Tax Coordination Between Eu

Chapter 1: Tax Coordination between Member States in the EU Role of the ECJ
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Part I: General Report Chapter 1: Tax Coordination between Member States in the EU Role of the ECJ
Author
Joachim Englisch
1.1. Introduction
The coordination of different taxes has many facets that range from the avoidance of inconsistencies within a national tax system [1] to the international allocation of taxing rights between different sovereign states. From a federalist perspective, tax coordination has two dimensions: vertical coordination of tax competences between different levels of government [2] and horizontal coordination of the taxing powers of different jurisdictions at the same level of government. In general, a lack of coordination within the federal framework entails the danger of excessive tax or tax compliance burdens. With respect to horizontal tax coordination in particular, inadequate coordination may also lead to distortions that prevent the optimal allocation of economic resources and thus reduce social welfare. Moreover, insufficient vertical tax coordination may undermine the fiscal autonomy of certain entities that form part of the federal system, typically the sub-national levels of government. As is well known, the European Union today is neither a confederation nor a federation within the traditional meaning of this concept, but it has indeed charted its own brand of constitutional federalism. [3] One of its most important objectives is economic integration through the creation of an internal market that comprises the economies of all 27 Member States and that resembles, as closely as possible, the ideal of a single market. [4] However, Europe still has a highly fragmented tax landscape. [5] Against this background, the quasi-federal European Union, too, is confronted with the challenge of coordinating legislative and administrative competences in order to remove barriers to interstate commerce and avoid distortions within the internal market. As the Commission has aptly pointed out, the present lack of coordination may also lead to an erosion of tax revenues through the exploitation of tax arbitrage or loopholes, interfering with the ability of the Member States to operate efficient and balanced tax systems. [6] It also entails higher administrative complexity, especially due to various anti-avoidance measures. [7] Even though vertical coordination also raises many critical issues in the EU context, the present contribution will only be concerned with horizontal tax coordination between Member States, since it focuses on the role of the European Court of Justice (ECJ or Court) in this context. And the Courts jurisprudence is far more extensive and controversial with respect to the horizontal aspect of tax coordination within the EU. For the purposes of this study, the notion of horizontal tax coordination between Member States will be understood to encompass all measures intended to promote tax neutrality for economic transactions within the internal market [8] by removing obstacles resulting from the parallel existence and the interaction of different national tax systems. In essence, horizontal tax coordination between Member States thus has two dimensions: first, the approximation of substantive tax law and related procedural rules of the Member States in order to overcome or at least reduce disparities between national tax systems in so far as these disparities lead to distortions of competition or increased compliance and administrative costs and second, the coordination of competing tax claims of the Member States so as to avoid double burdens on cross-border commerce. The concept of horizontal tax coordination between Member States is thus distinguished from the removal of barriers to market access and of distortions of competition caused by discriminatory and restrictive tax provisions that form part of the tax system of one and the same Member State. [9] Of course, it cannot be disputed that such obstacles also need to be tackled as a necessary precondition for facilitating access to foreign national markets within the European Union and for ensuring that competition within the internal market is not distorted by taxation. [10] However, the equal playing field within a national tax jurisdiction is not as yet a sufficient condition for a level playing field within the entire European internal market as long as disparities and double burdens persist. [11] Notwithstanding this conceptual distinction, it cannot be precluded a priori that a uniform nondiscrimination standard may also have an impact on the horizontal coordination of Member States tax systems. This study will examine the role that the ECJ plays with respect to promoting or complicating tax coordination between the Member States of the EU. It will also draw some tentative conclusions regarding the implications of the Courts case law for future EU tax policy. In this context, it is useful to distinguish between non-harmonized and harmonized areas of taxation, because the impact and relevance of the Courts jurisprudence is quite different in the two fields. It is acknowledged that scholars [12] and also the European Commission [13] and the ECJ [14] tend to distinguish between tax coordination, on the one hand, and harmonization through European legislation, on the other hand. [15] According to their terminology, tax coordination only refers to legally nonbinding instruments of soft law or soft legislation, such as recommendations, communications, codes of conduct, etc. [16] However, for the purposes of this paper, harmonization will be regarded as a specific form of horizontal coordination within the above meaning. [17] A chief objective of tax harmonization by acts of the EU institutions, too, is to reduce disparities between national tax systems and allocate taxing rights between Member States. [18]
