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23rd December 2020
Institutional law Tax

Op-Ed: “The first referral of the Portuguese Constitutional Court to the Court of Justice: historical moment or nothing out of the ordinary?” by Rui Tavares Lanceiro

The Portuguese Constitutional Court (PCC) has referred its first question to the Court of Justice of the EU for a preliminary ruling on a tax matter concerning the treatment of second-hand cars imported from other Member States (Judgment 711/2020, only available in Portuguese).

The background to the Judgment

The PCC’s decision to refer was taken in the context of proceedings between a car importer and the tax authorities, concerning the illegality of vehicle tax assessment decisions. The question was brought before a tax arbitral tribunal that considered the legal provision of the Vehicle Tax Code, which served as the legal basis for the decisions, to be contrary to Article 101 TFEU. Setting that national legal provision aside, the tribunal judged the tax assessment decisions to be void.

The issue underlying this case concerns the interpretation of Article 110 TFEU and its application in the field of car taxation, in particular compliance with this provision by national rules on the tax burden on second-hand cars. In this matter, following two Portuguese cases on this subject [the Nunes Tadeu (C-345/93) and the Gomes Valente (C-393/98) cases], the CJEU considered that Portugal was infringing Article 110 TFEU in the Commission v Portugal case (C-200/15). The reason was that Portugal applied, for the purposes of determining the taxable value of second-hand vehicles from another Member State brought into the territory of Portugal, a system that did not take account of their depreciation in some cases.

Following this judgment, Portugal amended its Vehicle Tax Code, correcting the problem. The Code establishes that the tax rates applicable to vehicles are based on two components: (i) cubic centimetres per cylinder capacity (cylinder capacity component); and (ii) grams of CO2 per kilometre (environmental component). Although the amendment of the Vehicle Tax Code introduced the taking into consideration of the depreciation of the value of the cars, this only occurs in relation to the cylinder capacity component, which left the problem of its application to the environmental component.

It is this problem that is under consideration in the case brought before the PCC. The reasoning of the arbitral tribunal in the appealed decision was that the rules applicable do not take into account any reduction related with the depreciation of the value of second-hand cars on the environmental component of the Vehicle Tax when calculating the tax levied on used vehicles imported from other Member States. This means that, in this case, the tax due exceeds the amount of the residual tax incorporated in the value of similar vehicles already registered in the national territory, which is at odds with Article 110 TFEU.

The PCC’s jurisdiction to control compliance with international treaties

The Constitution of the Portuguese Republic does not expressly give powers to the PCC to control the compliance with international treaties by national laws.

During the 1980s a number of conflicting decisions were made by two of its three Sections (there are three non-specialised chambers in the PCC) over the existence of jurisdiction to control the incompatibility between national law and international treaties. This led to the amendment of the Law of the PCC in 1989, and the introduction of an express provision on this matter. According to Article 70(1)(i) of the Law of the PCC, there is the possibility to appeal to the PCC any court decision that rejects ‘the application of a rule appearing in a legislative act on the grounds that it contradicts an international convention’. In this case, the drafters of the law did not qualify the ‘contradiction’ with an international treaty as a matter of constitutionality or illegality, merely stating that the scope of the appeal to the PCC was restricted to matters of constitutional and international law. This means that the PCC can only control the part of the judgment dealing with those matters.

In the present case, the PCC considered that the appeal of the decision from the tax arbitration tribunal fell under its jurisdiction and that it was a matter of contradiction between a provision of the Vehicle Tax Code and an international treaty binding for Portugal (the TFEU).

The question referred  

The Tax Authority appealed the arbitral decision to the PCC arguing that the disapplication of the national provision for breach of Article 110 TFEU did not take into account the correct interpretation of the EU Treaties. According to that argument, the aim of the tax scheme is to burden taxpayers on the basis of the costs caused to the environment by their choices as consumers, based on the polluter pays principle (provided for in Article 191(2) TFEU), leading them to opt for vehicles with lower carbon dioxide emissions. According to this line of argument, the legislator did not intend to restrict the entry of used cars into Portugal, but only to ensure respect for the environment. The appellant therefore argued that a joint interpretation of Articles 110 and 191 TFEU should be carried out, reconciling the prohibition of discrimination against products from other Member States with environmental protection.

The Court also mentioned that the rule of the Vehicle Tax Code in question had led the Commission to bring an action for infringement against the Portuguese Republic under Article 258 TFEU on 23 of April 2020 (Case C-169/20). In that action, the Commission asks the Court to ‘declare that, in not applying depreciation to the environmental component when calculating the value applicable to used vehicles imported into Portuguese territory, purchased in other Member States, in the calculation of registration tax, the Portuguese Republic has failed to fulfil its obligations under Article 110’ TFEU. The action is pending.

Taking into consideration the tax arbitral tribunal and the arguments of the appellant, the PCC decided that the case involved determining the correct interpretation of one of the TFEU, so that its subject-matter fell under Article 267(1)(a) TFEU. It also considered that ‘there can be no doubt that the Constitutional Court falls within the definition of a “national court whose decisions are not subject to judicial review under national law”’. Therefore, the PCC decided to refer the following question to the Court of Justice for a preliminary ruling:

Can Article 110 TFEU, alone or together with Article 191 TFEU, in particular its second paragraph, be interpreted as not precluding a rule of national law which omits the environmental component in the application of reductions linked to the average commercial devaluation of vehicles on the national market to the tax levied on second-hand vehicles with final Community registration granted by other Member States of the European Union, allowing the value thus calculated to be higher than that for equivalent national second-hand vehicles?

Comment 

This is a historic moment for the PCC. It has decided to refer its first preliminary question to the CJEU, in a unanimous judgment correctly applying Article 267 TFEU.

Nevertheless, one must bear in mind that, in the present case, the Court referred the preliminary question not in the context of constitutional judicial review but of judicial review of compatibility of national law with an international treaty. This means that, in these proceedings, it was not confronted with a hard case of balancing a constitutional provision and EU law. There was previous case law of the CJEU in the matter of tax burden of second-hand cars and the case presented before the PCC is a clear-cut case of interpretation of the EU Treaties. In that sense, the referral should be considered nothing out of the ordinary.

That would be a mistake. The decision to refer this question is important because it will give the appellant their day in the EU courts and allow the CJEU to decide on this matter, balancing the principle of non-discrimination and the protection of the environment. Moreover, this decision shows the way in which the PCC can play a role in the control of compliance of national provisions with EU law. However, this is a narrow path because the appeal to the PCC is only possible after obtaining a decision by another court of disapplication of the national provision and only in cases of breach of EU primary law. The action of the PCC in this area will probably remain very limited.

In any case, 2020 has become a historic year for the relationship between the PCC and EU law. The Court has already issued its first ruling on primacy of EU law over the Constitution and its limitations (already presented here) this year, in July, and is now requesting its first preliminary reference ruling from the CJEU. As Portugal has been a Member State of the EU since 1987, many have wondered why there were no referrals up until now. There have been previous instances where EU law was addressed and its normative value taken into consideration, but the Court had always found reasons not to refer questions to the CJEU, namely through the application of the acte clair (or acte éclairé) doctrine. There were also arguments stating that the nature of the Court’s jurisdiction was only to review the constitutionality of national law, leaving matters of EU law to the other courts.

2020 can, thus, be considered a coming-of-age moment of the PCC in relation to the EU legal order.

 

Rui Tavares Lanceiro is an Assistant Professor at the University of Lisbon Law School, having recently published his PhD thesis. He is researcher of the Lisbon Centre for Research in Public Law (CIDP) and advisor to the Portuguese Constitutional Court.

 

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