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ECJ Advocate General Issues Opinion On Temporal Effects Of Dividend Ruling

by Ulrika Lomas, for LawAndTax-News.com, Brussels

09 October 2006


Delivering an opinion in the case of Meilicke and Others v Finanzamt Bonn-Innenstadt last Thursday, European Court of Justice Advocate General Christine Stix-Hackl proposed that the temporal effects of the judgment in Meilicke regarding the compatibility of German provisions on the taxation of dividends should not be limited, as the German authorities have not adduced sufficient evidence of serious economic repercussions.

The German Income Tax Law provided for a tax credit for dividends. It is a mechanism by which taxpayers can deduct a percentage of dividends paid to them by German companies. This rule does not apply to dividends paid by companies established in other Member States.

Between 1995 and 1997 Heinz Meilicke, a German national living in Germany, received dividends on shares he held in Dutch and Danish companies. In 2000 the heirs of Mr Meilicke, who had died in the meantime, applied unsuccessfully to the Finanzamt Bonn-Innenstadt for a tax credit in respect of those dividends.

The Finanzgericht Köln, to which they then appealed, referred a question to the Court of Justice of the European Communities asking whether the provisions of Community law on the free movement of capital allowed tax rules such as the German rules.

In his Opinion of 10 November 2005, Advocate General Tizzano took the view that the German tax rules were incompatible with the free movement of capital within the meaning of the EC Treaty. However, the conditions for a limitation of the temporal effects of such a ruling were met. In view of the amount of the reimbursement proposed at the time there would be a risk of serious economic repercussions if there were no limitation of temporal effects.

In view of the importance of the question of a possible limitation of the temporal effects of the judgment to be delivered, after the hearing of the Opinion the case was assigned to the Grand Chamber, which decided to reopen the oral procedure. Advocate General Stix Hackl has now put a second Opinion before the Court.

First, in the view of Stix-Hackl, the fact that the Court of Justice has already interpreted the relevant provisions of Community law in earlier judgments without limiting their temporal effects does not preclude an application for a limitation of the temporal effects of this judgment. The uncertain outcome of proceedings on a reference for a preliminary ruling on a new question of law makes it difficult for Member States to assess the significance of the proceedings concerned for their own legal system exactly and at the right time.

The Advocate General went on to point out that a limitation of the temporal effects of a judgment may only be ordered exceptionally, where there is a risk of serious economic repercussions and there was objective, significant uncertainty regarding the implications of Community law provisions. The Member State seeking a limitation of the temporal effects of a judgment must demonstrate and, if necessary, adduce evidence that both conditions are fulfilled.

The Advocate General voiced doubts as to whether the requirement of evidence is fulfilled as regards both conditions. However, the question whether there was objective, significant legal uncertainty, from the point of view, also, of the conduct of the Commission, can be left aside, since in any case the Federal Republic of Germany has not adduced sufficient evidence that a finding of incompatibility by the Court would create the risk of serious economic repercussions. The level of financial budgetary repercussions is not in itself sufficient evidence of such a risk.

Finally, she pointed to the possibility Member States have, even in the absence of a limitation of the temporal effects of the judgment, of laying down appropriate time limits for bringing a claim in the interests of legal certainty in order to protect both the taxpayer and the authorities.

In the majority of cases, the European Court of Justice follows the opinions issued by its Advocates General. However, this is not always the case, as can be seen in the recent ECJ ruling on Italy's IRAP regional production tax.


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