3 steps to address EU National Courts’ Non-Compliance with ECJ Rulings on Free Movement of Capital and Withholding Tax

What investors can do when ECJ case law on free movement of capital and withholding tax is not being duly observed by EU National Courts and Tax Administrations.

Imagine an investor who challenges a discriminatory withholding tax practice and secures a favorable ruling from the CJEU. The CJEU’s decision confirms that the national tax practice violates EU law, ostensibly clearing the way for the investor to receive the same tax benefits as local investors. 

However, upon returning to the national court for implementation of this ruling, the investor faces new obstacles. The national court may interpret the facts or the local laws in such a way that the practical benefits of the CJEU ruling are nullified. For example, the national court might argue that the specific circumstances of the investor do not exactly match those considered by the CJEU, thus justifying a refusal to extend the tax benefit.

This scenario highlights a critical issue: despite the clear directives of the CJEU, national courts and tax administrations sometimes resist full compliance. Such resistance can take the form of delays, re-interpretation of facts, reassessment of refunds granted, or other means to avoid granting the benefits recognized by the CJEU. This undermines the principles of EU law and the free movement of capital, leaving investors in a challenging position

Here is what you can do if you find yourself in this situation.

1. Request Clarification and Enforcement from the Local Court

File an Appeal

If the local court’s decision applying the ECJ ruling to the facts can be appealed, this is your first step. The appeal should emphasize where the local court’s decision diverges from the CJEU’s ruling. Highlighting the binding nature of CJEU judgments on national courts can strengthen your case.

Steps:

  • Document inconsistencies between the local court’s decision and the CJEU’s ruling.
  • Emphasize that national courts are obligated to follow the CJEU’s interpretations of EU law.
  • Request that the appellate court aligns its decision with the CJEU’s established principles.

2. Bring the Case Back to the CJEU

Request a Preliminary Ruling

If the local court’s decision is final and non-appealable, you can request the local court to seek a preliminary ruling from the CJEU under Article 267 TFEU. This can clarify the interpretation and application of the CJEU’s ruling.

Steps:

  • Argue that significant questions about the application of EU law remain.
  • Highlight how the local court’s interpretation creates uncertainty or conflicts with EU law.
  • Encourage the local court to seek further clarification from the CJEU.

3. File a Complaint with the European Commission

Lodge a Formal Complaint

Submit a complaint to the European Commission if you believe a Member State has failed to comply with EU law as interpreted by the CJEU. The Commission can initiate infringement proceedings under Article 258 TFEU.

Steps:

  • Provide a detailed account of the discrimination and the local court’s non-compliance.
  • Include documentation of the CJEU’s favorable decision and the conflicting local court interpretation.
  • The Commission may then pursue infringement proceedings against the Member State.

In Conclusion

Institutional investors and other claimants facing non-compliance with CJEU rulings by national courts have several avenues to seek compliance. From appealing local court decisions to engaging the European Commission, these steps can help ensure that the principles of EU law are upheld. Consulting with legal professionals who specialize in EU law and cross-border taxation is crucial to navigating these complex legal processes effectively.

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