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Claims against the State where the burden of unlawful tax is passed on

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There has been much recent litigation concerning the EU law right to reimbursement when tax has been levied contrary to EU law. The ECJ has just heard a case on a new point concerning that right. The main point is whether or not EU law guarantees a right to claim reimbursement direct against the State to a person, downstream in the supply chain, to whom the burden of unlawfully levied tax had been passed on by the taxpayer. This is the Danfoss case (Case C-94/10). Following a hearing on 17 February the AG’s Opinion and Judgment are awaited.

Attractions of reimbursement claims

A reimbursement claim has the clear advantage over a damages claim that the claimant does not have to show a ‘sufficiently serious’ breach of EU law. Also he does not need to establish a direct causal link: potentially decisive in a passing-on case. In more general terms the benefits of being able to bring a claim direct against the State, rather than having to pursue a supplier, are obvious.

Danfoss Case C-94/10

Danfoss argues that it has an EU right to bring a direct reimbursement claim against the Danish State. Describing the Danfoss case in simplified terms, duty was imposed by Denmark contrary to EU law. It was imposed only on oil companies. The oil companies that supplied Danfoss passed on the economic burden of the duty to it. According to Danfoss:

  • it had no civil law claim against the oil companies in respect of that passing on; and
  • because the oil companies had passed the duty on, they had no reimbursement claim against Denmark.

Thus Danfoss could not bring an ‘indirect’ reimbursement claim against the State, by means of a claim against the oil companies, who would then claim against the State.

The Commission broadly supported the notion that Danfoss should have a right to claim reimbursement direct from the State. It advanced some points of principle, characterising Danfoss’ loss as the inevitable consequence of the unlawfully levied duty. However, under questioning, the Commission seemed to acknowledge that if the oil companies had the right to bring a reimbursement claim against the State, and Danfoss could in turn bring a claim against them, the principal of effectiveness would not be breached and such a scheme of remedies was in general compatible with EU law.

Denmark and other Member States identified a fundamental difference between the position of a person liable to pay the tax, and a person such as Danfoss. Much emphasis was put on Danfoss’ reasoning opening up the possibility of a multiplicity of reimbursement claims from all persons downstream of the taxpayer in the supply chain.

The UK emphasised that if the oil companies were liable to make restitution to Danfoss in respect of the burden of the tax passed on, the ECJ’s case-law meant that the State could have no unjust enrichment defence to claims by them. Referring to Reemtsma Case C-35/05, it was submitted that it would be enough for the taxpayer to have a direct reimbursement claim against the State, and for the taxpayer’s customer to have a claim against the taxpayer.

Questions from Judge Safjan, the Judge Rapporteur, appeared to challenge as a permissible outcome a scenario in which neither the oil companies nor Danfoss could in principle make a reimbursement claim, combined with an approach to causation in Francovich damages claims under which it was said to be axiomatic that a person to whom the burden of tax had been passed on could not show the required direct link.

Vandoorne Case C-489/09

Some clue as to how the ECJ will answer the question of whether there is a direct right to reimbursement against the State may be found in the ECJ’s recent judgment in Vandoorne NV v Belgische Staat (ECJ Case C-489/09, see Tax Journal cases, 11 February 2011, p 4). That case concerned a simplified VAT collection scheme for manufactured tobacco products. Under the scheme there was a single charge to VAT payable by the manufacturer to the State, based on the amount to be paid by the final consumer. Vandoorne was an intermediate supplier downstream in the supply chain from the manufacturer. One of its customers failed to pay it for tobacco it had supplied. Such non-payment would normally lead to a reduction in the taxable amount of the supply, and hence to VAT having been ‘overpaid’. Vandoorne claimed reimbursement of VAT from the State. The ECJ held that since intermediate suppliers were not required to pay VAT, they could not seek reimbursement of VAT in the event of non-payment by their purchasers. The Court considered that the fact that the amount of the VAT paid at source by the manufacturer ‘was included, from an economic point of view, in the price of the supplies’ made to Vandoorne was irrelevant. Vandoorne’s claim was, of course, not based on unlawful levying of VAT. Nonetheless, the judgment shows an ECJ very ready to accept an orthodox approach that a reimbursement claim can only be brought by a person who paid the tax to the relevant authority.


Given the absence of harmonised EU rules on applications for repayment of taxes, it may be difficult for the ECJ to uphold the claim that the person who has borne the economic burden of an unlawfully levied tax must have a direct right to ‘reimbursement’ against the State, but it is a possibility. In any event, the ECJ can be expected to emphasise that the principle of effectiveness must be respected by national remedies. It may well give helpful guidance on the ability of a person who has borne the burden of an unlawfully levied tax to claim Francovich damages.

Advocate General Kokott announced that her Opinion would be given on 24 March.


Peter Mantle, Barrister, Monckton Chambers