- This clash can also be interpreted from a different angle: the perspective of EU principles. Restitution is an integral element of the principle of effectiveness, whereas permitting Member States to apply the passing on defence springs from the principle of autonomy. Given the freedom to design recovery procedures, Member States are likely to protect their finances. Thus, it certainly should not come as a surprise that such a clash exists.
- For a discussion of the origin and meaning of restitution see, among others, Warren Seavey and Austin Scott, ‘Restitution’ (1938) 54 Law Quarterly Review 29, 31; Peter Birks, ‘A Letter to America: The New Restatement of Restitution' (2003) 3 Global Jurist Frontier 1; Chaim Saiman, ‘The Reemergence of Restitution: Theory and Practice in the Restatement (Third) of Restitution’, Villanova University School of Law Working Paper Series, Paper 60 (2006).
- See eg Case C-46/93 Brasserie du Pêcheur [1996] ECR I-1029.
- Case 199/82 Amministrazione delle Finanze dello Stato v SpA San Giorgio [1983] ECR 3595, [1985] 2 CMLR 658 (ECJ) [hereinafter San Giorgio], para 12. See also Joined Cases C-192/95 to C-218/95 Comateb and others [1997] ECR I-165, para 20; Cases C-397/98 and C-410/98 Metallgesellschaft and others [2001] ECR I-1727, para 84.
- Case C-242/95 GT-Link v DSB [1997] ECR I-4449; Case C-188/89 Foster v British Gas [1990] ECR I-3313, para 20.
- Inter alia, Case 26/62 Van Gend en Loos v Nederlandse Administratie der Belastingen [1963] ECR 1; [1970] CMLR 1.
- Inter alia, Joined Cases C-6/90 and C-9/90 Francovich and Bonifaci v Republic of Italy [1991] ECR I-5375; Brasserie (n 3). Note that, comparing it to the doctrine of direct effect, State liability presents a more complicated path for the taxpayer. For instance, there is uncertainty as to what it takes to overcome the sufficiently serious requirement. While failure to implement a directive within the time limit automatically constitutes a sufficiently serious breach, by and large it is up to the claimant to prove that other types of failure constitute serious harm. See, inter alia, Cases C-178, 179, 188, 189 and 190/94 Dillenkofer and others v Federal Republic of Germany [1996] ECR I-4845; Case C-5/94 R v Ministry of Agriculture, Fisheries and Food, ex parte Hedley Lomas (Ireland) Ltd [1996] ECR I-2553.
- Case 45/76 Comet [1976] ECR 2043.
- ibid.
- Case 61/79 Denkavit [1980] ECR 12.
- Case 106/77 Amministrazione dello Stato v Simmenthal SpA [1978] ECR 629.
- Case 14/83 Sabine von Colson and Elisabeth Kamann v Land Nordrhein-Westfalen [1984] ECR 1891.
- Magnus Strand, ‘The Defence of Passing On: Comparing Reasons in the Commission White Paper with those presented by the United States Antitrust Modernization Commission’ (Uppsala University, 2009). Paper presented at the 2009 Swedish Workshop on Competition Research, under the auspices of the Swedish Competition Authority, Stockholm, 24 April 2009. Note that while the defence of passing on is always a defence, the concept of passing on can be used not only as a defence, but also as basis for a claim. In some legal systems it can give rise to claims for the entity to whom the tax was passed on.
- ibid.
- Case 68/79 Hans Just I/S v Danish Ministry for Fiscal Affairs [1980] ECR 501, para 26: ‘The protection of rights guaranteed in the matter by Community law does not require an order for the recovery of charges improperly made to be granted in conditions which would involve the unjust enrichment of those entitled.’ See also, inter alia, Case 199/82 Amministrazione delle Finanze [1983] ECR 3595, para 3: ‘Community law does not prevent a national legal system from disallowing the repayment of charges which have been unduly levied where to do so would entail unjust enrichment of the recipients'; Case C-343/96 Dilexport Srl v Amministrazione delle Finanze dello Stato [1999] ECR I-579: ‘The Community legal order does not require the repayment of taxes, charges and duties levied in breach of Community law where it is established that the person required to pay such charges has actually passed them on to other persons.’
- San Giorgio (n 4).
- ibid. See also Cases C-331/85, 376/85 and 378/85 Bianco and Girard v Directeur Générale des Douanes et Droits Indirects [1988] ECR 1099, para 17.
