Yesterday, the Attorney General to the European Court of Justice (“ECJ”) rendered his Opinion in the pending ECJ “A-Fonds” case (C-598/17). The Attorney General is the highest legal advisor to the ECJ and his Opinion is a recommendation to the ECJ on how to rule in this case.
The A-Fonds is a German investment fund that requested a refund of Dutch dividend withholding tax on the basis of the free movement of capital (art 63 EU Treaty). The Dutch tax court of appeals ruled that the Dutch DWT levied from the A-Fonds indeed infringes the free movement of capital, but wondered whether granting a refund of such DWT to the A-Fond could be considered new and prohibited state aid and referred the case to the ECJ. The Opinion itself can be found here: http://curia.europa.eu
The case facts
The A-Fonds is a German investment fund without legal personality (Spezial-Sondervermögen), all shares of which are held by a German public body with legal personality. The A-Fonds had requested a refund of Dutch dividend withholding tax (“DWT”), which was denied because the A-Fonds was not established in the Netherlands.
The domestic procedure
After the lower tax court confirmed the denial, the tax court of appeals ruled that the A-Fonds is in fact entitled to a refund of DWT, because it is objectively comparable with Dutch public bodies that are not subject to tax in the Netherlands and that are entitled to a refund of DWT.
However, the tax court of appeals considered that the existing refund of DWT for Dutch public bodies is state aid. It further considered that the refund of DWT is “existing state aid” (state aid that already existed before the introduction of the EU rules against state aid, or has been approved by the European Commission) and as such is “allowable” state aid. The tax court wondered, however, whether an extension of that refund provision to cross border investors, as requested by the A-Fonds, should now be considered “new state aid” which as such could be prohibited state aid, barring the A-Fonds from its requested refund after all.
The Attorney General Opinion
The Attorney General first concludes that national courts such as the Dutch court of appeals have no jurisdiction over matters affecting EU state aid rules. This falls under the exclusive authority of the European Commission.
The Attorney General then proceeds to conclude that, unlike the tax court of appeals, he is not at all sure that the Dutch DWT refund provision is indeed allowable as “existing state aid”, and analyses what the results should be if the provision is “existing state aid” and if it is “new state aid”.
In short, the Attorney General opines that if the DWT refund provision is existing state aid, then extending the scope at a later stage to cross border investment is not new state aid. In order for state aid to be considered “new” state aid there must be a decision that is attributable to a Member State. Extending the scope of the DWT provision to cross border situations is not a decision that is attributable to a Member State. Therefore, if the DWT provision is existing state aid, then the refund of DWT must also be granted in comparable cross border situations.
If, on the other hand, the DWT refund provision is new state aid, then granting such refund also to cross border situations is not in the interest of the European Union and would only extend the scope of such prohibited new state aid.
The Attorney General recommends the ECJ to rule that the Dutch tax court of appeals is not authorized to judge over the compatibility of a domestic DWT refund provision with the free movement of capital if such provision is so closely linked to EU state aid rules. This falls under the exclusive authority of the European Commission. The Attorney General understands what tremendous uncertainty and practical and procedural difficulty such a decision (no authority for the national courts) could bring. He therefore proposes the ECJ to consider ruling, instead, that existing state aid which has not yet been reviewed by the European Commission, as is the case with the DWT refund provision, is not prohibited state aid and does not stand in the way of a national court granting the request for refund on the basis of the free movement of capital.
Our thoughts and takeaways
This Opinion is not very helpful to the Dutch tax court of appeals, as it has to render a decision for the A-Fonds while it is not clear whether the DWT refund provision is existing or new state aid. And this will remain unclear so long as the European Commission has not assessed the DWT refund provision in the context of the state aid rules. It is doubtful whether the court of appeals can even render a decision at all, as it appears it does not have the authority.
Fortunately the Attorney General also recognizes and acknowledges this issue, and offer the ECJ an alternative way out by ruling that existing state aid is not prohibited so long as the European Commission has not ruled it to be new state aid, and extending the scope of existing state aid to cross border situation is not – itself – a decision to grant state aid. It can only be hoped that the ECJ will follow the alternative and much more practical approach.