Information Note on the Court’s case-law No. 93
January 2007
Aon Conseil and Courtage S.A. and Christian de Clarens S.A. v. France - 70160/01
Judgment 25.1.2007 [Section I]
Article 1 of Protocol No. 1
Article 1 para. 1 of Protocol No. 1
Peaceful enjoyment of possessions
Negation of the applicant company's claim against the State and absence of domestic procedures: violation
Facts: The applicant companies carried on insurance broking activities and were liable for value-added tax (VAT), which they paid in respect of their transactions in 1978 pursuant to an Article of the General Tax Code. However, the Sixth Directive of the Council of the European Communities, dated 1977 and taking effect from 1978, provided for a VAT exemption for insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents. The Ninth Council Directive then extended the time-limit for the implementation of those provisions. As the new directive had no retroactive effect, the Sixth Directive was applicable from 1 January to 30 June 1978. One of the applicant companies lodged four applications with the administrative court seeking a VAT refund on the basis of the Sixth Directive, but they were all dismissed. An administrative circular of 1986 stipulated that “... no further action shall be taken to collect sums remaining due at the date of publication of the present circular from insurance brokers which did not charge value-added tax on their transactions between 1 January and 30 June 1978 and which have received re-assessments as a result”. In 1992 the Administrative Court of Appeal ruled in favour of another company, declaring that the Article of the General Tax Code, as worded in the relevant period, had been incompatible with the provisions of the Sixth Directive. Considering that the French State had created an illegal situation by failing to incorporate into domestic law the provisions of the Sixth Directive within the time allowed, the applicant companies claimed compensation for their losses from the authorities. The requests were rejected pursuant to an Article in the Code of Tax Procedure on the grounds that such a request was inadmissible and that, moreover, the amount of the loss was to be reduced by the amount of payroll tax owed by the VAT-exempt companies. The applicant companies brought proceedings in the administrative court seeking to establish the negligence of the French State for not having incorporated the Sixth Directive into domestic law and, accordingly, for causing them a loss corresponding to the undue payment of the VAT which they claimed should be refunded. The court declared their applications inadmissible pursuant to the Article in the Code of Tax Procedure and did not find that Article to be incompatible with the Community rule. It was only since the date of the judgment of the Administrative Court of Appeal that it had been possible to determine, for all tax-paying entities, the period provided for under that Article in respect of which actions could be brought for repayment of sums already paid, for payments in respect of rights to deduct not exercised, or for compensation of a loss, on the basis of incompatibility with the Article in the General Tax Code. The companies appealed. Shortly afterwards the Conseil d'Etat quashed the above-mentioned 1992 judgment, which had been favourable to a company seeking a refund of the VAT that it had paid in respect of the period 1 January to 31 December 1978. However, on the same day the Conseil d'Etat gave a decision departing from its case-law when it declared another appeal admissible, finding that a company was entitled to rely on the provisions of the Sixth Directive. It considered that a release from the disputed tax liability, for which there was no statutory basis as it was incompatible with the directive, should be granted for the sums paid unduly in respect of the period from 1 January to 30 June 1978. In the present case, however, the Administrative Court of Appeal dismissed the appeals by the applicant companies, which then appealed on points of law. The Conseil d'Etat dismissed their appeals, finding that the object of the claim, on grounds of negligence on the part of the State, for payment of compensation in an amount equal to that of the value-added tax, was in reality the same as that of a claim for a refund of that tax, and that as such the action was thus subject to the formalities and time-limits laid down in the relevant provisions of the Code of Tax Procedure.
Law: As to the existence of a possession, the legal situation facing the applicant companies was such as to fall within the scope of the Article on which they relied. The tax authorities had begun to give effect to the Sixth Directive only in an administrative circular, which was directed at companies refusing to pay VAT but which completely failed to address the matter of refunds of undue VAT to companies that had already paid it. The Conseil d'Etat had refused to grant refunds to the insurance companies concerned, considering in particular that it should not have to review a national rule in the light of a Community rule. The applicant companies had been denied the benefit of the Directive for a period of almost seven and a half years from the date of notification of the Ninth Directive. It was therefore unacceptable to impose on the companies a time-limit for bringing proceedings when there was no effective remedy under domestic law. Then the Conseil d'Etat had departed from its case-law and an effective remedy for the purpose of obtaining a refund had become available to them through the French administrative courts. However, the applicant companies had submitted their claims several years earlier, following the judgment of the Administrative Court of Appeal, which had upheld such a claim from a company for the first time. But whilst the applicant companies could legitimately have considered that this precedent was capable of making available an effective domestic remedy, that judgment had nevertheless been quashed by the Conseil d'Etat. The binding provisions of the Sixth Directive had still not been incorporated into French law at the time the applicant companies submitted their claims and the departure from case-law by the Conseil d'Etat had been somewhat belated. The applicant companies had nevertheless brought their action in the domestic courts at a time when their right was not only intact, in the light of the applicable Community rules, but also flouted at domestic level by both the authorities and the administrative courts. A limitation period could not therefore be imposed on the applicants in the circumstances of the case. As regards the limitation period in tax matters provided for in the Code of Tax Procedure, the applicants' claim had been based on a Community rule that was perfectly clear, precise and directly applicable. That right had not disappeared with the expiry of the impugned limitation period provided for by the domestic legislation since it was not in dispute that that very legislation had then been in breach of the directly applicable Community law and that the limitation period concerned an ineffective domestic remedy. The fact that the administrative courts had relied on that domestic limitation period could not by itself justify a failure to comply with the present requirements of European law. The unreasonable construction of a procedural requirement which prevented a claim for compensation from being examined on the merits had thereby entailed a breach of the right to the effective protection of the courts. Furthermore, the limitation period in tax matters laid down in the Code of Tax Procedure could not negate a substantive right created by the Sixth Directive. The applicant companies, at the time they lodged their appeals, had had a valid claim against the State for the VAT paid in error. A claim of that nature constituted an asset and therefore amounted to “a possession within the meaning of the first sentence of Article 1 [of Protocol No. 1], which was accordingly applicable in the present case”. In any event, the applicants had had at least a legitimate expectation of being able to obtain the reimbursement of the sum. In the case of S.A. Dangeville v. France (judgment of 16 April 2002, no. 36677/97, ECHR 2002‑III) the Court had found, firstly, that such interference with the peaceful enjoyment of possessions was not required in the general interest and, secondly, that both the negation of the claim against the State and the absence of domestic procedures affording a sufficient remedy to ensure the protection of a right to the peaceful enjoyment of one's possessions had upset the fair balance that ought to have been maintained between the demands of the general interest of the community and the requirements of the protection of the individual's fundamental rights. In the present case, the balance between the demands of the general interest of the community and the requirements of the protection of the individual's fundamental rights had also been upset.
Conclusion: violation (unanimously as regards the company Christian de Clarens and by five votes to two as regards the company Aon Conseil et Courtage).
Article 41 – The Court awarded Aon Conseil et Courtage about EUR 164,000 for pecuniary damage and Christian de Clarens S.A. about EUR 74,000 for pecuniary damage.
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