Classic: the Irimie judgment

Member states must repay tax levied contrary to EU law, together with appropriate interest. Irimie laid the foundation for that, but not every correction gives a right to such interest.

Where a business pays too much or too little VAT for a period, it can file a supplementary return. In some cases interest follows: the business either receives or owes interest on the amount underpaid or overpaid. Alongside that there is collection interest, charged where an assessment is paid late and paid out where an assessment already settled is reduced. On that last point the Court of Justice handed down the Irimie judgment in 2013.

The Irimie judgment

In Irimie, Mariana Irimie was in dispute with the Romanian tax authorities over the purchase of a car registered in Germany. On registering the car in Romania she became liable to an environmental tax under Romanian law. That national rule was contrary to EU law, and the Romanian court accordingly held that she was entitled to repayment.

Ms Irimie also asked for statutory interest on the tax from the date she paid it. Under national law the court could not grant that request: national case law provided that interest on amounts repayable from public funds runs only from the day after the repayment request. The court therefore referred a question:

Does EU law preclude a national rule under which the interest granted on repayment of tax levied contrary to EU law runs only from the day following the day on which repayment was requested?

Ms Irimie and the European Commission argued that it does. The Romanian, Spanish and Portuguese governments took the opposite view.

The Court held that settled case law obliges member states to repay taxes levied contrary to EU law. There is also a right to repayment of amounts directly connected with that tax, including the losses resulting from money being unavailable because the tax was payable prematurely.

In the absence of uniform rules it is for the member states to set the conditions under which interest is paid. Those conditions must respect the principles of equivalence and effectiveness: they must not be less favourable than those for similar claims under national law, and must not make the exercise of rights conferred by EU law practically impossible or excessively difficult.

Under the principle of effectiveness a taxpayer must receive appropriate compensation for the loss suffered through the undue payment. The Romanian rule was therefore contrary to EU law.

Consequences in the Netherlands

To bring national law into line with the judgment, article 28c of the Dutch Collection Act was introduced with effect from 1 January 2015. Under it a taxpayer can request a refund where tax has been levied contrary to EU law. This collection interest, sometimes called Irimie interest, is calculated over the period beginning the day after payment and ending the day before repayment.

Why this still matters

Earlier this year, in Gemeente Dinkelland, the Court held that there is no breach of EU law of the Irimie kind where a taxpayer claims interest after it emerges that, because of errors in its accounts, it did not exercise its right to deduct in full and therefore changes the way the deductible VAT is calculated. It was entitled to a refund of tax interest, however.

Collection interest therefore cannot be reclaimed in every case. Where a business has made administrative errors of its own, it should not count on Irimie interest when those errors are corrected.