Judgment summary
The Court of Justice (First Chamber) answered a request for a preliminary ruling from the Cour de cassation du Grand-Duché de Luxembourg concerning the interpretation of Article 47 and Article 51(1) of the Charter of Fundamental Rights of the European Union [1].
The reference arose in proceedings between QJ, a natural person, and the Administration de l'enregistrement, des domaines et de la TVA (AEDT) and the État du Grand-Duché de Luxembourg, concerning a guarantee call decision taken against QJ to collect VAT owed by a company whose director he had been [2].
The Court held that the requirements stemming from the right to an effective remedy in Article 47 of the Charter apply to judicial review proceedings brought by a company director subject to a guarantee call, and that Article 47 precludes national legislation which does not allow such a director to challenge, as an incidental question, the final tax assessment previously notified to the company [40], [66].
Background
On 17 March 2018, the AEDT issued two VAT assessments against company VN, one for 2014 and the other for 2015 and 2016. The appeal lodged by VN against those assessments was declared inadmissible for being out of time. VN then failed to pay the VAT due for the years 2014 to 2016 [11].
From 22 April 2013 to 15 February 2019, QJ served as VN's director and was in charge of its day-to-day management. On 16 May 2019, the AEDT notified a guarantee call decision to QJ, based on Articles 67-1 to 67-3 of the loi du 12 février 1979 concernant la taxe sur la valeur ajoutée (LTVA), requiring him, in his capacity as director responsible for VN's day-to-day management between 2013 and 2019, to pay the outstanding VAT amounts [12].
After the Director of the AEDT rejected his objection, QJ brought an action before the Tribunal d'arrondissement de Luxembourg seeking to have the decision amended or, failing that, annulled. That court rejected the action, and its judgment was confirmed by the Cour d'appel [13].
Hearing an appeal on a point of law, the Cour de cassation du Grand-Duché de Luxembourg referred questions to the Court of Justice. QJ had argued that he was entitled to file a third-party objection because the assessments had not been notified to him personally, and that denying him an action in his own name was incompatible with Article 47 of the Charter [14].
The Cour d'appel had rejected those arguments, holding that the assessments had become final and could not be challenged, that there was no provision allowing a person subject to a guarantee call to appeal against the assessment issued against the principal taxable person, and that Article 47 of the Charter was not applicable because the national provisions did not constitute an implementation of EU law [15], [16], [17].
Core dispute
The referring court asked, first, whether Article 47 and Article 51(1) of the Charter apply to national legislation establishing the joint and several liability of company directors for payment of VAT owed by the company they run [20].
Second, if so, whether Article 47 confers on directors subject to a guarantee call the ability to challenge, indirectly, in an action against the administrative act establishing their joint and several liability, the ex officio VAT assessment previously issued to the company and against which the company did not object in time [20].
Third, whether Article 47 limits the grounds a director may rely on in such an indirect challenge, or whether it encompasses all grounds, including the determination of VAT liability, the findings of fact leading to the assessment, and purely personal grounds such as possible infringements of the director's own fundamental rights during the taxation procedure [20].
Court findings
On the first question, the Court reformulated the issue and examined whether Article 47 and the first sentence of Article 51(1) apply to judicial review proceedings brought by a director subject to a guarantee call [21], [23]. It recalled that the Charter binds Member States only when they implement EU law, and that Articles 2 and 273 of Directive 2006/112, read with Article 4(3) TEU and Article 325(1) TFEU, require Member States to take all measures appropriate for ensuring collection of all VAT due and preventing fraud [24], [27]. There is a direct link between VAT collection and the EU budget [28].
The Court found that the guarantee call mechanism at issue is linked to a failure to discharge legal obligations in relation to VAT and allows the tax authority to collect the VAT owed by a taxable legal person from its directors, and so involves the implementation of Article 273 of Directive 2006/112 [29], [30], [31]. It rejected the Luxembourg Government's argument that the mechanism was merely a form of civil liability to compensate damage, noting that the damage was indissociable from the amount of unpaid VAT [32], [33], [35]. Accordingly, the requirements stemming from Article 47 were applicable [38], [40].
On the second and third questions, examined together, the Court recalled that the right to an effective remedy requires access to a court able to consider all relevant issues of fact and law, and that respect for the rights of the defence requires an applicant to know the reasons for the decision and to access the material on which it was based [42], [43]. Those rights apply both in judicial proceedings and, as a general principle of EU law, in the administrative procedure, including the right to be heard [45], [46].
The Court noted that the rights of the defence are not unfettered and may be restricted for public interest objectives, and that legal certainty and the finality of administrative decisions are relevant, so EU law does not, in principle, require reopening of a final decision [47], [48], [49]. However, that does not apply where the person is de facto fully deprived of the right to challenge, in a useful and effective way, the findings of fact and legal classifications in the procedure to which he or she is subject, as this would adversely affect the very essence of the rights of the defence [50], [51].
The Court held that respect for the rights of the defence does not require the person subject to a guarantee call to be included personally in the taxation procedure against the company [52], and that Article 47 does not necessarily require a direct legal remedy against the assessment, provided a remedy exists allowing incidental judicial review [53]. The court hearing the dispute must be able to ascertain all findings of fact and legal classifications on which the guarantee call decision is based, including the VAT assessment bases and the unpaid amount, where decisive for the outcome [54], [55].
The Court rejected the argument that the ability to challenge should depend on whether the director could have challenged the assessment in the company's name, noting that the rights of the defence are subjective and that the legal person and the natural person may have different interests [56], [57], [58]. It held that recognising the incidental challenge does not affect the binding effect of the assessment on the company itself [59], and that the director's right to challenge is limited to arguments necessary to challenge his joint and several liability [60]. The director may also rely on any infringements of his own fundamental rights committed during the taxation procedure [61].
The Court addressed the Government's argument on confidentiality, professional secrecy and trade secrets, confirming that access to the file may be restricted for such objectives and that the referring court must strike a balance between competing interests, taking into account that the director was in a position to know the relevant circumstances due to his role in the company [62], [63], [64], [65].
Outcome
The Court ruled that Article 47 and the first sentence of Article 51(1) of the Charter must be interpreted as meaning that the requirements stemming from the right to an effective remedy in Article 47 apply in judicial review proceedings brought by a company director subject to a guarantee call against a guarantee call decision taken under national legislation providing for the director's joint and several liability for VAT owed by the company if he fails to discharge his legal obligations in relation to VAT [40], operative part 1.
The Court further ruled that Article 47 precludes national legislation which does not allow a person subject to a guarantee call for unpaid VAT to challenge, as an incidental question, in his appeal against the guarantee call decision, the tax assessment previously notified to the company and which has become final. Such a person must be able to challenge the findings of fact and legal classifications on which the authority relied to establish his joint and several liability, including those relating to the VAT assessment and the unpaid amount, provided they are useful for his defence, and including any infringements of his fundamental rights during the taxation procedure [66], operative part 2.
Major issues / areas of contention
- Whether national legislation establishing joint and several liability of company directors for VAT owed by the company constitutes an implementation of EU law under Article 51(1) of the Charter.
- Whether Article 47 of the Charter applies to judicial review proceedings brought by a director subject to a guarantee call.
- Whether a director subject to a guarantee call may challenge, incidentally, a final tax assessment issued against the company.
- The scope of the grounds on which such a director may challenge the assessment, including the determination and amount of VAT liability and personal fundamental rights infringements.
- The interaction between the rights of the defence, the finality of administrative decisions, and legal certainty.
- The balancing of access to the file against confidentiality, professional secrecy and trade secrets.