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1.2. Non-harmonized areas of national tax law

1.2.1. Role of the ECJ
With respect to national tax rules that do not implement European tax directives, the ECJ has consistently held that from the perspective of European law, Member States are, in principle, at liberty to design their tax system as they see fit in order to meet their domestic policy objectives. However, the powers retained by the Member States must be exercised consistently with Union law. [19] More specifically, the tax sovereignty of the Member States is limited by two categories of directly applicable provisions of the EU Treaties: on the one hand, the four free movement guarantees listed in article 26 of the TFEU, also referred to as fundamental freedoms, [20] and on the other hand, the prohibition of State aid enshrined in article 107 of the TFEU. These quasi-constitutional requirements are directly applicable within the national legal orders of the Member States [21] and render any non-complying norms inapplicable [22] or, in case of article 107, any implementation measures invalid. [23] Furthermore, the Member States procedural autonomy [24] is limited by general principles of Union law, and in particular the principles of equivalence and effectiveness, [25] and protection of legitimate expectations, [26] with respect to procedural and administrative remedies against infringements of the aforementioned Treaty guarantees within the framework of the national legal system. The Courts tax-related case law on the aforementioned primary Union law provisions now comprises far more than 100 rulings, most of them concerning direct tax matters. Its jurisprudence is credited with achieving negative integration through enforcing quasi-constitutional Treaty limits on Member States sovereign discretion in tax matters, as contrasted with positive integration through legislation enacted by the competent institutions of the Union. [27] The ECJ has accordingly been referred to as an engine of integration when it removed unilateral obstacles to market access and to a level playing field based on the fundamental freedoms and article 107 of the TFEU. However, the question that arises in the context of the present study is whether the Court also played the role of an engine of international tax coordination by doing so. The topics to be discussed here are: Does case law promote real or at least de facto harmonization of Member States national tax systems? Does it contribute to the coordination of competing tax claims of the Member States? And does the ECJ harden the Commissions soft-law approach towards horizontal tax coordination, which has become increasingly popular since a 2001 shift in the Commissions strategy on tax policy? [28]
1.2.1.1. Non-discrimination approach: Varying impact on the approximation of Member States tax systems
The ECJ relies primarily on the free movement guarantees enshrined in article 26(2) of the TFEU, and specified in subsequent sections of the Treaty, when it scrutinizes national tax systems as regards their compatibility with primary EU law requirements. As a tribute to the wording of some of the provisions governing these fundamental freedoms and to the historical development of its related jurisprudence, [29] the Court still tends to frame its free movement test of home state tax scenarios (concerning the taxation of outbound investments, outbound services or outbound free movement in general) in terms of a restriction analysis, without making explicit reference to discriminatory effects of the tax provision at issue. [30] Occasionally, the same approach can even be observed in host-state tax scenarios, where the Court traditionally [31] referred to the prohibition of indirect discrimination on grounds of nationality when a national tax norm was suspected of infringing a fundamental freedom. But despite the Courts fuzzy rhetoric, it cannot be denied that virtually all ECJ decisions on the incompatibility of national tax rules with EU fundamental freedoms have been based on a discrimination analysis, regardless of whether the disputed provision formed part of the tax system of the Member State of origin of the cross-border transaction (i.e. the state of residence of the taxpayer) or of the Member State of destination (i.e. the state where the income is sourced). [32] There is always a comparative or relative element inherent to the restriction analysis, which indicates that the ECJ is really looking for a discrimination of cross-border activities as compared to purely national activities that are carried out within the boundaries of one and the same Member State. [33] If outbound or inbound activities are not rendered less attractive than wholly domestic ones, the measure at issue will not found to be restrictive. [34] This approach differs markedly from