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June 30, 2022
2022-5630

CJEU rules that Spanish rules on compensation for damages by the State are against EU law

On 28 June 2022, the Court of Justice of the European Union (CJEU) declared that certain Spanish provisions regulating the compensation for damages caused by legislative acts that are in breach of European Union (EU) law are themselves in breach of the principle of effectiveness. These principles limit the procedural and substantive autonomy of the Member States when they set the conditions for State liability for breaches of EU law.1

The CJEU has determined that Spain has failed to fulfil its obligations under the principle of effectiveness, since the Spanish rules on State liability make compensation for the loss or harm caused to individuals by the Spanish legislature as a result of an infringement of EU law excessively difficult, as they are subject to the following conditions and limitation:

  • The condition that there is a decision of the CJEU declaring that the statutory provision applied is incompatible with EU law.

  • The condition that the individual harmed has obtained, before any judicial court, a final decision dismissing an action brought against the administrative act which caused the loss or harm, without providing for an exception for cases in which the loss or harm stems directly from an act or omission on the part of the legislature, contrary to EU law, without there being any administrative act open to challenge.

  • A limitation period of one year from the publication in the Official Journal of the decision of the Court declaring that the statutory provision applied is incompatible with EU law, without covering cases in which such a decision does not exist.

  • The condition that compensation may be awarded only in respect of loss or harm which occurred within five years preceding the date of that publication, unless otherwise provided for in that decision.

Impact

While some of these conditions were already rejected by the Spanish Supreme Court in the past, this judgment confirms infringement of EU Law. Accordingly, these Spanish provisions may be amended in the future. Notwithstanding such amendments, the above requirements no longer limit the State liability procedure in respect of claims for compensation for the loss or harm caused to individuals by the Spanish legislature as a result of an infringement of EU law.

There have been a number of cases in recent years where the Spanish Supreme Court has assessed that Spanish rules infringe EU law (among others, Spanish provisions affecting dividend withholding tax reclaims by non-EU funds comparable to EU UCITS2 funds, Spanish pension funds or Spanish sovereign funds3).

Claims can now be brought in action for State liability in cases where the limitations that the CJEU has now declared contrary to EU law had precluded that possibility and were statute barred.

The CJEU judgment only refers to the State liability in respect of compensation due to infringement of EU law and not to a case where the compensation is sought for a Spanish provision that has been declared unconstitutional. Nonetheless, it may not be ignored that this judgment may potentially impact the Spanish rules governing State liability in the latter case. However, this would generally require a different litigation procedure and/ or an amendment of these rules.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, Madrid

Ernst & Young LLP (United States), Spanish Tax Desk, New York

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Endnotes

  1. Judgment of the Court of Justice in Case C-278/20, Commission v Spain.

  2. UCITS: Undertakings for the Collective Investment in Transferable Securities.

  3. See EY Global Tax Alerts, Spanish Supreme Court issues favorable decision on reclaims for US RICs, dated 26 November 2019, Spanish Supreme Court issues favorable decision on reclaims by non-Spanish pension funds, dated 26 January 2021, and Spanish Supreme Court issues favorable decisions on reclaims by non-Spanish sovereign funds, dated 25 March 2021.

 
 

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