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On October 4, 2018, the Court of Justice of the European Union (“CJEU”) issued a ruling declaring, for the first time, the French Republic to be in breach of European Union law, because the Conseil d’État, or Council of State, whose decisions are not subject to judicial remedy, had not referred a question for a preliminary ruling to avoid an erroneous interpretation of EU law.Background
The CJEU’s judgment of October 4, 2018, can be traced back to its judgment of September 15, 2011, in the Accor Case (C-310/09). In that case, the CJEU ruled that the French Republic had breached its obligations under EU law, among other reasons because it introduced a difference in the tax treatment of dividends depending on the Member State in which a subsidiary was established.
On December 10, 2012, the Council of State issued two judgments (the Rhodia and Accor Cases) applying the CJEU’s Accor ruling. However, the Council of State also ruled on a point that had not been addressed in the CJEU’s judgment in Accor: the tax treatment applicable in the case of non-resident lower-level subsidiaries (sub-subsidiaries). The Council of State regarded this to be a different case, holding that the tax paid by a sub-subsidiary did not have to be considered when calculating the amount of advance tax payments for reimbursement to the parent company, without referring any new question for a preliminary ruling.
In response to these judgments by the Council of State (Rhodia and Accor), the European Commission (“EC”) received a series of complaints by companies adversely affected by that interpretation. After sending a reasoned opinion to the French Republic, the EC brought an action with the CJEU claiming a breach of EU law by the French Republic under article 258 of the Treaty on the Functioning of the European Union (“TFEU”).
Judgment of October 4, 2018 (Commission vs. France, C-416/17)
In its judgment of October 4, 2018, the CJEU declared that the French Republic had breached EU law, for two reasons.
First, the French Republic did not meet the obligations arising from articles 49 and 63 TFEU, under which, where Member States have a system for avoiding double taxation in the case of dividends received by resident companies, the States have to give equal treatment to dividends received from non-resident companies. This is because, when calculating reimbursements of advance payments to a resident parent company, the Council of State did not consider the tax on the profits underlying those dividends paid by a subsidiary not residing in the Member State in which it was established, and thus treatment was not equal.
Second, in a new finding, the CJEU declared that the French Republic had not met its obligations under the third paragraph of article 267 TFEU establishing the obligation on national courts to refer questions of interpretation of EU Treaties to the CJEU where there is no further judicial remedy against their decisions under national law.
However, based on the CJEU’s ruling in CILFIT, a national court is not obliged to refer questions for a preliminary ruling to the CJEU where (i) the question raised is irrelevant, (ii) the provision of EU law has already been interpreted by the CJEU, or (iii) correct application of EU law is so obvious as to leave no scope for reasonable doubt as to the solution to the question raised.
In the case at hand, the Council of State should have referred the question for a preliminary ruling to the CJEU before delivering its rulings of December 10, 2012, because the existence of reasonable doubt concerning the interpretation of applicable EU law could not be ruled out.
Significance of Commission vs. France
The novel aspect of this judgment is that it marks the first time the CJEU has declared a Member State responsible for breaching EU law due to a national court not referring a question for a preliminary ruling under the third paragraph of article 267 TFEU. The CJEU’s judgment of October 4, 2018 goes beyond the CILFIT ruling and compels national court’s whose decisions are not subject to further judicial remedy to deepen the consideration they have to give to referring questions for preliminary ruling to avoid potential proceedings against the State for infringing EU law.
Commission vs. France closes the circle of CJEU case law in relation to the consequences of national courts not meeting EU law. In 2009, the CJEU ruled that a single judgment by a court, not necessarily a line of case law, was capable of infringing EU law (Commission vs. Spain, C-154/08). In that case, the EC had questioned the Spanish Supreme Court’s failure to submit a reference for a preliminary ruling, but the CJEU did not allow that cause of action to proceed on grounds that it was untimely.
The judgment in Commission vs. France strengthens the EC’s role in overseeing the application of EU law. In the future, a party to national litigation that is harmed because a court has not referred a question for a preliminary ruling, despite being obliged to do so under the third paragraph of article 267 TFEU, will be able to apply to the EC to try to persuade it to start infringement proceedings against the Member State in question.
In view of the CJEU’s judgment in Commission vs. France, an increase can be expected in the number of references for preliminary rulings raised by national courts whose decisions are not subject to judicial remedy, because otherwise the CJEU could declare the Member State in question to have infringed EU law.
Read the judgment here.
Cristina Vila and Iratxe Aguirre
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