the more extensive, genuine restriction analysis practiced by the ECJ in other non-harmonized areas of law. In general, the Court will find a national legal system to constitute a restriction of free movement whenever it is likely to prevent, limit or deter cross-border movement of products or factors of production. [35] It is settled albeit questionable [36] case law that the restrictive nature of such a national measure will be affirmed even when it applies without distinction to both cross-border and purely internal transactions if the measure is liable to affect the market access of potential free movers. [37] National tax regimes are certainly liable to constitute an obstacle to the exercise of economic free movement rights and thus affect market access, in particular when the tax burden imposed in the intended Member State of destination is higher than the domestic tax on proceeds from similar activities carried out in the Member State of residence, or when international double taxation is not fully avoided. However, the Court has been extremely reluctant to apply its standard approach to tax-related disputes, presumably because this would potentially entail the need for Member States to justify all provisions of their national tax law before the ECJ; such a degree of quasiconstitutional control at Union level would imply a serious curtailment of national sovereignty in a sensitive policy area. Regarding direct taxation in particular, the Court so far has not even conducted an analysis as to whether seemingly neutral tax regimes such as e.g. thin capitalization rules or interest deduction barriers also
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applicable for domestic groups of companies are nevertheless liable to predominantly affect cross-border situations or transactions. [38] The judicial restraint exercised by the ECJ in tax matters has important consequences for the spectrum of political options available to each Member State after a negative verdict on certain discriminatory features of a national tax system: A Member State may chose to altogether abolish the detrimental tax regime at issue, or at least limit its territorial scope to third-country relationships not covered by the relevant fundamental freedom and its EEA counterpart. [39] Conversely, it could be decided to extend the scope of the disputed tax regime to purely domestic scenarios in order to sidestep the Courts non-discrimination analysis. Mutatis mutandis, the same alternatives exist with a view to beneficial tax regimes that were formerly limited in scope to purely internal constellations. Depending on the circumstances, namely on the availability of a justification for the discriminatory tax law provision that was dismissed by the Court merely on grounds of a lack of proportionality, [40] the national legislator may even have a third option: the discriminatory tax regime could be modified, or its substantive scope could be scaled back, so that the remaining restrictive effects will no longer be out of proportion to its legitimate objectives. In general, the following reactions can be identified. [41] If the extension of a tax concession or another favourable tax regime to cross-border scenarios would be fiscally costly, or if the discriminatory limitation to domestic situations served protectionist motives, Member States will tend to either abolish or modify it rather than grant it in the case of a cross-border situation as well. An exception is made where the tax relief is considered to form a core aspect of tax justice or a key element of a cherished national policy. As became obvious in the wake of the Marks & Spencer judgment and subsequent decisions concerning intra-group or intra-company loss relief schemes, the tendency to merely introduce modifications and uphold discriminatory elements will increase when only minor amendments are needed in order to shield the provision from future findings of lack of proportionality and from the ensuing incompatibility with fundamental freedoms. In relation to detrimental tax regimes that seek to protect the national revenue base, such as thin capitalization rules or exit taxes, Member States will tend to chose the opposite strategy: The more important the objectionable norm is fiscally for the respective treasury, the stronger the incentive will be to extend the tax law provision at issue also to domestic cases so as to elude the standard non-discrimination analysis. If such an approach is unfeasible because its consequences would be administratively or economically unsustainable in a domestic scenario, Member States will frequently try to adapt the discriminatory tax regime to the Courts justification requirements rather than abandon it outright. Obviously, the fiscal significance of certain tax regimes varies from Member State to Member State, and so do political priorities with respect to conflicting interests that have to be balanced when deciding about the options described above. Therefore, the impact of an ECJ ruling will often differ among the 27 tax jurisdictions affected within the Union. [42] The changes enacted in the Member States tax systems with respect to thin capitalization and CFC regimes after the Court had handed down its Lankhorst Hohorst [43] and Cadbury Schweppes [44] judgments, respectively, are paradigmatic. This means that it is far from certain that the standard