- San Giorgio (n 4). See also Bianco and Girard, Ibid.
- Comateb (n 4).
- Case C-147/01 Weber's Wine World Handels-GmbH and others v Abgabenberufungskommission Wien [2003] ECR I-11365.
- Comateb (n 4).
- Case C-398/09 Lady & Kid A/S, Direct Nyt ApS, A/S Harald Nyborg Isenkram-og Sportsforretning, KID-Holding A/S v Skatteministeriet [2011].
- Case C-94/10 Danfoss A/S and Sauer-Danfoss ApS v Skatteministeriet [2011] ECR I-0000.
- San Giorgio (n 4).
- ibid, para 11. See also Dilexport (n 15) para 54; Bianco and Girard (n 17); Comateb (n 4); and Cases C-441/98 and 442/98 Michaïlidis [2000] ECR I-7145, paras 36–38.
- San Giorgio (n 4) para 14.
- ibid.
- Comateb (n 4) paras 27 and 28.
- Michaïlidis (n 25) para 34.
- Comateb (n 4) para 29. See also Michaïlidis (n 25) para 34.
- Michaïlidis (n 25) para 34.
- Weber's Wine World (n 20).
- ibid, para 118. Weber's Wine World Handels-GmbH was a wine dealer and the other claimant operated restaurants.
- ibid, para 113.
- ibid.
- ibid, paras 118 and 100.
- Lady & Kid A/S (n 22).
- ibid, para 20.
- ibid, para 24.
- Case C-94/10 Danfoss A/S and Sauer-Danfoss ApS v Skatteministeriet [2011].
- ibid, paras 28 and 29.
- ibid, para 28.
- See eg B Rudden and W Bishop, ‘Gritz and Quellmehl: Pass it On’ (1981) 6 European Law Review 243; MH Johnson, ‘AAA Refunds: A Study in Tax Incidence’ (1937) 37 Columbia Law Review 910; Otto von Mehring, The Shifting and Incidence of Taxation (Blakiston, 1942) 86, 87.
- For detailed discussion of elasticity see, inter alia, George Zodrow, ‘Who Pays the Property Tax?’ (2006) 18 Land Lines, N 2; HA Silverman, Taxation: Its Incidence and Effects (Macmillan, 1931).
- In economics elasticity means the ratio of the percent change in one variable to the percent change in another variable. For example, as price increases how much does demand change?
- Zodrow (n 44).
- Paul Michell, ‘Restitution, “Passing On,” and the Recovery of Unlawfully Demanded Taxes: Why Air Canada Doesn't Fly’ (1995) 53(1) University of Toronto Faculty of Law Review 130, 160.
- ibid.
- Zodrow (n 44).
- Jacob Nussim, ‘On a Pass on Pass on Defense: Unjust Enrichment and the Recovery of Overpaid Taxes', Bar Ilan University Public Law Working Paper No 06–2 (2006).
- ibid.
- Benjamin Alarie, ‘Kingstreet Investments: Taking a Pass on the Defence of Passing On’ (2007) 46 Canadian Business Law Journal 36.
- The idea being that the taxpayer merely served as a middleperson through which taxes were transferred to the tax authority. See William J Woodward Jr, ‘“Passing-on” the Right to Restitution’ (1985) 39 University of Miami Law Review 873, 885–909.
- ibid.
- For instance, the defence of passing on is available in competition law in, among other countries, Denmark, France and Italy; and in tax laws in a large number of countries.
- Mitchell McInnes, ‘At the Plaintiff's Expense: Quantifying Restitutionary Relief’ (1998) 57 Cambridge Law Journal 472.
- Mitchell McInnes, Ross B Grantham and Charles EF Rickett, ‘Disgorgement for Unjust Enrichment?’ (2003) 62 Cambridge Law Journal 159.
- Gareth H Jones, Review of Palmer, ‘The Law of Restitution’ (1979) 38 Cambridge Law Journal 212.
- ibid. ‘Unless restitution for their benefit can be worked out, it seems preferable to leave the enrichment with the tax authority instead of putting the judicial machinery in motion for the purpose of shifting the same enrichment [of the state] to the taxpayer.’
- Peter Birks, Restitution: The Future (Federation Press, 1992).
- Alarie (n 52).
- Michael Rush, The Defence of Passing On (Hart Publishing, 2006).
- AG Mancini in the San Giorgio Advisory Opinion (n 4).
