In the recent judgment 1093/2023, dated July 25th, the Supreme Court has established an interpretative guideline regarding the immediate application by judges of the principles stipulated in European Union Law, without the need to submit a preliminary question to the CJEU when the issue has been clarified in other rulings.
The Supreme Court has thus pointed out that a legal body, in a legal proceeding within its jurisdiction, can annul a fine imposed for an offense, resulting in the non-application of the regulation governing it when the judge or tribunal identifies a violation of European Union Law in the national penalty regulations.
As a rule, a judge or tribunal with jurisdiction must submit a preliminary question related to the interpretation of European Union Law to the CJEU if they consider it essential to obtain a decision to render their judgment. In this context, Article 267 of the Treaty on the Functioning of the European Union (TFEU) provides for the following:
“The Court of Justice of the European Union shall have jurisdiction, with a preliminary nature:
- a) on the interpretation of the Treaties;
- b) on the validity and interpretation of acts adopted by the institutions, bodies, or agencies of the Union;
When a question of this nature is raised before a judicial body of one of the Member States, such a body may request the Court to rule on it if it deems it necessary to decide in this regard to render its judgment.
When such a question is raised in a case pending before a national judicial body, whose decisions are not subject to further judicial review under domestic law, such a body shall be obliged to refer the question to the Court.
When such a question is raised in a case pending before a national judicial body in relation to a person deprived of liberty, the Court of Justice of the European Union shall pronounce itself as quickly as possible.”
Nevertheless, the case law of the CJEU exempts from this obligation in cases where such a preliminary question would be superfluous, as is the scenario in which it has already been clarified, such as in previous judgments of the CJEU.
At the same time, the Supreme Court emphasizes that there is no need to raise a question of unconstitutionality when the court issuing the judgment does not detect any doubt that the legal framework applicable to the case and on which the validity of the judgment depends might be contrary to the Constitution.
Similarly, there will be no need to raise a question of unconstitutionality when the judge or tribunal, even if they have doubts about whether the rule to be applied is constitutional or not, also consider that this rule could be contrary to European Union law. For this situation, the Supreme Court has reiterated the criterion of the Constitutional Court, indicating that the appropriate course of action is to first raise the preliminary question or, failing that, not to apply the rule. In this regard, the Supreme Court relies on the recent judgment of the CJEU in Case C-561/19, dated October 6, 2021, which supports and reinforces the principle of the clear or clarified act.
“The article 267 TFEU must be interpreted in the sense that a national court whose decisions are not subject to further judicial appeal under national law must fulfill the obligation to refer a question concerning the interpretation of Union law that has been submitted to it to the Court of Justice, unless it finds that the question is not relevant, that the provision of Union law in question has already been interpreted by the Court of Justice, or that the correct interpretation of Union law is so evident as to leave no reasonable doubt.
The occurrence of such an eventuality must be assessed in light of the characteristics of Union law, the particular difficulties in interpreting it, and the risk of divergent judgments within the Union.
Such a court cannot be exempt from this obligation solely because it has already referred a preliminary question to the Court of Justice in the context of the same national case. However, it may refrain from making a preliminary reference to the Court of Justice for reasons related to the inadmissibility of the proceedings it is dealing with, provided that the principles of equivalence and effectiveness are respected.”
In the specific case examined by the Supreme Court, the judge had to decide on a penalty imposed in accordance with Article 171.1.4 of the Value Added Tax Law (LIVA). This article establishes that if the amounts for which the recipient of the transactions is liable under the terms of Articles 84.1.2º, 84.1.3º, 84.1.4º, 85, or 140 quinque of the LIVA are not recorded in the corresponding self-assessment, a pecuniary penalty of 10% of the amount corresponding to the unrecorded transactions shall be imposed.
Therefore, this article determines the penalty as a fixed percentage of 10% of the unrecorded amount, without the possibility of considering the absence of economic harm to adjust the penalty. This applies in situations where there is no harm to the public treasury and is not related to any concept of tax evasion.
In this particular case, it involved a transaction in which an investment was made by the recipient in accordance with the provisions of Article 84.1.2º.e) of the LIVA. The taxpayer had not declared it but had also not recorded the VAT amount to which they were entitled to deduct in its entirety.
The State Attorney argued that “a judicial body cannot revoke a penalty imposed for the offense provided for in Article 170.2.4ª of the Value Added Tax Law (LIVA), which consists of not recording in the corresponding self-assessment the amounts for which the recipient of the transactions is liable, based on the violation of the principle of proportionality. This is because Article 171.1.4º of the LIVA quantifies the penalty as a fixed percentage of the unrecorded amount, without the possibility of considering the absence of economic harm to adjust the penalty. Furthermore, no question of unconstitutionality has been raised under Article 35 of the Constitutional Court’s Organic Law (LOTC) regarding this provision.”
On the other hand, the opposing party believed that “The answer to the question raised by the Admission Order should be that, to revoke a penalty imposed under Article 171.1.4th of the Value Added Tax Law (LIVA), the judicial body, if it considers that the application of this provision in the case under consideration violates the principle of proportionality enshrined in EU law and interpreted for substantially identical cases by the Court of Justice of the European Union (TJUE), can, in accordance with the primacy of EU law, refrain from applying that provision within the framework of that procedure without the need to raise a question of unconstitutionality.”
In this way, it argued that the imposition of a fixed pecuniary penalty of 10% of the unreported amount in the self-assessment in cases where the recipient is entitled to a full tax deduction contravened the principle of proportionality. This is because penalties should not exceed what is necessary to ensure the proper collection of the tax and prevent fraud.
The Spanish court, especially the National High Court, considered that this penalty did not comply with the principle of proportionality and, therefore, was contrary to the principles of the European Union. In this regard, the Court of Justice of the European Union (CJEU) had ruled in Case C-564/15, dated April 26, 2017, where it stated:
“The principle of proportionality must be interpreted in a way that it opposes the national tax authorities imposing a penalty of 50% of the value-added tax amount that a taxable person is obligated to pay to the tax administration in a situation like the one in the main dispute. This is even when the tax administration has not suffered a loss of tax revenue, and there are no signs of tax fraud, a matter that the referring court must verify.”
And in judgment C-935/19, dated April 15, 2021, it was stated:
‘Article 273 of Council Directive 2006/112/EC of November 28, 2006, on the common system of value-added tax and the principle of proportionality must be interpreted to the effect that they oppose national legislation that imposes a penalty of 20% of the overvaluation amount of the wrongly claimed VAT refund on a taxable person who has incorrectly classified a VAT-exempt transaction as a taxable one, insofar as this penalty is applied indiscriminately to a situation where the irregularity arises from an error in the assessment made by the parties to the transaction regarding its tax liability, characterized by the absence of signs of tax fraud and loss of revenue for the public treasury, and to a situation where such circumstances do not exist.’
Therefore, it is evident that a tax penalty that does not align with the principle of proportionality or imposes a penalty beyond what is necessary to ensure the proper collection of taxes and prevent fraud, does not adhere to the principle of proportionality. Consequently, judges and courts can exclude such penalties, even without resorting to a preliminary question to the CJEU or a question of constitutionality, in cases where the violation of this principle is clear or has already been addressed in rulings on similar matters.
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