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Indirect taxation

Indirect taxation covers numerous categories of taxes levied by Member States at the national level, some of which are subject to some level of European Union harmonization while others are strictly national but remain subject to the fundamental principles of European Union law.

An extensive knowledge and great practical experience of European Union law as well as its fundamental principles and procedures is therefore required in order to properly counsel and correctly assist companies in successfully challenging taxation that they believe to be groundless, whether in their principle or in their implementation.

A distinction must be drawn between two very different subject domains. On the one hand, the VAT system, which is greatly harmonized at the European Union level; on the other hand, other interior taxations, which can be more or less harmonized but remain always subject to the fundamental principles of the internal market.

VAT is a tax affecting the exchange of most goods and services . It is a true “European tax” in the sense that Member States have an obligation to collect it and that it forms the basis of a part of their contribution to the “own resources” of the European Union budget. VAT rules were formerly governed by Directive 77/388, the so-called “Sixth Directive”, the main principles of which were codified by Directive 2006/112 and transposed into national laws (in France, in the " Code Général des Impôts"). Its complex status allows for a number of national variations, leading to interpretation issues, which themselves gave rise to numerous cases. As a result, the Court of Justice of the European Union’s case-law on the subject is abundant. It covers, for example, the notions of taxable transactions, taxable persons, tax deductibility, tax rate categories (standard or reduced) and the discriminatory enforcement of the tax in various situations. COUTRELIS & ASSOCIES has assisted the European Commission in a number of cases before the Court of Justice of the European Union involving the VAT system in France.

Another type of consumption tax called excise duties are also partially harmonized for three specific product categories: alcoholic beverages, tobacco and fuels. Precise rules apply to the intra-European Union trade of these products in order to avoid double taxation. Member States must abide by a number of common rules when levying excise duties on alcoholic beverages, tobacco or fuels. Contrary to the VAT system, however, there is no obligation for Member States to levy such taxes. Their proceeds remain purely national and do not contribute to the European Union budget.

Member States are also free to levy a number of other taxes which are not subject to any specific harmonization measures, but are only subject to national law. In France, questions of tax applicability frequently arise and are solved through the specific “tax information" procedure ("renseignement fiscal"). In this particular procedure, the customs classification of products is often taken into account. Our firm has a well-established practice of such issues.

Even though such taxes are purely national in their nature, they remain subject to the fundamental principles of European Union law. Article 30 of the TFUE prohibits between member States all “customs duties and charges having equivalent effect” levied on specific products for the sole reason that they are imported. Article 110 also prohibits to charge higher taxes on products originating from other Member States than on similar national products and to impose taxes that, even though non-discriminatory in nature, award indirect protection to national products.

The scope of taxes which are subject to the fundamental principles of European Union law is very broad and includes, beyond what is usually perceived as taxes, any payment levied by a public or private body that has been made mandatory by the State (such as former French parafiscal taxes, which have been replaced by a number of "allocated taxes", compulsory contributions or various royalties).

Non-discriminatory taxes can also be found to be contrary to European Union law, because of the intended use of their proceeds. One of the most frequent examples of this situation is when a tax is an integral part of a State Aid regime, meaning that it is directly used to finance that State Aid. When that aid is found to be illegal and/or incompatible with the internal market, the tax financing it can be challenged accordingly. As such, a number of taxes and compulsory contributions have successfully been challenged in the agricultural sector because they were used to finance State intervention that was judged to be contrary to common agricultural policy law.

Taxpayers can challenge the legality of taxes under European Union law, either when a dispute arises with the tax administration or with any other tax-collecting body, or in stand-alone actions thus giving rise, in case of success, to the reimbursement of unduly paid taxes. European Union law requires that Member States reimburse all unduly paid taxes to the taxpayers, according to the modalities applicable in national law, including satutes of limitation. In doing so, they must at the same time ensure the correct implementation of the principle of effectiveness of European Union law.

The abundant case-law of the Court of Justice of the European Union has shown that the notion of “tax”, as well as borderline cases between categories of taxes contrary, or not, to European Union law, is often very subtle. It is therefore not necessarilly clear for a taxpayer to identify whether the legality of a tax can be successfully challenged by using European Union law and whether reimbursement of a tax can reasonably be expected. For more than twenty years, COUTRELIS & ASSOCIES has accumulated extensive experience in this domain, in defending both tax-collecting bodies (including in the agricultural sector) and companies challenging taxes or the way such taxes were implemented in their case. The firm regularly publishes commentaries and columns on the subject.

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