Right to Interest on Wrongful Import, Export, and Anti-Dumping Duties

The three joined cases illustrate disputes between German companies and national customs authorities over the repayment of export refunds, anti-dumping duties, and import duties. Additionally, these cases center around whether interest is due for the period during which the sums were wrongfully withheld or imposed. 

Considering that merging or joining cases is not a common practice, the background of each case, as well as the Court's conclusion and reasons for joining them, provides a unique perspective on how the Court approaches cases handled by it, and how it interprets EU legislation.

Background of the Cases

Since merging the cases is an exception rather than the rule, understanding the key issues requires examining the backgrounds of all three cases and identifying their common content, which led to the ECJ's decision to merge them into a single case and issue a unified ruling.

Case 1: Case C‑415/20 - Gräfendorfer v Hamburg Customs Office

The first case involves Gräfendorfer, a German company that exports poultry carcasses, and the Hamburg Customs Office, which denied the company's request for export refunds for shipments made between January and June 2012. The main reason for rejecting the refund request and imposing a penalty on the company was the Customs Office's claim that the poultry did not meet the fair marketable quality standard under EU export refund rules.

However, since the Hamburg Finance Court, relying on a prior judgment by the Court of Justice of the European Union (ECJ), which ruled in unrelated proceedings that the presence of some feathers and giblets does not disqualify poultry carcasses from export refunds, the Customs Office reversed its earlier stance, granted Gräfendorfer the refunds, and reimbursed the penalty.

Nevertheless, in 2015, the company requested interest on both the refunded sums and the reimbursed penalty for the time it was deprived of those sums, which the Customs Office denied and dismissed the subsequent administrative appeal. 

Following this decision, the company, in 2018, brought an action before the Hamburg Finance Court, arguing that EU law grants individuals the right to claim not only repayment of sums wrongly withheld or imposed by national authorities in breach of EU law, but also interest for the entire period during which they were deprived of those sums. The Finance Court noted that neither EU law nor German national law explicitly provides a legal basis for such an interest claim, meaning the issue had to be examined through the principles established in EU case-law.

By further examining the facts of the case, the Finance Court determined that EU law recognizes the right to interest as compensation when charges, taxes, levies, or duties are paid in breach of EU law, adding that one of the amounts in dispute here was not a tax or charge but a financial penalty. That determination raised a question of whether the repayment of such a penalty should also include interest.

Due to the lack of EU case law, and since German law does not recognize interest as a general entitlement but only in narrowly defined situations, the Finance Court found it necessary to refer the matter to the ECJ to clarify whether EU law requires interest in cases like Gräfendorfer’s.

Case 2: Case C‑419/20 - Reyher v Hamburg Customs Office

Similar to the first case, the second case includes a German-based company, Reyher, and the Hamburg Customs Office. In 2010 and 2011, the company imported fasteners from an Indonesian supplier, which was a subsidiary of a Chinese company. After reviewing the customs papers, the Customs Office classified the fasteners as originating from China and applied the anti-dumping duties established by EU Regulation No. 91/2009, requiring Reyher to pay the corresponding charges.

Even though the company paid the imposed duties, it also challenged the decision before the Hamburg Finance Court. The Finance Court ruled in favour of the company, stating that the Customs Office had not proven that the goods originated in China. Therefore, the anti-dumping duties were not legally owed. Consequently, in May 2019, the Customs Office reimbursed Reyher the duties paid, but did not pay interest on the repaid amount for the period during which the funds had been unavailable.

This resulted in Reyher initiating legal action before the Hamburg Finance Court in February 2020, arguing that under EU law and case law, anyone who has been unlawfully charged with anti-dumping duties is entitled not only to reimbursement of those duties but also to interest covering the entire period from payment to repayment.

The Finance Court interpreted EU and German law, determining that there are no applicable provisions that provide for interest during the gap between the imposition of the duties and the initiation of legal proceedings. However, one question remained open: whether EU law obliges national authorities to pay interest for the full duration between the unlawful payment of anti-dumping duties and their eventual repayment, even when national legislation restricts such entitlement to a shorter timeframe.

