Case C‑118/08, Transportes Urbanos

The Spanish Law 37/1992 provided for limitations on the right of a taxable person to deduct VAT on the purchase of goods or services which were subsidised. Those limitations entered into force as of the 1998 tax year. It Law also provided that every taxable person was required to file periodic tax returns, in which he must calculate the amount of VAT due by him (‘self-assessment’).

In accordance with General Tax Law 58/2003 of 17 December 2003, the taxable person had the right to request that his self-assessments be rectified and, where appropriate, to require that overpayments be refunded. According to Arts 66 and 67 of that law, the limitation period for the exercise of that right was four years, which essentially started to run from the day following that on which the overpayment was made or that of the expiry of the time-limit for submitting the self-assessment if the overpayment was made by that time-limit.

By judgment of 6 October 2005 in Case C-204/03 Commission v Spain [2005], the Court held in essence that the limitations on the right to deduct VAT laid down in Law 37/1992 were incompatible with Arts 17(2) and (5) and 19 of the Sixth Directive.

Transportes Urbanos, which had made self-assessments for the tax years 1999 and 2000 in accordance with Law 37/1992, did not avail itself of its right to request, pursuant to General Tax Law 58/2003, the rectification of those self-assessments. It is common ground that such a right was time-barred at the date on which the Court delivered its judgment in Commission v Spain.

Transportes Urbanos then brought an action for damages before the Council of Ministers against the Spanish State. In that action, it submitted that it suffered loss in the amount of EUR 1 228 366.39 on account of breach by the Spanish legislature of the Sixth Directive, that breach having been established by the Court in Commission v Spain. That amount corresponded to the VAT payments unduly collected by the Spanish tax authorities during the tax years 1999 and 2000 and the repayments which Transportes Urbanos could have claims for those years.

By decision of 12 January 2007, the Council of Ministers dismissed the application of Transportes Urbanos, holding that its failure to request rectification of those self-assessments within the period prescribed for that purpose had broken the direct causal link between the breach of European Union law alleged against the Spanish State and the loss allegedly sustained by that company.

That decision of the Council of Ministers was based in particular on two judgments of the Tribunal Supremo (Spanish Supreme Court) of 29 January 2004 and 24 MAy 2005, according to which actions for damages against the State in respect of a breach of European Union law were subject to a rule requiring prior exhaustion of administrative and judicial remedies against a challenged administrative measure adopted pursuant to national legislation contrary to European Union law.

On 6 June 2007, Transportes Urbanos brought an action against the decision of the Council of Ministers before the Tribunal Supremo.

By its question, the national court asked in essence whether European Union law precluded a rule of a Member State under which actions for damages against the State, alleging a breach of that law by national legislation, were subject to a condition requiring prior exhaustion of remedies against a harmful administrative measure, when those actions were not subject to such a condition where they alleged a breach of the Constitution by national legislation.

The Court first of all stressed that the question referred should be examined in light of the principle of State liability and the principle of equivalence, although the latter principle did not require that Member States were to extend their most favourable rules to all actions brought in a certain field of law (Case C63/08 Pontin [2009]).

Referring to Brasserie du pêcheur and Factortame, the Court furthermore clarified that reparation of the damage caused by a breach of European Union law by a Member State was not conditional on the requirement that the existence of such a breach must be clear from a preliminary ruling delivered by the Court (Joined Cases C178/94, C179/94 and C188/94 to C190/94 Dillenkofer and Others [1996]).

However, in the case in the main proceedings, Transportes Urbanos had expressly based its action for damages on the judgment in Commission v Spain, given pursuant to Art. 226 EC, in which the Court found that Law 37/1992 was in breach of the Sixth Directive.

The Court held that if Transportes Urbanos had been able to based its action for damages on a judgment of the Tribunal Constitucional declaring the legislation in question to be void on the ground of breach of the Constitution, that action might have succeeded, irrespective of the fact that that company had not requested the rectification of those self-assessments before the time-limits for doing so had expired.

The Court concluded that the answer to the question referred was that European Union law precluded the application of a rule of a Member State under which an action for damages against the State, alleging a breach of that law by national legislation which had been established by a judgment of the Court given pursuant to Art. 226 EC, could succeed only if the applicant had previously exhausted all domestic remedies for challenging the validity of a harmful administrative measure adopted on the basis of that legislation, when such a rule was not applicable to an action for damages against the State alleging breach of the Constitution by national legislation which had been established by the competent court.

Text of Judgment