- AG Tesauro in Comateb (n 4) para 21.
- ibid.
- The author is well aware that not in all instances where the State denies restitution will it be better off than if it had not broken the law in the first place. The intrinsic nature of VAT means that under certain circumstances the State may deny restitution to prevent its own impoverishment. The Court, for instance, in Case 566/07 Staatssecretaris van Financiën v Stadeco BV [2009] ECR 5295, permitted conditioning restitution on the claimant's issuing a new invoice to taxpayers downstream, so as to prevent both taxpayers along the chain from obtaining a benefit that only one should get. Likewise, in Case 207/87 Gerd Weissgerber v Finanzamt Neustadt/Weinstrasse [1988] ECR 4433, the Court noted that ‘an exemption claimed a posteriori can negatively disrupt taxpayers in a business relationship with the person exempted from the tax’. In both cases the Court noted that it was not acting on the basis of the unjust enrichment doctrine.
- Rush (n 62).
- Woodward (n 53) 885–909, 901.
- Graham Virgo, The Law of Taxation is Not an Island—Overpaid Taxes and the Law of Restitution' [1993] British Tax Review 442.
- Mitchell McInnes, ‘The Canadian Principle of Unjust Enrichment: Comparative Insights into the Law of Restitution’ (1999) 37 Alberta Law Review 1, 20–23.
- Robert Goff and Gareth Jones, The Law of Restitution (Sweet & Maxwell, 6th edn 2002); Ross B Grantham and Charles EF Rickett, Enrichment & Restitution In New Zealand (Hart Publishing, 2000).
- Rush (n 62) 165.
- See Ross B Grantham and Charles EF Rickett. ‘A Normative Account of Defences to Restitutionary Liability’ (2008) 67 Cambridge Law Journal 92, 118; Birks (n 60) 715.
- Rush (n 62) 146.
- Nussim (n 50) correctly points out that it is typically impossible or prohibitively costly to identify the consumers and, in most cases, the individual consumer has no incentive to seek restitution for his part of an excessive tax as the restitution he can expect is typically very small in relation to the cost of bringing such a claim.
- AG Tesauro in Comateb (n 4) para 21.
- ibid.
- Birks (n 60).
- See, among others, San Giorgio (n 4) para 14. See also Denkavit (n 10), noting that national procedures must not make it impossible or excessively difficult for individuals to exercise their EU rights.
- Comateb (n 4); Weber's Wine World (n 20).
- Comateb (n 4) para 97.
- The Court by and large seems to be adopting the views of AG Jacob in Weber's Wine World (n 20) para 60.
- Weber's Wine World (n 20).
- See AG Tesauro in Comateb (n 4) para 21; AG Mancini in San Giorgio (n 4).
- Rush (n 62).
- Zodrow (n 44).
- Lady & Kid A/S (n 22) para 24.
- AG Tesauro in Comateb (n 4) para 21.
- Damian Chalmers, Gareth Davies and Giorgio Monti, European Union Law: Cases and Materials (Cambridge University Press, 2nd edn 2010) 278, referring to Case C-39/94 SFEI [1996] ECR I-3547; Case C-71/04 Xunta de Galicia [2005] ECR I-7419.
- von Colson (n 12) para 17; Case C-271/91 Marshall [1993] ECR I-4367, para 49.
- Note that there are also alternative schemes that are employed to avoid the enrichment of the State. One alternative is for the State to give back the overpaid taxes to the claimant but have the claimant keep it on a constructive trust. Such schemes, however, present a problem in EU law, particularly when the directive does not give rise to a horizontal cause of action.
- As mentioned earlier, the cost of recovery compared with the cost of litigation may make the latter prohibitive.
- AG Mancini in San Giorgio (n 4).
- For instance, in Stadeco (n 66) the Court conditioned the refund on the claimant issuing a new invoice.
- That is, without even considering that the State liability principle is also full of uncertainties and provides a difficult venue for consumers to recover.
- Case C-5/94 R v Ministry of Agriculture, Fisheries and Food, ex parte Hedley Lomas [1996] ECR I-2553.
- Stadeco (n 66); Weissgerber (n 66).
World Journal of VAT/GST Law
Volume 1, 2012 - Issue 1
![Supercharge Your Next Research Paper: Research and write your next paper with Jenni AI.]({"type":"image" , "src" : "/sda/112446/MPU-L1EB.png"})