Case 3: Case C‑427/20 - Flexi v Kiel Customs Office

Flexi, a German company that imports bolt hooks used in the production of dog leashes, is another company involved in a dispute over the proper tariff classification of its products. Unlike the previous two cases, Flexi disagreed with the Kiel Customs Office, which determined that the bolt hooks should be classified under a different heading in the Combined Nomenclature than the one declared by the company, resulting in higher import duties.

The company initiated legal proceedings over this matter in 2014, which resulted in a ruling by the Federal Finance Court in 2017, confirming that Flexi had correctly classified the products. Additionally, the Court annulled the Customs Office assessments. This meant that the Customs Office had to repay the excess duties charged to the company.  Similar to the other two cases, the Customs Office refused to grant interest on the refunded amount for the period between the payment of the contested duties and their eventual repayment.

Flexi initiated another legal proceeding, which resulted in the Customs Office paying interest, but only for the period from the date the company initiated those legal proceedings until the date of repayment. However, the question of whether interest should also cover the earlier period, namely, from the initial payment of the duties until the start of litigation, remained unresolved.

The Hamburg Finance Court, which was handling this case, questioned whether Flexi could rely directly on the ECJ’s case-law to claim such interest in the absence of explicit provisions in either EU secondary legislation or German national law.

Main Questions from Request For Ruling

Regarding the first case, the Hamburg Finance Court referred two questions to the ECJ. With its first question, it asked whether the EU law also requires EU countries to repay, with interest, duties levied in breach of EU law in cases where repayment is triggered not by the Court finding an EU law provision invalid, but instead by the Court interpreting a tariff of the Combined Nomenclature differently from the one used by national authorities.

The second question asked whether the principles developed by the ECJ regarding claims to interest also extend to situations involving export refunds. The particular emphasis was put on whether interest must be paid when national authorities have wrongly refused such refunds in breach of EU law, thereby depriving exporters of funds to which they were entitled.

The questions raised in the second and third cases were similar, but with specific differences. Both questions seek clarification of what constitutes an infringement of EU law for the purpose of claiming interest. 

However, the second case cited the scenario in which a national authority imposes a duty under EU law. Still, later, a national court finds that the factual conditions justifying the duty were not actually present.  In the third case, the scenario involves a national authority imposing a duty in direct breach of valid EU law, and a national court confirming that breach.

Applicable EU Directive Article

In these cases, the ECJ did not consider articles and provisions of the EU VAT Directive. Instead, relevant articles and provisions from the Community Customs Code, established by Council Regulation No 2913/92, which the Union Customs Code later replaced under Regulation No 952/2013, were in focus. Primarily, Articles 236(1), 241, and 116. Additionally, the ECJ interpreted the relevant provisions from Commission Regulation No. 800/1999, later replaced by Regulation No. 612/2009, which established the detailed rules for these refunds. 

German National Rules

Regarding the German national legislation, the ECJ interpreted key provisions from the German Tax Code, which governs all taxes, including EU or federal tax rebates administered by German authorities, while ensuring compliance with EU law. Additionally, the German law, which implements the common organisation of markets and direct payments and regulates agricultural benefits, including export refunds, was also considered and interpreted.

Importance of the Case for Taxable Persons

Considering how import and export procedures can be complex, and the consequences that may arise for those not complying with rules and regulations, these cases are highly significant for taxable persons involved in cross-border trade. 

Since the cases focus on some of the key questions regarding the right to repayment of sums wrongly charged or withheld by EU countries with interest, including any imposed financial penalties, anti-dumping duties, and import or export-related charges, the ruling may have a significant impact on the operations of many businesses engaged in importing or exporting activities.

Analysis of the Court Findings

The ECJ first merged these three cases in 2020, for the written phase of the proceedings. Later in 2021, the same decision was made for the oral proceedings and the final judgment, which meant that all three cases would be considered together throughout the remainder of the judicial process. The primary reason for this is that these cases overlap in several key areas.

