility of the Italian Regional Tax (IRAP) with the EU VAT Sixth Directive the Advocate General also suggested a date for temporal limitation, namely the date of release of the conclusions of Advocate Jacobs (i.e. March 17, 2005). The reason for the use of that that was based on the fact that on that date the Italian Government learnt with a degree of certainty that IRAP was incompatible with the Sixth Directive. This has major impacts because if the ECJ follows such recommendation the decision would have effects only on claims raised before March 17, 2005.

In this case concerning the Hungarian registration tax the Advocate General does not consider that the existence of a risk of serious economic repercussions for Hungary has been proved, and therefore recommends the Court not to limit the temporal effect of its decision. In this case and rather surprisingly it was Poland and not Hungary that requested that, if the registration tax was to be found incompatible with EC Law, the Court should limit the temporal effect of that judgment (the spilling effects of other pending cases). Hungary simply got the message and raised the issue in the oral hearing! But the Advocate General did not close the book without mentioning that it would be undesirable if such a limitation were to be granted at the sole request of a different Member State!

Why should other EU states (in similar circumstances) be restricted to raise arguments on cases that may indirectly impact their revenue? After all aren’t we all part of the same (EU) boat! The conditions for budgetary instability, which can result from an ECJ decision cannot be said to affect only the State that is addressed in a particular case (in this case Hungary). Court cases in the area of tax have demonstrated in several instances that their consequences may easily spillover to other EU countries (e.g. Manninen). In addition, while Member States of the euro-zone are bound to the stability and growth pact (EMU) other States outside the euro-zone, are making an enormous effort to meet in the future those goals. Therefore, I see no problem in other countries (such as Poland) raising the issue of serious budgetary impact. The Advocate General simply needs to address whether there is serious budgetary impact or not.


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