State aid lawyers should take note of today’s decision from the Bundesverfassungsgericht, the German Federal Constitutional Court (BVerfG, Judgment of the Second Senate of 05 May 2020 – 2 BvR 859/15 -, paras. (1-237)). There the Court found that the ECB had acted beyond its competences in instituting the Public Sector Purchase Programme (a programme for the purchase of government bonds) as it failed to act in accordance with the principle of proportionality. What is striking about the case is that the German Court’s decision is at odds with a decision from the Court of Justice in which it was found that the ECB had not acted beyond its competences. In turn, the Bundesverfassungsgericht found that the Court of Justice’s decision also exceeded its competences.

The case is an example of a clash of legal jurisdictions. EU law is supreme as a matter of EU law. And the Court of Justice is the ultimate arbiter of EU law in the EU. But it does not follow that the Court of Justice’s interpretation of EU law reigns supreme over its interpretation by domestic courts in all circumstances as a matter of domestic law. It has been sporadically highlighted for instance by domestic courts that EU law cannot override fundamental constitutional principles or rights and must be interpreted in light of them in domestic law. But whilst noting this in theory, the courts have generally managed to avoid finding an actual clash (see for instance, Solange II, HS2, and the Bundesverfassungsgericht’s comments on Åkerberg). In the Bundesverfassungsgericht’s decision today though a domestic court has (again) unequivocally found that their interpretation of EU law differs from that of the Court of Justice (see also the Czech Constitutional Court’s response to Landtova and the Danish Supreme Court’s response to Daniski Industri). The Bundersverfassungsgericht decided that the CJEU’s interpretation of EU law was beyond the bounds of an acceptable interpretation.

I mention this in the context of State aid as the episode mirrors my argument in an article published earlier this year in European Taxation entitled “The constitutional implications of an EU arm’s length principle”. In it, I argue that there should be no autonomous EU arm’s length principle found to exist in Article 107 TFEU, as discrete from any that has been incorporated in domestic law, as such an interpretation of EU law would run roughshod over the fundamental constitutional principle that taxes are levied by domestic legislatures. As with the Bundesverfassungsgericht’s decision today, it is not an acceptable interpretation of EU law. If you wish to receive a copy of this article, please email me (stephen.daly@kcl.ac.uk)