fundamental freedom scrutiny of the ECJ in the area of non-harmonized tax law will, by itself, enhance de facto harmonization, understood as approximation of national tax systems. [45] To the contrary, the Courts rulings may even spark or increase legal diversity in certain parts of national tax systems that were formerly aligned to internationally accepted models and thus quite congruent. Two more aspects add to the centrifugal tendencies that can often be observed after landmark cases of the Court. First, Member States national governments will tend to show different standards of compliance with such a ruling. [46] Some will change their tax systems based on mere precedence in anticipation of a probable condemnation of their own, similar regime; e.g. this could often be observed in Austria. Other Member States are less inclined to question their own tax system in the light of a judgment concerning legislation of another Member State, even if the essential elements of both national tax regimes are quite similar; they prefer to wait and see whether the Court might not hold minor distinctions relevant enough to eventually reach a different verdict in their case. The Courts sometimes erratic [47] and ambiguous [48] case law promotes such a strategy. Second, most landmark cases do not provide detailed guidance as to all of their ramifications for national tax systems, so that different Member States might reach different conclusions as to the required changes. Hence, all that negative integration by ECJ rulings does accomplish per se with a view to intra-Union tax coordination is to set certain but sometimes indeed not overly certain minimum standards for Member States that do not opt out entirely of a tax regime whose characteristic features have been held to be incompatible with the EU fundamental freedoms. However, these minimum requirements can be sidestepped by extending the substantive scope of the provisions at issue so as to make them at least seemingly neutral regarding domestic and cross-border scenarios. [49] Moreover, even when Member States show a uniform response to certain developments in the Courts jurisprudence the disappearance of almost all dividend imputation systems across the EU in the wake of the Verkooijen [50] and Manninen [51] rulings is the most prominent example the ensuing approximation of national tax systems does not ensure a more level playing field for investors, business and migrant workers within the Union. The inherent limit to negative integration is the persisting disparities between the national tax systems, [52] especially regarding tax base, tax rate, and extra-fiscal objectives, [53] which could only be overcome by comprehensive positive integration through EU legislation. As the ECJ itself has repeatedly emphasized: [T]he Treaty offers no guarantee to a citizen of the Union that transferring his activities to a Member State other than that in which he previously resided will be neutral as regards taxation. Given the
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disparities in the tax legislation of the Member States, such a transfer may be to the citizens advantage in terms of taxation or not, according to circumstances. [54] It has even been demonstrated that a European-wide abolition of certain, typically discriminatory tax regimes that are intended to curb international profit shifting (such as e.g. thin capitalization rules) could enhance rather than reduce the distortions caused by different national tax burdens on corporate profits. [55] Against this background, one could imagine that the real contribution of the Courts jurisprudence on fundamental freedoms in the area of non-harmonized taxation to the improvement of tax coordination between Member States is a merely indirect one. By imposing strict limits on discriminatory measures intended to protect national tax revenue, the ECJ could step up the pressure on reluctant Member States [56] to finally reach agreement on harmonization proposals of the Commission that address these concerns. The alternative of abolishing favourable tax regimes limited in scope to purely internal situations or of extending a detrimental tax rule to domestic scenarios without real need will often be less attractive options for many Member States. However, in practice, the Court does not seem to be paving the way for positive integration, either: none of the only six EU Directives concerning aspects of direct taxation have been passed in the wake of a relevant Court decision, nor any of the main directives on indirect taxation. This may partly be due to the moderating effect of the rule of reason based upon which the Court has assumed certain discriminatory tax regimes to be justified, thus taking some heat off Member States to cooperate in order to maintain their revenue base. Such a possible effect will be assessed in closer detail below. However, the main reason for the apparent lack of significant influence of the Courts case law in the process of negotiating new tax legislation at the Union level is probably a different one. Frequently, some, if only a few, of the 27 Member States will benefit revenue-wise from an uncoordinated state of affairs after a ECJ ruling where profits may more easily be shifted to low-tax jurisdictions. Hence, it will often be difficult to reach the required unanimity for a more balanced European legislation.
