December 9th was the day when the Portuguese Constitutional Court (‘PCC’) referred its first question for preliminary ruling to the Court of Justice of the European Union (‘CJEU’) (Case no. 711/2020 of 9th December, available here).
By doing so, it officially put into practice what it had already recognized in a previous ruling several months before (Case no. 422/2020 of 15th July, available here and discussed here), namely the importance of the judicial dialogue between national courts and the CJEU and the latter’s exclusive competence to interpret and assess the validity of EU law.
Circumstances of the case
A Portuguese company selling second-hand cars imported from other Member States sought before the Center for Administrative Arbitration (Centro de Arbitragem Administrativa, ‘CAAD’) the partial annulment of a tax assessment notice and the reimbursement from the Portuguese Tax Authority (Autoridade Tributária, ‘AT’) of part of the amounts paid under the Vehicle Tax Code (Código do Imposto sobre Veículos, ‘CISV’). It argued that Article 11 of said Code was in breach of Article 110 TFEU and should therefore be disapplied by the national tribunal.
Pursuant to Article 110 of the Treaty on the Functioning of the European Union (‘TFEU’), ‘no Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products’.
Under Article 11 of the CISV, pertaining to the taxable value of second-hand cars imported from other Member States, depreciation is applied only to the cylinder component used to calculate the value of a used vehicle. Differently, when it comes to vehicles sold on national territory, depreciation is also applied to the environmental component. Second-hand imported vehicles are thus subject to a less favourable tax treatment when compared to similar national ones, allegedly contravening Article 110 TFEU.
The Arbitral Tribunal decided in favour of the Claimant, finding that the internal tax calculation of second-hand cars was in breach of anti-discriminatory EU tax law (Article 110 TFEU). Accordingly, it refused to apply the national provision at stake.
Appeal before the Constitutional Court
The AT filed an appeal before the PCC, on the grounds that the appealed decision wrongly refused to apply a national provision due to its incompatibility with an international treaty (Article 70 (1) (i) of the Law of the Constitutional Court - Law no. 28/82, 15th November).
To support its appeal, the AT argued that Article 110 TFEU should be read in combination with Article 191 TFEU, which provides for environmental protection. In the appellant’s view, Article 11 of the CISV is based on the polluter-pays principle and seeks to discourage consumers from buying vehicles with high carbon dioxide emissions. Consequently, since it also attempts to comply with EU objectives, namely Article 191 TFEU, it should not be deemed contrary to EU law.
The Decision
The PCC recalled its findings in Case no. 422/2020, restating its full recognition of the principle of primacy of EU law and the resulting exclusive competence of the CJEU to interpret and assess the validity of EU law, through the preliminary ruling procedure instituted by Article 267 TFEU.
In addition, it pointed out that this procedure is a consequence of the principles of sincere cooperation and mutual respect and a general manifestation of the dialogue that ought to prevail between national and EU courts.
According to Article 267, paragraph 2, TFEU, any national court or tribunal faced with any issue involving the interpretation or the validity of EU law in a case pending before it may refer a question to the CJEU. Conversely, when such question is raised in a case pending before a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, that court or tribunal shall bring the matter before the CJEU (Article 267, paragraph 3, TFEU).
Confirming its nature as a court against whose decisions there is no judicial remedy under national law and considering that the case at stake raised a question concerning the interpretation of Article 110 TFEU, the PCC concluded that the conditions for it to refer its first question for preliminary ruling to the CJEU since Portugal’s accession were met.
After summarizing both the factual and legal frameworks for the reference for preliminary ruling, the PCC explained the reasons behind its doubts of interpretation and pointed out that the issue of application of Article 110 TFEU to matters covered by the CISV had already been raised before the CJEU, in the context both of preliminary rulings and infringement procedures. However, the CJEU has not yet ruled on the environmental component specifically at stake in this case.
Comment
Focusing first on the consequences of this case for the tax regime at stake, should the CJEU confirm that Article 110 TFEU is contrary to a national provision such as Article 11 of the CISV, an amendment of the said Code is likely to occur. In fact, the tax reduction based on the cylinder component was introduced in the CISV following an infringement procedure brought by the European Commission and the subsequent CJEU’s ruling. Likewise, the lack of an environmental component in Article 11 has led to another infringement procedure, currently pending before the CJEU (C-169/20). Therefore, this reference for preliminary ruling might urge the Portuguese legislator to introduce a tax reduction applicable to vehicles from other Member States concerning the environmental component.
From a broader perspective, 2020 has been a remarkable year for the relationship between the PCC and the CJEU.
In July, as we mentioned before, the PCC declined jurisdiction to rule on the validity of an EU provision in light of the principle of equality enshrined in the Portuguese Constitution. In its final decision, the PCC recalled some of the basic principles of EU law, such as primacy and direct effect, first formulated in the landmark rulings of Costa v. Enel and Van Gend en Loos. As we pointed out back then, this could signal the PCC’s willingness to resort to the preliminary ruling procedure.
Indeed, that is precisely what happened. Five months later, the first request for preliminary ruling was made by the PCC to the CJEU. This ruling thus follows the path initiated in July. Firstly, the PCC acknowledged its lack of jurisdiction to interpret and assess the validity of EU law, a matter falling under the exclusive competence of the CJEU. Subsequently, recognizing the need to interpret an EU law provision to enable it to give judgment in the case at stake, it decided to stay the proceedings and refer a question for preliminary ruling to the CJEU.
The two judgments represent a remarkable step forward in the interplay between the two legal orders. Almost 30 years after the first reference for preliminary ruling was made by a Portuguese court - Mecanarte Metalurgica da Lagoa v Alfândega do Porto, Case C-348/89 -, the PCC finally agreed to participate in the judicial dialogue with the CJEU.
In fact, the preliminary ruling procedure is a key element of the European project. It enables the coexistence of multiple national legal orders with an international set of rules prevailing over the former, albeit without a hierarchy of courts being established. The preliminary ruling procedure thus ensures uniform interpretation of EU law in all Member States and guarantees its effectiveness.
The timing for this judgment could not be better, taking into account that the Portuguese Presidency of the Council has just started. It is now time for the Portuguese judiciary to play a more active role in the application of EU law and the building of a common European legal order. The PCC, the guardian of the Portuguese Constitution, is thus showing its willingness to go a step further and to cooperate with the CJEU in the task of assuring the correct interpretation and application of EU law within its jurisdiction.
Finally, since the question for preliminary ruling also concerns the interpretation of Article 191 TFEU, this case might also give the Court of Justice the opportunity to build on its case-law on environmental protection, undoubtedly a hot topic nowadays.
As a final remark, we hope that this is the first of many chapters in the process of judicial cooperation between the PCC and the CJEU. If this is so, citizens’ rights will indisputably be reinforced and the EU’s legitimacy will be enhanced.