Press Room

25 Sep 2020

The EU: Not the end of the Court of Justice of the European Union

One of the aims of Brexit was to stop those pesky judges of the Court of Justice of the European Union, (CJEU) or the ECJ in old speak, sitting in Luxembourg from telling us Brits what we can and can’t do. That is a matter for UK judges, (unless it is about Brexit, in which case our judges should do as the editors of the Daily Mail and Daily Express want).

However, the recent Swiss Supreme Court case of AA Ltd v Federal Tax Administration [2C_354 / 2018] shows how the court may have a lasting effect upon the UK, even after we have gone, and even if we do not have any sort of bi-lateral agreements with the EU.

The weight of overseas judgments

When seeking to interpret legislation, the UK courts have always had the option to consider judgements of overseas courts, with the weight given to the judgments being based upon the standing of the court. The musings of a lower court from somewhere that does not have a history of judicial independence will be given less weight than that of a final court, especially one where UK Supreme Court judges sit – hence the quoting of Riberio PJ’s judgment in Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 46, from the Hong Kong Court of Final Appeal in many UK tax cases. That being said, given the current situation in Hong Kong, we will have to see if any future decisions are given such consideration.

Further points in a foreign court’s favour will be if they are considering an international agreement or publication that is also used in the UK. An example here would be the OECD’s commentary to the Model Tax Convention. It also helps if the country is a common law jurisdiction, especially one whose laws are based on (usually quite old) UK laws.

The shadow of the CJEU

The CJEU qualifies as a sufficiently prestigious and respected court for the UK to give its judgments weight, even if most of the justices are from civil law countries. Also, the EU could be considered a quasi-civil law jurisdiction even if the Member States apply any decisions etc. according to their national system.

It won’t be using old UK decisions but it may well be interpreting common terms used in international treaties and agreements. A prime example are the “Danish cases” (Cases C-115/16, C-118/16, C-119/16, C-299/16, C-116/16 and C-117/17)) where the CJEU commented upon beneficial ownership as it applied to the Interest and Royalties Directive and the OECD commentaries on the subject. The Court found that they could take the commentaries into consideration as the directive drew upon the model tax convention and they were clearly aimed at the same subject, that of reducing (not avoiding) international double taxation.

As the UK courts routinely refer to the OECD’s commentaries (and HMRC have a big hand in writing them) we can expect the CJEU’s decisions in the Danish cases to be referred to the next time “beneficial ownership” comes before the UK courts.

It should be noted that the Great Repeal Bill has left both the EU’s Interest and Royalties Directive and Parent Subsidiary Directive firmly in UK legislation, albeit “one-way” since the recipient of the payment has to be in a Member State which covers payments out of the UK but not those coming in. Therefore, we can expect the CJEU’s decisions to still have near direct effect unless and until UK legislation in these areas is amended.

What comes next?

The Swiss Supreme Court decision mentioned above was not about any of the EU’s directives, but about the Swiss-EU Agreement. Here, the Swiss Supreme Court held that under both the Vienna Convention on the Law of Treaties and the principle of common interpretation, where both parties to an international agreement will seek to interpret a treaty the same way (where they can) ,they referred to the CJEU’s decision. It is notable, however, that they differed from the French Courts as to whether the CJEU were implying a beneficial ownership limitation in their decision.

Therefore, when, or if, we get any agreement with the EU, we can expect the UK courts to look at judgments of the CJEU very carefully, especially where a common international principle is being examined by the CJEU and the UK is looking at the same issue.

Not all said and done

Given the increasing breadth of the OECD’s reach in international taxation matters, the UK’s championing of the commentaries and the EU and OECD often seeking to harmonise common areas (BEPs Action 5 and DAC3 cover the same area and have very similar reporting requirements), we can expect decisions of the CJEU to have an effect on UK taxation for many years to come. And this is even before we have any agreement between us.

If you have any queries regarding the UK’s double taxation agreements, please contact Andrew Parkes on +44 (0)7522 229 589 or or Miles Dean on +44 (0)7785 770 431 or