Free movement of capital and sustainable forest management. The CJEU in Huijbrechts.

Disclosure I represented the Flemish Region at the Court of Justice. I wrote this post on 11 December 2018. Given that the interpretation of the judgment has a bearing on the proceedings in the national court, I decided to hold back on posting  until those proceedings would have met their national end – which they still have not. Seeing as I thought the case might be of interest I decided to go ahead now anyway.

In C-679/17 Huijbrechts the European Court of Justice held in a fashion which is fairly typical of free movement of capital cases. The Court treads carefully. Positive harmonisation of tax law is difficult for the EU to achieve for this requires unanimity. Tax measures having a direct impact on free movement of capital, too strict an enforcement of the latter may be read as tax harmonisation via the back door.

The case at issue concerns a measure by the Flemish Region of Belgium to exempt sustainable managed forests from death duties (inheritance tax). The exemption is subject to there being a forest management plan, agreed with the relevant agency, and subject to a 30 year follow-up period (should in the interim the forest no longer be sustainably managed, the heirs pay the tax pro rata the remainder of the 30 year period). The heirs concerned did not enjoy the exemption for the forests are located outside the region and suggest this is an infringement of the free movement of capital.

Defence against suggestions of infringement of Article 63 TFEU’s free movement of capital rule typically follow the following sequence: free movement is not impacted; should this fail: the domestic and foreign situation are not objectively comparable; should this fail, per C‑256/06 Jäger, public interest requires an exemption (subject to a suitability and a proportionality test).

A crucial part of free movement judgments entails having to read the judgment with an eye on the factual circumstances: the Court typically employs a formula that reads something like ‘in circumstances such as those at issue in the national proceedings’ or ‘in circumstances such as those at issue in the national law’.

In Huijbrechts, the Court at 25-26 finds that Flemish and foreign forest are objectively comparable (only) where they are transboundary and concern woods that are part of one unit or landscape (lest my geographic knowledge fails me here, this limits the impact of the judgment to French and Dutch estates; Belgium has a land border with Luxembourg and Germany, too, but Flanders does not). Interestingly, at 22 the Court indicates that in making the like forest comparison (GATT, WTO and generally free movement scholars will know where I am heading here), the regulatory goal of sustainable forest management plays a role. (See the like product /service distinction in the WTO).

For that limited group of forest, the public interest exception imposes constraints: a blanket ban on considering sustainable management outside of Flanders fails the Treaty test, for it does not assist with the protection of the forests. Flanders will for that limited group have to allow the heirs (again: only where the forests are transboundary and concern woods that are part of one unit or landscape) to provide proof of sustainable management; should such proof be delivered, the burden of proof will revert to the Flemish tax authorities: they cannot blankly assume that they cannot get the necessary data from the foreign administration during the 30 year period: they have to request such data (typically: on a 30 year basis) and only should they fail to get them, can they still refuse to exempt.

The Court implicitly recognises the specific (dire) circumstances of forests in Flanders (at 31). It does not accept the heirs’ submission that the myriad of international and European policy documents on forest management somehow amount to positive harmonisation.

Geert.

 

Use of Fair Trade labels in procurement decisions – Court of Justice of the EU in Max Havelaar

The Court of Justice of the EU has further completed its views on the use of criteria linked to sustainable development. These are criteria which do not simply refer to environmental characteristics of the product itself. Rather, they convey a message as to the overall ‘process and production methods’, known in jargon as ‘PPMs’, of a particular product or service.

In Max Havelaar, Case C-368/10, the Court had to decide on the use of specific labels in decisions awarding government purchases (‘procurement’) to a particular supplier.The province of North Holland had

–        inserted in the technical specifications a condition requiring the Max Havelaar and EKO labels or in any event labels based on similar or the same criteria;

–        included, for appraising the ability of operators, criteria and evidence concerning sustainable purchasing and socially responsible business, and

–        included, when formulating award criteria, a reference to the Max Havelaar and/or EKO labels, or in any event labels based on the same criteria.

The judgment is quite complex for those unfamiliar with (EU) procurement law In particular, the Court distinguishes in the exact room for manoeuvre between various stages of a procurement decision. Leaving detailed breakdown aside (reference is made to the judgment), the Court’s finding is basically that authorities must make use of descriptive conditions for such criteria, rather than solely referring to specific labels. However they may identify certain labels as leading to a presumption of these criteria having been met, provided of course they allow other proof to be submitted.

For WTO lawyers, judgments like these are not irrelevant. Arguably, adoption of private labels in procurement decisions, may well bring these labels within WTO, in particular, TBT (Agreement on Technical Barriers to Trade), discipline.

Geert.

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