1.2.1.2. Rule of reason: A disincentive for tax coordination

According to settled case law, a restrictive national measure may be justified by an overriding reason of public interest acknowledged by the Court. However, in order to be justified, a restrictive measure must comply with the principle of proportionality, in that it must be appropriate for securing the attainment of the objective it pursues and must not go beyond what is necessary to attain it. [57] This rule of reason had been developed in the Cassis de Dijon decision of the Court [58] in 1979 in order to counterbalance the extensive interpretation of the guarantees on free movement of goods based on the Dassonville-formula, [59] and it has subsequently been extended to all fundamental freedoms. [60] Since the 1990s, the rule of reason has attained considerable significance in the area of non-harmonized taxation as well, [61] where the unwritten public policy reasons accepted by the Court are far more relevant than those explicitly mentioned in the Treaty, with the exception of articles 64 and 65 of the TFEU regarding the free movement of capital. In the last 5 years, starting with the famous Marks & Spencer ruling, [62] the ECJ has been particularly inclined to uphold discriminatory tax provisions based on the rule of reason. Essentially, the rule of reason seeks to strike a reasonable balance between national (tax) sovereignty, on the one hand, and the requirements of the EU internal market for the establishment of which the fundamental freedoms are instrumental, on the other hand. It prevents the fundamental freedoms from becoming absolute prerogatives; instead they will be qualified or, more precisely, relativized by values that are championed by the respective national legislator and not per se incompatible with primary or secondary Union law. This implies that the principles of free market access and undistorted competition inherent to the internal market concept of the Union will have to be balanced against certain national tax policy preferences. In so far as the latter may legitimately be pursued in a restrictive manner, the Courts already limited role for the promotion of tax coordination between the Member States may be further diminished. There are two possible ways in which the rule of reason could have a negative impact on tax coordination between Member States: First, it has already been pointed out that the possibility to justify only some elements of the discriminatory tax regimes under the proportionality condition leaves Member States with additional options after a negative verdict of the Court. National reactions and the ensuing tax landscape might thus be more heterogeneous across Europe. Second, Member States will be less incentivized to cooperate and reach consensus on measures of positive integration if they can cling to well-established albeit restrictive tax regimes with only minor amendments. However, a closer analysis of the various public interest arguments that have been brought forward by Member States in defence of their restrictive tax regimes and of the Courts assessment of these arguments reveals that their respective relevance from a tax coordination perspective is quite diverse. It is also remarkable that the two aforementioned effects have intensified considerably after the Courts rapprochement to the position of the Member States initiated by the Marks & Spencer judgment. First and foremost, the Court has consistently held that the desire to avert a loss of tax revenue will, by itself, never serve as a valid justification for continued tax discrimination. [63] However, since Marks & Spencer, revenue concerns may be regarded as an overriding reason of public interest if they can be framed in terms of preserving a balanced allocation of taxing powers as between Member States. [64] The ECJ has repeatedly held that Member States should not be forced to forego revenue that they may regard themselves entitled to in the light of internationally accepted substantiations of the territoriality principle. [65] This argument has proven particularly important with respect to three types of national tax rules. First, loss consolidation regimes which do not permit cross-border importation and offsetting of losses that have been incurred through activities carried out abroad, on grounds of a symmetrical exemption of foreign-sourced profits. [66] Second, the imposition of exit
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taxes aiming at an ultima ratio taxation of accrued but as yet unrealized capital gains upon the imminent loss or impairment of the internationally allocated power to tax these gains. [67] Finally, specific tax clauses designed to prevent economically unsubstantiated or unfair profit shifting and related tax evasion strategies, such as CFC rules, thin capitalization rules and provisions on transfer pricing adjustments. [68] With respect to all three of these sets of discriminatory tax rules, the Court has now acknowledged that Member States may have a legitimate interest in implementing them, and the ECJ has therefore merely elaborated on the limits imposed by the proportionality requirement. Some aspects of this relatively new development deserve special attention in the context of international tax coordination efforts. In some areas it has undermined to a certain degree the Commissions efforts to approximate the business tax systems within the EU. From the perspective of the Member States, the Courts now consolidated case law on losses is so generous that they feel little inclined to fundamentally change their respective national systems or to even discuss the Commissions proposal on harmonizing cross-border loss relief. Most Member States have introduced no or only minor changes in reaction to the ECJ jurisprudence, [69] especially since the Court itself has explicitly stated that less restrictive measures in any event require harmonisation rules adopted by the Community legislature. [70] Together with the Courts broad acceptance of transfer pricing adjustments based on the arms length principle, this case law has also taken some pressure off Member States to push forward the ambitious agenda of a common consolidated corporate tax base (CCCTB).
