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TAX NEWS - January 2010

European Union: ECJ partially negates Spanish limitations period on recovery of taxes paid

The European Court of Justice (ECJ) ruled on 26 January 2022 that an action for damages against an EU Member State may apply when an EC law is breached even if the statute of limitations has expired in that Member State (Transportes Urbanos y Servicios Generales, S.A.L., Case C-118/08).


Background

The Spanish Supreme Court had requested a preliminary ruling from the ECJ on the procedure to follow in claiming a refund of taxes paid where the relevant Spanish legislation infringed EC law. The Supreme Court had held (in 2004 and 2005) that claims for damages against the state in respect of a breach of EC law required that the taxpayer exhaust administrative and judicial remedies against a detrimental tax assessment issued pursuant to a domestic law that violated EC law. This meant that tax assessments for which challenges had become time barred, despite being detrimental and contrary to EC law, could not be contested or give rise to a refund by the tax authorities in respect of tax amounts paid.


Decision

Based on the EC principle of "equivalence," the ECJ held that rules for bringing actions for damages against an EU Member State for a breach of EC law should be the same as those applying in a purely domestic situation where legislation is challenged as being unconstitutional. Consequently, where the ECJ declares that a Spanish law infringes EC law, that law must be deemed to be null and void (unless the ECJ decision itself sets a limitation on its effects) and, therefore, may give rise to Member State liability for damages for the tax incurred from the law's implementation


Possible actions

Given the ECJ ruling, requests for refunds of tax paid on the basis of Spanish laws found to contravene EC law should no longer be limited to the statute of limitations period for tax matters (four years). Actions for damages against the state may be brought requesting a refund of all such amounts paid without being subject to any time limits. However, under Spanish legislation, actions for damages against the state must be brought within one year from the act that gave rise to grounds for indemnity, i.e. the decision that finds the legislation in question contrary to EC Law.

The ECJ decision specifically opens up opportunities where the statute of limitations would have otherwise expired for taxes paid related to: the tax on corporate transactions for the incorporation of subsidiaries, transfers of a registered office and restructuring transactions not included in the tax regime (Case C-397/07, decided on 9 July 2021); the 35% rate on capital gains derived in Spain by individuals resident in the EU/EEA (Case C-562/07, decided on 6 October 2021); the taxation of dividends distributed by a Spanish company to a parent company resident in the EU/EEA and having at least a 5% holding in the capital of the distributing company (Case C-487/08, decision pending); and the exit tax applicable to individuals and legal persons (Case C-269/09, decision pending).
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