Case C-209/13 United Kingdom v Council: Enhanced cooperation and transaction tax

The Court of Justice handed down an interesting judgment in Case C-209/13 United Kingdom v Council EU:C:2014:283 in what promises to be the first of a number of cases about the proposed common system of financial transaction tax. 

The United Kingdom took the matter to the Court of Justice as a precautionary matter. It lost.

What happened was this. 

The Commission adopted a proposal (COM(2011) 594 final) for a Council Directive on a common system of financial transaction tax back in 2011 (the 2011 proposal). Negotiations stalled and it was clear from meetings of the European Council in the summer of 2012 that no agreement on it could be reached.

In the autumn of 2012, 11 Member States informed the Commission that they wanted to have enhanced cooperation between themselves to set up the transaction tax. The Commission thus made proposal to the Council for enhanced cooperation and the Council adopted it by Decision 2013/52/EU (OJ  2013 L 22, p. 11), the contested decision. That Decision does two things. First, it authorises the 11 participating Member States to establish enhanced cooperation between themselves in the area of the establishment of a common system of financial transaction tax. Second, it provides that it is to enter into force on the day of its adoption.

Then in February 2013, the Commission adopted a proposal for a Council Directive implementing enhanced cooperation in the area of financial transition tax (COM/2013/071 final) (the 2013 proposal).

The United Kingdom brought an action to annul Decision 2013/52/EU authorising the enhanced cooperation because it allows for the adoption of a transaction tax with extraterritorial effect. That extraterritorial effect would result, according to the United Kingdom, from two provisions in the 2011 proposal and the 2013 proposal (no need to worry ourselves now about the actual content of those provisions) allowing  the introduction of a tax applicable to financial institutions, persons or transactions situated or taking place in the territory of non-participating Member States, a fact which adversely affects the competences and rights of those Member States. That, according to the United Kingdom constitutes a breach of Article 327 TFEU which expressly provides that enhanced cooperation shall respect the competences and rights of non participating Member States.

The United Kingdom also claimed that the extraterritorial effect of the tax, if adopted, would be contrary to customary international law. Because of the obligation of mutual assistance between Member States for the recovery of taxes, a non-participating State like the United Kingdom would bear costs relating to the recovery without being able to claim back those costs.

Interestingly, the United Kingdom recognised that its action could be considered to be premature but stated that it brought it as a precautionary measure.

The Court of Justice agreed that the action was, in effect, premature and dismissed it.

The Court held that when dealing with an action for the annulment of a Council decision authorising enhanced cooperation on the basis of Article 329 TFEU, the Court’s review is related to the issue of whether that decision is valid as such in the light of, inter alia, the provisions, contained in Article 20 TEU and in Articles 326 TFEU to 334 TFEU, which define the substantive and procedural conditions relating to the granting of such authorisation.

It distinguished that review from the review which may be undertaken, in the context of a subsequent action for annulment, of a measure adopted for the purposes of the implementation of the authorised enhanced cooperation, namely of the provisions of the 2011 and 2013 proposals if and when they are adopted.

The Court held that the contested decision authorises 11 Member States to establish enhanced cooperation between themselves in the area of the establishment of a transaction tax. The principles of taxation challenged by the United Kingdom are, however, not in any way constituent elements of that decision (but are found in the proposals of 2011 and 2013).

The Court also found that the contested decision contains no provision on the issue of costs borne by the non-participating States. The question of the possible effects of the future transaction tax on the administrative costs of the non-participating Member States cannot be examined by the Court for as long as the principles of taxation in respect of that tax have not been definitively established as part of the implementation of the enhanced cooperation authorised by the contested decision.

Let’s wait for the next episode….


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