VAT Litigation in Italy: Union Loyalty vs. fundamental rights
Member States are obliged to take all necessary measures to ensure fulfillment of their obligations under EU law according to article 4(3) TEU. This includes taking all legislative and administrative measures appropriate for ensuring collection of VAT in conformity with the obligations imposed on Member States by the EU VAT Directive (Directive 2006/112/EC) and its predecessors (amongst which the Sixth Directive, 1977/388/EEC). One may ask whether national legislation, by which a national court is effectively prohibited to judge in certain long-lasting VAT disputes in favour of the tax authorities, complies with the Member State’s obligation to collect VAT. In the case Belvedere Construzioni Srl (Case C-500/10) this was under discussion vis-à-vis the principle of resolving judicial proceedings in tax matters within reasonable time under Article 6(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms. Somewhat hidden is furthermore the problem whether tax authorities can directly invoke an EU directive to set aside national law to the disadvantage of a taxpayer.
What is the case? Well, Italy has introduced a decree by which (in essence) courts have to conclude tax disputes automatically if the first actions in the dispute have been lodged more than ten years before the date of entry into force of the decree (at the 26th of May 2010) and if two courts have already decided in favour of the tax payer. By introducing the decree, Italy aimed to comply with the obligation to resolve judicial proceedings in tax matters within reasonable time under Article 6(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms. According to the decree, the referring court in the case at hand has to conclude the VAT dispute between Belvedere Construzioni Srl and the Italian tax authorities automatically in favour of Belvedere Construzioni Srl. However, the referring court calls into question the conformity of the decree with EU-law.
The circumstances in the Belvedere Construzioni Srl case are in more ways striking. The case concerns facts that have happened about thirty years ago, as the underlying dispute between the Italian tax authorities and Belvedere Construzioni concerns the assessment of VAT for 1982. Facts that have happened in 1980 and 1981 are of relevance for that assessment. Two lower courts have already ruled in favour of Belvedere Construzioni Srl, respectively in 1986 and 1990. The third court, the Commissione tributaria centrale, which, by the way, has been abolished in 1996, was apparently not capable to come to a judgement before the 26th of May 2010. Furthermore the disputed VAT amount is only about 11,500 Euros (22,264,000 ITL) and thus rather low. I suppose, however, that accumulated interests since 1982 exceed this amount by far and are the actual reason to proceed with the case for the Italian tax authorities.
Anyway, the ECJ does not need many considerations to judge the Belvedere Construzioni Srl case. According to the ECJ, the obligation for Member States to ensure collection of VAT cannot run counter the obligation to resolve judicial proceedings in tax matters within reasonable time, as required both by the second paragraph of Article 47 of the Charter of Fundamental Rights of the European Union and Article 6(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms. The length of proceedings in the Belvedere Construzioni Srl case is ‘a priori capable in itself of infringing the reasonable time principle and, moreover, the obligation to ensure the effective collection of the European Union’s own resources’ (par. 25). Furthermore the decree at hand is ‘not a general waiver of the collection of VAT for a certain period but an exceptional provision intended to ensure observance of the reasonable time principle’ (par. 26). This means that the decree is not precluded by EU law.
As this judgment seems perfectly logical, the question may rise why the case has been referred at all. The background is without any doubt the ECJ judgment in case C-132/06 (Commission vs. Italy). In that case the ECJ dealt with an Italian measure by which taxpayers could buy tax amnesty, including for VAT, for recently passed fiscal years for fairly low amounts. It was no surprise that, by introducing this measure, Italy was in breach with its obligations under EU law and in particular the Sixth Directive on the common VAT system (Directive 1977/388/EEC). As the ECJ recognizes (in par. 26), the scope of the measures in the cases Commission vs. Italy and Belvedere Construzioni Srl is entirely different. And although this difference clearly justifies the different judgments, it could be said that it is a lost opportunity that the ECJ has not devoted any attention in the Belvedere Construzioni Srl case to the question whether it is at all possible that tax authorities invoke EU law (a directive) to set aside a national measure of their own government to the disadvantage of a taxpayer. After all, if the Italian decree was precluded by EU law, then, in order to let such a judgment of the ECJ affect the outcome of the national proceedings, the decree had to be considered non-binding by the referring court. By doing so, the referring court would have remonstrated obligations of Italy under EU law against a taxpayer, i.e. Belvedere Construzioni Srl.
Interesting point, it seems paradoxical that a Member State can escape its obligations under EU law by actions that are entirely the Member State’s own fault. This would of course never work if Italy would have not breached fundamental rights. So if you make a serious mess, you have to pick the least worse option, e.g. not breaching fundamental rights. Of course, Union loyalty also entails the respect of fundamental rights, so I guess there is no hard conflict, but interesting stuff nonetheless!