Retroactive legislation flagged by press release is permissible according to the ECJ

Stichting ‘Goed Wonen’ v Staatssecretaris van Financien
C-376/02

In an attempt to address alleged contrived financial arrangements which related to immovable property, the Netherlands tax authorities indicated (by means of a press release) an intention to introduce a future law. The amending law came into force on 29 December 1995. However, it provided that it was to take effect from 18.00 hours on 31 March 1995. This was the date and time when the content of the proposed law was announced.

The European Court of Justice (ECJ) had to determine whether or not a legislative amendment announced by way of a press release, with retroactive effect, breached European law principles on the protection of legitimate expectations and legal certainty.

The ECJ stated that the principles of the protection of legitimate expectations and legal certainty formed part of the Community’s legal order, which must accordingly be observed by Community institutions (Case 74/74 CNTA v Commission [1975], ECR 533). It further opined that, in general, the principle of legal certainty precluded a Community measure from taking effect from a point in time before its publication. However, it may ‘exceptionally’ do so where the purpose to be achieved so demands. The Stichting ‘Goed Wonen’ claimed that the retroactive effect of the law was not necessary. They claimed that the Netherlands Government had known for years about these allegedly contrived arrangements.

The Netherlands Government contended that the reason for the retroactive effect was a fear that contrived arrangements would be put into operation on a large scale between the time at which it was decided to amend the law and the time at which that amendment would come into force. The Netherlands Government was supported by the Swedish Government. The latter was of the opinion that, in order to avoid an increase in tax avoidance before a law intended to curb it has entered into force, a new tax law may be specified to apply from the day on which the government issues a letter making known it has intentions to amend the law.

The ECJ reiterated that, on an exceptional basis and provided that the legitimate expectations of taxable persons are duly respected, the mechanisms of retroactive legislation may take legal effect. It further opined that it is for a national court (which would best know the circumstances of the case) to assess whether the risk of contrived financial arrangements being created in that period of time would be significant enough to justify the retroactive effect of the law.

The Stichting ‘Goed Wonen’ also claimed that they could not have been expected to have been aware of every press release issued by the Netherlands Government. They also claimed that the press release was too vague and too brief. (The full text of the amendments envisaged would not have been known until the draft law was submitted to Parliament.) The Netherlands Government stated that the press release was preceded by several speeches in the Netherlands Parliament. It also stated that the press release was clear and specific. It referred directly to the allegedly contrived financial arrangements which Stichting ‘Goed Wonen’ had been involved in.

Issuing amendments to existing legislation via press releases is not an alien experience to Irish taxpayers. The former Minister for Finance, Charlie McCreevy, was quite prone to such moves ‘in order to protect the Exchequer’ and ‘to close off … contrived arrangements’. The full text of the amendments typically did not emerge until the next Finance Bill — which have been as long as 11 months away from the date of the original press release.