One of the first notes from the ECJ was that EU law gives any person who has been required by a national authority to pay a tax, duty, charge, or other levy in breach of EU law the right to have that sum repaid. Moreover, those persons are entitled to receive interest on the sum to compensate for the period during which the money was unavailable. 

Similar to taxes and duties paid in breach of EU law, penalties, including those linked to EU rules on agricultural export refunds, must be repaid. The affected person is entitled to interest to compensate for the period during which the funds were unavailable. Furthermore, the right to interest applies when export refunds are granted late after being wrongfully refused, because the delay itself results from a breach of EU law that temporarily deprived the person of the corresponding funds.

The ECJ also emphasized that the primary factor underlying the right to repayment and interest under EU law is the imposition of a tax, duty, charge, or other levy in breach of EU law. The breach can involve any EU rule, and rights to repayment and interest reflect a general principle, not limited to specific types of breaches. Moreover, the same principle applies when national legislation or actions by a national authority misapply EU law.

What is common for all three cases is that national authorities incorrectly applied EU law when imposing or refusing payments, such as export refunds, financial penalties, anti-dumping duties, or import duties. The ECJ added that misinterpretation, legal errors, and factual mistakes contributed to the incorrect application of EU law.

The primary purpose of the right to interest is to compensate a person for being wrongly deprived of money. While the disputes over customs duties in the Reyher and Flexi cases are governed by the EU customs legislation, which includes rules on repayment, the dispute over late export refunds and a wrongly imposed financial penalty in the Gräfendorfer case involves EU rules that do not include a similar mechanism for calculating or paying interest.

Under the EU law, the repayment of customs duties that were wrongly levied must include interest. However, for neither of these cases does EU law set detailed rules for calculating interest. Setting these rules is left to each EU country, with the obligation to respect the principles of equivalence and effectiveness, meaning they cannot make it excessively difficult or impossible to claim the interest owed. The ECJ noted that the same applies to late payments of sums under EU law, such as the export refund in the Gräfendorfer case.

When defining these rules, EU countries must ensure that the person receives full compensation for the loss caused by the wrongful payment or denial of sums of money. Furthermore, interest must accrue over the entire period from when the money was paid or should have been paid to when it is actually repaid. Restricting interest only to the period after the legal proceedings are brought, and excluding the earlier period, is incompatible with EU law.

Although the EU Law does not require national authorities to automatically repay sums or pay interest without any initiative from the person concerned, when defining rules for paying interest on wrongly paid or withheld sums, EU countries must comply with the principle of effectiveness. This means that it must not be excessively difficult or impossible for individuals to exercise their rights. 

However, it is up to the national courts to determine whether the national law respects this principle or not. The ECJ also noted that national courts should particularly balance factors such as the protection of defense rights, legal certainty, the proper conduct of proceedings, and compliance with EU law when deciding on this matter.

Courts Final Decision

After merging all three cases and thoroughly examining the facts and merits of each case individually and jointly, the ECJ ruled that EU law establishes individuals' right to repayment of sums wrongly imposed by an EU country and to interest on those sums. The same applies to export refunds granted late after being wrongfully refused, as well as to financial penalties imposed due to such breaches.

The right to repayment also includes situations where national authorities incorrectly interpret or apply EU law when imposing or refusing payments such as export refunds, financial penalties, anti-dumping duties, or import duties. 

Finally, the ECJ concluded that EU rules and regulations prevent national legislation from limiting interest to the period after legal proceedings have been initiated. However, it may require such proceedings as long as this does not make exercising EU rights excessively difficult.

Conclusion

The key takeaway from this ruling is that the ECJ underlined the principle under which the EU law guarantees the right to repayment and interest when national authorities act in breach of EU law, regardless of whether explicit provisions exist in national legislation. 

For taxable persons, this decision reaffirms the right to claim full compensation or sums wrongfully levied or withheld, ensuring that EU countries respect the rights of defense, legal certainty, the proper conduct of proceedings, and compliance with EU law.

Source: Joined Cases C‑415/20, C‑419/20 and C‑427/20, EU Regulation No. 91/2009, Combined Nomenclature, Regulation No 952/2013, Regulation No. 612/2009