[71]
Moreover, the Court has, in principle, accepted that Member States may try to remedy inadequate features of their tax treaty law such as a divergent allocation of taxing powers regarding profits as returns on equity capital investments, on the one hand, and regarding interest payments as returns on debt capital investments, on the other hand through discriminatory provisions such as thin capitalization rules rather than through a change of the treaty provisions. As a consequence, and for some other reasons discussed below, the Courts jurisprudence does not suggest that Member States should multilaterally coordinate a reform of their conventions on the avoidance of double taxation. It should be noted, though, that the ECJ has frequently had recourse to OECD standards in order to determine whether an allocation of taxing rights was indeed balanced and its preservation thus an overriding public interest. [72] As a result, national governments might intensify their cooperation at the OECD level and develop new recommendations aimed at protecting the national revenue base, such as in the context of company reorganization, in order to influence European jurisprudence in their favour. Since the Court will seek inspiration from OECD recommendations, Member States may indirectly increase their room to manoeuvre by having the OECD declare certain practices as acceptable or even commendable. The integration of a new chapter IX on the transfer pricing aspects of business restructurings into the 2010 version of the OECD Transfer Pricing Guidelines can be seen as a step in this direction. [73] As regards the remaining justifications available to Member States, even before the Marks & Spencer realignment of the Courts case law, their impact in terms of reducing the impetus for European tax coordination is considerably smaller. The ECJ has consistently rejected the contention that discriminatory national tax measures should be justified on grounds of the promotion of national economic interests [74] or other public policy objectives with a bias towards domestic rather than internal market effects, [75] such as tax expenditures in support of the national education sector [76] or the domestic supply of housing. [77] By contrast, the preservation of the cohesion of the national tax system, in the sense of an intrinsic compensation for detrimental taxation of cross-border transactions through directly linked tax burdens only affecting domestic transactions, has in theory been accepted as a valid justification by the Court. [78] However, in practice, Member States have hardly ever succeeded with that argument. [79] As regards measures designed to combat fiscal elusion and tax avoidance through abusive tax schemes, the abuse argument has only become a striking one in the Courts case law when it could be invoked in combination with the interest in preserving a balanced allocation of taxing rights discussed above. [80] Finally, the need to guarantee the effectiveness of fiscal supervision and of the tax collection have been accepted as overriding requirements of general interest capable of justifying a restriction on the fundamental freedoms. [81] However, at least within an intra-Union context, the Court has established strict proportionality requirements in this regard, to the effect that substantive tax law must not discriminate on these grounds. [82] Member States may only maintain, under certain conditions, asymmetrical (but not final) withholding taxes, [83] and their tax authorities may require the free mover to provide any evidence that they may consider necessary for assessing the tax liability. [84] Hence, the only real obstacle to an approximation of Member States tax systems brought about by the traditional application of the rule of reason in the area of non-harmonized tax law is that it leaves Member States with considerable freedom regarding discriminatory requirements in their national tax procedure. Consequently, and regrettably, the Courts case law on fundamental freedoms so far has not contributed to the emergence of minimum standards for taxpayer compliance burdens. In particular, the principles of equivalence and effectiveness cherished by the ECJ as controls on national procedural autonomy with respect to other Union law standards impinging on national tax law [85] such as the State aid prohibition of article 107 of the TFEU, or secondary Union law have so far not gained much traction within the fundamental freedom framework. The recently decided case Meilicke II has not significantly improved this state of affairs. [86] Notwithstanding the general statement that the rule of reason tends to operate as a disincentive for further tax coordination between the Member States, there are two aspects related to it that counteract, to a certain degree, these adverse effects. First, the ECJ has consistently denied Member States any margin for generalizing assumptions, e.g. in the context of the fiscal cohesion argument or with a view towards identifying abusive tax
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schemes. [87] To put it differently, the administrative efficiency of a restrictive tax regime has not been accepted as an overriding reason of public interest that could shield it from amendments required by the fundamental freedoms. By contrast, the Court tends to be significantly more generous with the Union legislator in this regard. [88] While this double standard is certainly questionable, [89] it nevertheless could provide an enticement for Member States to harmonize their legislation in order to have greater latitude for generalizing tax law provisions. Second, the Court has repeatedly held that national legislation is appropriate to ensuring attainment of the objective pursued only if it genuinely reflects a concern to attain it in a consistent and systematic manner. [90] As a consequence, a Member State will find it difficult to defend certain restrictive measures, which judged in isolation could be considered justified and proportional, if it has adopted such measures only with regard to some, but not all other Member States. This will serve as an incentive for a Member State to unilaterally ensure a coordinated approach in its relationships to the other Member States but, of course, it also implies less room to manoeuvre in tax treaty negotiations.
