Strict limits on a Member State's right to limit effect of Judgment of ECJ
The European Court of Justice (ECJ) has handed down its decision in Meilicke (C292/04). The ECJ has rejected an attempt by the German government to limit the financial consequences of an adverse ECJ decision by limiting the application of the decision to dividends paid after a specified date. The ECJ did so on the basis that it would only limit the temporal effects of a judgment in the case that establishes the legal principle in issue. As the substantive point of EU law had been dealt with in previous decisions of the ECJ (in Verkooijen and Manninen) it was not appropriate to place a temporal limitation on the effect of its decision in this case.
The facts of the case were simple. Mr. Meilicke was an individual resident in Germany and received dividends in respect of shares he held in Dutch and Danish companies. The dividends were paid prior to the 2001 tax year, which was the date that Germany amended its domestic law so as to bring it into line with EU law. Under the old German law no imputation credit was available on dividends received form non-German companies but was available for dividends from German companies. Advocate General Tizzano opined that the German domestic legislation was in breach of Article 56 EC Treaty (free movement of capital) because granting credit only on dividends from German companies made investment in foreign companies less attractive than in German companies.
The Advocate General also opined that a temporal limitation on the effect of an ECJ judgment would only be appropriate in exceptional circumstances; essentially, where the absence of a temporal restriction would have grave economic consequences for the member state and there is uncertainty in respect of the application of the relevant community law provisions. A few years prior to the decisions of the ECJ in Verkooijen and Manninen the European Commission had informed the German government that the German rules were incompatible with the EC Treaty but had not taken any further action until after Germany had amended its domestic law. On this basis the uncertainty requirement had been met. In addition the estimated €5 billion put forward by the German government as being the level of the potential tax refunds met the "grave economic consequences" test.
Given the importance of the limitation point the case was reassigned to the Grand Chamber of the ECJ and a further oral hearing took place. Advocate General Stix-Hackl gave a second opinion. Essentially, she applied the same test as Advocate General Tizzano - a temporal limitation is only available where there is a risk of serious economic consequences and there is objective and significant uncertainty regarding the implications of EC law. However, she reached a different conclusion. The onus was on member states requesting a temporal limitation to demonstrate and adduce evidence that the conditions of the test were satisfied. In her opinion the German government had failed to produce sufficient evidence concerning the risk of serious economic consequences. She also rejected the contention that because the European Commission did not instigate infringement proceedings against Germany that this necessarily meant that there had been an "objective legal uncertainty". The Commission had throughout the relevant period sought to bring about a change in German domestic law through non-litigious persuasion.
In a short judgment the ECJ had little difficulty finding that the old German law was incompatible with Article 56 EC Treaty (which had essentially been accepted by the German government since it had already amended its law in this area). On the temporal limitation point the ECJ confirmed that it is only in exceptional cases that the effects of its judgment would be limited in this way (as indicated by the test referred to in the opinion of both Advocates General). The ECJ then also made it clear that there will only be a single occasion when there is an opportunity for this limitation to be applied; that occasion is the judgment that establishes the principle of EU law that disposes of the substantive point in issue in the case. In this case the ECJ had already established the EU principle of law that was applicable to the taxation of dividends received by individuals from non-resident companies in Verkooijen. The implication therefore is that the German government (in the absence of any other government running the argument) should have intervened in the Verkooijen case and raised the limitation argument then.
Although a member state may intervene to put arguments before the ECJ in a case in which it is not directly involved (and indeed there is increasing evidence of collaboration between member states in litigation before the ECJ) this case makes it clear that the ability of a member state to restrict the temporal effects of a judgment of the ECJ are limited.
