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Some of Europe's brightest legal minds look at the tax issues across Europe which could impact multinational businesses.

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Precautionary measures: who gets to decide?

In Heavyinstall, the CJEU decided that, where one EU Member State requests that another takes precautionary measures, such as seizing assets, to ensure that the first will be able to recover a tax debt, it is bound by the first’s “assessment of the factual and legal compliance” with the pre-conditions for such measures. The result would seem to be that the latter State is bound to take the requested measures unless they are generally unavailable under its national law.

The decision suggests that a determination by the applicant State’s tax authority could bind the requested State’s courts (where the taxpayer might otherwise have been more likely to be able to make representations) and that, depending on the circumstances and relevant national laws, precautionary measures could be available in intra-EU recovery proceedings where they would not be available in domestic ones. It seems not unlikely that future referrals might seek further clarification of these points.

Court or tax authority assessment? 

In Heavyinstall, a Finnish court had authorised the seizure of a taxpayers’ assets, given the risk that the taxpayer would otherwise act so as to frustrate the recovery of a Finnish tax claim. The Finnish tax authority requested assistance from its Estonian counterpart pursuant to Article 16(1) of MARD and the Finnish court’s decision was attached to that request. The Estonian tax authority consequently asked the relevant Estonian court to authorise the seizure of certain assets and the attachment of a bank account.

The question before the CJEU was whether the Estonian court was bound by the Finnish court’s assessment as to the “necessity and possibility of the precautionary measure”. The Advocate General suggested a narrow response: if an assistance request is accompanied by a judgment of a court in the applicant State, courts in the requested State are bound.

The CJEU’s response went beyond that, stating that an assessment by the applicant State’s “authorities” (rather than merely its courts) is binding. The logical consequence would seem that a determination by the applicant State’s tax authority could bind the courts in the requested State. If this is correct, it could significantly limit taxpayers’ safeguards.

There could be room to argue that the CJEU may not have intended quite so sweeping and categorical an answer – why else would it say that the assessment is binding “in particular where that assessment…”? Could the use of “in particular” hint at an area of grey between being bound or not?

Wider scope to take precautionary measures?

The CJEU decision (in line with the Advocate General’s opinion) confirms that the Estonian court was not entitled to form its own judgment, by reference to Estonian law, on whether or not the conditions for taking precautionary measures were met. Given the Finnish court’s decision that Finnish law allowed precautionary measures in the circumstances of the case, it should automatically follow that such measures could also be taken in Estonia (unless the requested measures are generally unavailable under Estonian law).

In the CJEU’s view, this conclusion is supported by a literal interpretation of Article 16(1) of MARD. I find this hard to follow; I would have read Article 16(1) as requiring the requested authority to take precautionary measures only if, in the circumstances of the case, they are permissible under the laws of the applicant State as well as under the laws of the requested State. Authorities in the applicant State should be well placed to ascertain the factual circumstances and determine whether they justify precautionary measures under the applicant State’s laws – and, in particular where the relevant authority is a court, it seems sensible able that their decision on these aspects should be conclusive when the matters are considered in the requested State. But it is harder to see why it should automatically follow that precautionary measures can be taken in the requested State.

After all, the requested State’s laws may permit such measures only in much narrower circumstances than the applicant State’s laws and, in such a case, the result would be that precautionary measures would be available in intra-EU recovery proceedings where they would not be available in domestic ones. It is arguable that, given its reference to a need for the efficient operation of MARD which could be jeopardised by disparities in Member States’ laws, the CJEU was alive to that issue and thought it irrelevant. But it was also not an issue in Heavyinstall as the Finnish court’s factual findings should have meant that the test in the Estonian legislation was met. It is unfortunate that the CJEU did not make clearer whether that had influenced its decision at all.

Is Heavyinstall relevant in the UK?

 There may be different levels of relevance, depending on the context. The Withdrawal Agreement provides for the continued application of MARD between the UK and EU Member States for 5 years after the end of the transition period, broadly, in respect of amounts that became due before the end of the transition period or thereafter if the relevant transaction took place before. In this context, UK courts and authorities should be required to have “due regard” to Heavyinstall. To the extent that MARD continues to apply in respect of customs and VAT debts under the Northern Ireland Protocol, UK courts should be required to interpret Article 16(1) of MARD “in conformity with” Heavyinstall. Finally, it is possible that Heavyinstall could be cited to aid the interpretation of double tax treaty provisions similar to Article 16(1) of MARD.


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