The direct effect of EU legislation
The EU has various legal instruments at its disposal for realizing its objectives. Of these legal instruments, directives are the most pertinent to taxation, with regulations being less important. Regulations are the instruments used to achieve uniformity in national legislation. They are binding in their entirety and directly applicable to everyone, without the need for codification in national legislation, except for potential implementation measures. One example of this is the regulation on the statute for a European company (SE).
Directives are the instruments used to harmonize or coordinate national legislation. They address the Member States and bind them with respect to the results they prescribe. Member States are free to choose the form and means they use to achieve those results through their own national legislation; however, that national legislation must enable their citizens to establish all the rights they have pursuant to a directive. To achieve this, Member States must implement directives in their national legislation by the implementation deadlines stated in the relevant directives.
The EU’s legal system is autonomous, and it supersedes national and bilateral law. This applies to the EU Treaty, as well as to secondary law, which includes directives and regulations. The primacy of EU law is both retroactive and proactive, which means that older legislation that contravenes EU law must be repealed, and new legislation that contravenes EU law will have no legal effect. This is required, for instance, to complete the creation of the single market. If EU law contains a provision governing a certain matter, a national court must apply that law and disregard national law.
If a Member State fails to implement a directive, or does so incompletely or incorrectly, nationals of that Member State may rely on the direct effect of the provisions of that directive. Those nationals may hold a Member State that has been negligent in implementing a directive liable for any loss they incurred, provided that the following three conditions have been satisfied:
- the directive must grant certain rights to private individuals;
- the directive must permit the establishment of such rights; and
- there must be a causal link between the loss incurred and the Member State’s negligence.
The Member State concerned must designate the court competent to decide on the matter and establish a loss-recovery procedure. It is a precondition, however, that claims based on EU law may not be treated less favorably than those based on national law. Moreover, loss recovery may not be made impossible or extremely difficult in practice.