"The Importance of Claiming Early," Practical European Tax Strategies

A recent Advocate General’s Opinion has underlined the importance of making claims at an early stage for taxes overpaid contrary to European law. An Italian regional tax (IRAP) was held to be incompatible with European law which led prima facie to a repayment obligation of at least €120 billion for the Italian state.

Due to the sums involved, the European Court took the extraordinary step of reopening the oral procedure after the AG’s Opinion was delivered in March 2005 to hear further arguments about a temporal limitation. A second AG’s Opinion was delivered on March 14, 2006. It holds that IRAP was unlawful but recommends that, because Italy had acted in good faith and because of the serious difficulties that would be caused by repayment of such a large sum, there should be two limitations on the effect of this judgment:

• claims for repayment of sums paid in the past would only be accepted if made before March 2005 (the date of the first AG’s Opinion holding IRAP to be unlawful);

• IRAP could continue in force from the date of the ECJ’s judgment until the end of that accounting period in order to give Italy time to bring in an alternative method of raising revenue.

It remains to be seen whether the European Court itself will follow the AG’s advice (or indeed go further in imposing a temporal limitation such as from the date the Banco Popolare case was referred to the ECJ). However, the lesson is clear: it is no longer safe to sit on the sidelines and await the outcome of challenges to the tax system of a member state on the basis of European law. Claims should be lodged as quickly as possible to minimize the risk of being unable to rely on a judgment of the ECJ.

The article "The Importance of Claiming Early" was published in the April 2006, edition of Practical European Tax Strategies. Republished with permission.