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Can French taxpayers appeal against an administrative decision refusing them a refund of undue tax where the Kühne & Heitz conditions are met?

In the landmark Kühne & Heitz case, the Court of Justice held that an administrative body is – under certain conditions – obliged to review an earlier decision issued by it in order to take account of a subsequent interpretation given by the Court of Justice of a relevant provision of EU law (Case C-453/00, Kühne & Heitz NV).

In Kühne & Heitz, the Court sought to “strike a balance between the requirement for legal certainty and the requirement for legality under EU law” (Case C-249/11, Hristo Byankov). Indeed, the importance of legal certainty is reaffirmed since “[it is not required] that administrative bodies be placed under an obligation, in principle, to reopen an administrative decision which has become final” (Case C-453/00, Kühne & Heitz NV). However, the requirement of legality with regard to EU law means that “specific circumstances may be capable…of requiring a national administrative body to review an administrative decision…in order to take account of the interpretation of a relevant provision of EU law given subsequently by the Court" (Case C-2/06, Willy Kempter KG v Hauptzollamt Hamburg-Jonas).

More precisely, if an application for such a review is filed with the administrative body, it has the obligation to review the earlier decision if:

  • under national law, it has the power to “revisit that decision” (i.e., reverse or revise that decision);
  • the administrative decision in question has become final as a result of a final judgment of a national court;
  • that final judgment is, in the light of a decision issued subsequently by the Court of Justice of the European Union, based on a misinterpretation of EU law; and
  • the person concerned complained to the administrative body immediately after becoming aware of that decision of the Court of Justice.

Pursuant to Article R. 211-1 of the French Tax Procedure Code, the French Tax Authorities (FTA) may, at their own initiative, grant a refund of undue tax until the end of the fourth calendar year following a court decision. Therefore, given that, under French law, the FTA have the power to review their administrative tax decisions, the obligation to review a prior decision could apply in certain cases.

However, several recent judgments issued by courts in France seem to indicate that taxpayers do not have a right to appeal against a decision refusing a refund of tax which could be granted at the FTA’s initiative, even if the conditions set out in the Kühne & Heitz decision are met (Administrative Court of Montreuil, 10 January 2023, nos. 2001437, 2004656 and 2004657, Sté Frère Bourgeois SA; Administrative Court of Montreuil, 6 June 2023, nos. 2004653, 2004654 and 2009739, Sté Cie Nationale à Portefeuille).

Implications of the principle of procedural autonomy

Under French law, the FTA’s power to grant a refund of undue tax at its own initiative is not just a general ex gratia measure (“mesure gracieuse”) - which is subject to limited judicial review - but rather a “purely” ex gratia one (“mesure purement gracieuse”) and, as such, is not subject to appeal. It is unusual to consider a power resulting from a legal provision to be “purely ex gratia” but this interpretation is justified by the fact that an appeal against a decision to refuse a refund of undue tax that would have been granted at the FTA’s own initiative based on the aforementioned provisions is generally irrelevant since such provisions do not create any rights for taxpayers.

However, in a situation where the conditions set forth in the Kühne & Heitz decision are met and the FTA is obliged to review a final administrative decision, this justification cannot be transposed, and the qualification as a “purely ex gratia” measure appears inappropriate.

According to the rapporteur public (advocate general) in the above-mentioned recent judgments in France, the obligation to review, since it is based on the prior existence of national rules which Member States are under no obligation to adopt, must not be interpreted in such a way as to disregard the principle of procedural autonomy, and, consequently, there must be no modification of the legal regime freely provided for by the Member State (including the absence of any right to appeal).

In our opinion, this statement is incorrect.

If a taxpayer requests the withdrawal of an administrative decision where the Kühne and Heitz conditions are not met, the procedural rules applicable are those of the domestic legal system, by virtue of the principle of procedural autonomy (Cases C-392/04 and C-422/04, i-21 Germany GmbH and Arcor AG & Co KG); on the other hand, if such conditions are met, the review becomes mandatory under EU law even if it is only optional under domestic rules.

As Advocate General Bot underlined in his opinion relating to the Kempter case, “the existence of an obligation of review does therefore depend, above all, on the existence of a national procedural rule... However, this concession to the procedural autonomy of the Member States stops there… Where EU law is misinterpreted by a national court against whose decisions there is no judicial remedy under national law and that court infringes its obligation…to seek a preliminary ruling, Article 10 EC has the effect of converting the power conferred upon an administrative body by national law into an obligation to review a final administrative decision contrary to EU law” (Case C-2/06 Willy Kempter KG v Hauptzollamt Hamburg-Jonas).

As a result, procedural autonomy must not lead to applying the system of discretionary measures to a review which is made compulsory by virtue of the principle of loyal cooperation.

Principles of equivalence and effectiveness

The mere fact that a decision refusing a refund of undue tax pursuant to Article R. 211-1 of the French Tax Procedure Code is generally not subject to appeal, whether or not the situation falls within the scope of EU law, is perhaps not sufficient to consider that the principle of equivalence is complied with. This principle requires that the rule at issue be applied at least as favourably to EU situations as to domestic situations, where the purpose and cause of action are similar.

The difficulty lies in finding the right point of reference for the purposes of the comparison implied by this principle. Since the issue is whether or not the absence of an appeal complies with the principle of equivalence in a situation where the FTA have limited power in applying Article R. 211-1 of the French Tax Procedure Code, should the point of reference be domestic situations where the FTA apply this provision (where there is no right to appeal) or domestic situations where the FTA have limited power (where a right to appeal exists)?

In addition, how should compliance with the right to an effective remedy and the principle of effectiveness be assessed? It is not possible to deduce that they have been complied with simply because the FTA effectively examine the requests that they may receive since both presuppose the possibility of exercising judicial remedy (see Case C-628/15 Trustees of the BT Pension Scheme v HMRC).

Is the existence of a tax appeal, which has been exercised by the taxpayer, sufficient, within the framework set out by the Kühne & Heitz decision, to consider that this requirement has been met? If this case was seen as conferring on the litigant a genuine procedural right to a review of the final administrative decision, then it is the effectiveness of this right that a judicial remedy should guarantee. The Kempter decision, which focuses on the effectiveness of the review itself, appears to support this approach.

To conclude

In a situation where the conditions set forth in the Kühne & Heitz decision are met, the review of the administrative decision becomes compulsory. Consequently, it should not be subject – without adaptation – to a legal regime (where there is no right to appeal) whose logic is based on the freedom which the FTA have in principle under national law. In particular, the principle of procedural autonomy does not seem to us to have such implications. Also, the principles of effectiveness and equivalence, as well as the right to an effective remedy, may in any event prevent such an interpretation.