Advocate General's Opinion in the Meilicke Case Favouring a Temporal Limitation on the Effects of the ECJ Judgment

The referral by the German tax authorities in the case of W. Meilicke and others v F.A. Bonn-Innenstadt (C 292/04) has a certain familiarity about it. This is not surprising as the case, which relates to German corporation tax credits for foreign dividends, has been dubbed the German ‘Manninen’. The ECJ decision in the Manninen case required the Finnish tax authorities to grant a tax credit to Finnish shareholders in receipt of dividends from EU resident companies in circumstances where a credit was available for Finnish dividends.

On 10 November 2005 Advocate General Tizzano issued his opinion. Not surprisingly concluded that the granting of a tax credit only in respect of dividends from German companies was a breach of EC Treaty free movement of capital provisions.

The Irish corporation tax treatment of inbound dividends from EU resident companies would more likely than not to be regarded by the ECJ as a breach of free movement of capital and/or freedom of establishment principles. Sufficient precedent already exists for this conclusion, which incidentally, the ECJ will be asked to decide upon when it gets round to dealing with the FII Group Litigation referral from the UK.

The more immediate aspect of the Meilicke case from an Irish perspective concerns the temporal effect of an ECJ judgement. The German authorities had suggested that due to the estimated €5billion budgetary effect of an adverse judgement, only individuals who had applied for the tax credit before June 2000 (the year in which judgement in the Verkooijen case casting doubts on the German treatment was handed down) should be entitled to a refund. On that point, it was particularly interesting to observe at the oral hearing that the European Commission raised no objection to the further development of ECJ case law on time limitation where a judgment had a dramatic budgetary effect. The Commission had suggested that in such instances the judgement should perhaps take effect from the date the referred question was published in the Official Journal.

In this regard the Advocate General has indeed suggested that the temporal effect of the judgement should be limited and has recommended that the effect of the judgement generally be limited to dividends paid after 6 June 2000 (i.e. the date the Verkooijen judgement was handed down). However, taxpayers who lodged claims for earlier periods before the publication of the reference for a preliminary ruling in the Meilicke case in the Official Journal of the European Communities on 11 September 2004 can still benefit from the judgement.

If the ECJ follows the approach suggested by Advocate General Tizzano it will become more difficult for taxpayers to lodge successful repayment/ damages claims on becoming aware of challenges by other taxpayers. Taxpayers alleging a breach of European law will be required to act based on developments in the national courts before details of the referral is published in the Official Journal. For those taxpayers with a centralised head office tax function in particular, access to a pan-European EU tax intelligence network, such as Ernst & Young’s EU Competency Group will be even more vital.