Subsequent buyers are eligible for a refund of the registration tax that has been collected in violation of EU law: the European Court of Justice has ruled that the claim for a tax refund can indeed be transferred with the ownership of the car to subsequent buyers, who have acquired the right of ownership of the vehicle. This means that if subsequent purchasers have paid the tax included in the price of the vehicle, they could get the refund of the tax directly from tax authorities.
BACKGROUND
The ECJ’s judgment at stake was delivered on 28 September 2023, in the context of proceedings involving KL and PO, the heirs of AX, and the District Finance Administration in Brașov, Romania (C-508/22)[1].
The case concerned the reimbursement of a special registration tax imposed on a Toyota passenger car, which was levied in breach of EU law at the time of the vehicle’s first registration. The tax was passed on to the lessee by the leasing company, who then sold the car to a Romanian company and eventually to a Romanian private individual.
Despite the private individual’s request for a refund of the unlawfully collected registration tax, the tax authority rejected the application, stating that the right to refund the tax only belonged to the person originally liable for the tax.
QUESTIONS REFERRED TO THE ECJ
In this case, two questions were referred to the ECJ:
- Must article 110 of the TFEU be interpreted as meaning that the value of a tax unlawfully levied by a Member State on motor vehicles at the time of first registration is included in the price of those vehicles? This would result in a claim against the State for the unlawful levying of the tax being transferred to subsequent purchasers upon the sale of those vehicles.
Simply put: can the tax be deemed to be included in the vehicle price, allowing the reimbursement claim to be passed onto the buyer?
- Must Article 110 of the TFEU be interpreted in a way that prohibits national legislation which only allows the taxable person who initially paid the respective tax of a Member State to receive a refund, rather than subsequent purchasers of the vehicle in question?
In simpler terms: Can a purchaser be refunded for a tax paid by a vendor? Is it legal for a Member State to limit tax refunds to the taxable person who paid the tax rather than the subsequent purchaser of the vehicle?
ECJ’s RULING
1ST QUESTION
In response to the first question, the ECJ noted that while it is generally true that indirect taxes in commerce are often passed on in whole or in part to the final consumer, it cannot be assumed that the tax burden is always transferred to the subsequent purchasers in every case. As a result, it is up to the national court to examine the circumstances of the case before it and determine whether the tax has actually been passed on to any of the subsequent purchasers. If the national court finds that the tax was indeed passed on, the ECJ established that it is possible for the claim against the State on account of the unlawful levying of that tax, along with the right of ownership of the vehicle, to be transferred to the purchaser.
Therefore, the ECJ replied to the first question by stating that Article 110 TFEU should be interpreted as meaning that the transfer of the claim against the State on account of the unlawful levying of the tax depends on whether the tax burden has been passed on to the subsequent purchasers or not. The national court must establish this fact based on the circumstances of the case before it. If the tax burden has been passed on, the claim against the State on account of the unlawful levying of the tax is deemed to have been transferred to the subsequent purchasers of the vehicle.
2ND QUESTION
Regarding the second question, national legislation may limit tax refunds to only the taxable person who paid the tax initially rather than subsequent purchasers, provided that detailed procedural rules enable the purchaser who bore the tax burden to get reimbursement from the taxable person who paid the tax or from the tax authorities if necessary. Clear and transparent procedural regulations need to be prioritized to facilitate the reimbursement process and ensure fairness and efficiency for all parties involved.
IN A NUTSHELL…
The question of whether indirect taxes are passed on to the purchaser is often complex. Hence, it is paramount to examine the circumstances surrounding each case to determine whether the tax has been transferred to the purchaser.
The European Court of Justice has provided guidance, stating that Member States must reimburse taxes that have been unlawfully collected while ensuring that such reimbursement does not result in unjust enrichment.
The purpose of the right of reimbursement is to alleviate the tax burden from the individual who bore it.
Therefore, Member States must establish procedural rules that ensure the neutralization of this burden while also taking into account any potential difficulties that may arise in the process. If a purchaser can recover the tax passed on to them, the tax authorities may refuse to reimburse them. However, considering that if the tax has indeed been passed on to the purchaser, it is the responsibility of the tax authorities to provide a refund, the tax authorities may not refuse said reimbursement in cases where such recovery is impractical or excessively difficult.
Therefore, Member States should prioritize the implementation of transparent and unambiguous procedural regulations that enable subsequent purchasers to obtain refunds for unlawfully collected taxes while also ensuring fairness and efficiency for all parties involved.
WHERE DO WE STAND
If it can be proven that the tax burden was indeed passed on to the buyer, then the buyer has a legally protected interest and should be entitled to a refund of the tax directly from the tax authorities. Whether the tax was passed on or not is a fact that falls under the jurisdiction of the national court, and it is up to it to assess the evidence submitted.
In the past[2], the ECJ has ruled that the obligation to reimburse taxes collected in violation of Union law only has one exception, which is when it leads to unjust enrichment of the right holders.
From our point of view, it is unreasonable for the right of access to justice of the buyer to be conditioned on eventualities that do not depend on him, namely the possible prior exercise before the tax authorities of this right by the taxpayer (the seller).
Hence, in our opinion, and considering the obligation of the tax authorities to reimburse taxes levied in violation of Union Law to those who actually bore them, the attribution of the refund directly to the person who bore the tax burden should not depend on whether or not there are internal means of recovering the tax from the initial taxpayer (the seller).
Dalila Mendes Leal
January 2024
[1]https://curia.europa.eu/juris/document/document.jsf?text=&docid=277927&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=12285499
[2]CJEU Order of 02/07/2022, case no. C-460/21