1.2.1.3. No incentives for the harmonization of tax treaty law

The ECJ has (almost) consistently refused to conduct a most-favoured-nation test of bilateral or unilateral measures aimed at the avoidance of international double taxation and a fair allocation of taxing rights. [91] In particular, the disparities between the allocation rules of tax treaties concluded by a Member State with a variety of other Member or non-Member States do not, by themselves, constitute a restriction of the free movement guarantees. [92] Hence, there is no primary law obligation of a source-country Member State to extend the lowest withholding tax rate negotiated in any of its tax treaties for certain types of income to residents of all other Member States that receive such income, nor is there an obligation for the Member State of residence to apply the exemption method with respect to all income sourced in another Member State if this method is applied with respect to only some source countries. In the authors view, this highly disputed jurisprudence is indeed well founded, because the imposition of a mostfavoured-nation obligation with respect to maximum withholding tax rates in the source country, the application of the exemption method in the country of residence and other allocation rules cannot even theoretically promote the internal market objective of equal conditions of competition (the level playing field): [93] Neither within the jurisdiction affected, where differences in treatment between domestic and cross-border activities would deepen, nor from a supranational viewpoint, which must take into account the disparate tax burdens imposed in the other jurisdiction involved in the cross-border activity. [94] This is obvious in the case of a reduction of source-country (withholding) taxes, but applies equally in the context of avoidance of international double taxation in the residence state. Admittedly, the uniform application of the exemption method in the Member State of residence would realize capital import neutrality within the European Union. However, this will only enhance the ultimate objective of an optimal allocation of economic resources within the EU internal market under the premise that the taxes imposed in the respective source country can be regarded as direct consideration for government services, infrastructure, employment opportunities etc. financed through these taxes. In the authors view, though, only the allocation of taxing powers tends to be based on the benefit principle, whereas the ability-to-pay principle does and indeed should influence the respective tax burden. [95] Far less convincing, but equally consolidated is the Courts refusal to characterize international double taxation as a restriction of the free movement guarantees. [96] While there should be no doubt that from an internal market perspective, the avoidance of international double taxation would ensure equal taxation at least from the perspective of one of the two or more jurisdictions involved, the ECJ obviously does not feel competent to establish provisional allocation rules, or to at least interpret existing tax treaty rules, in order to determine which Member State must waive its tax claim. [97] The Courts potentially important role in coordinating Member States tax systems with a view towards avoiding international double taxation is therefore actually nil. In combination with the dismissal of a most-favoured-nation approach, this also implies that the Courts jurisprudence does not provide any incentives for the harmonization or multilateralization of tax treaty law between Member States. [98]
1.2.1.4. Limited admission of a supranational perspective on discriminatory effects

In the last 5 years, the ECJ has repeatedly held that a discriminatory taxation of cross-border transactions in one Member State can be offset by tax privileges granted in the other State with links to the transaction at issue. The Court has thus practised a supranational analysis of discriminatory effects (sometimes also referred to as overall approach or internal market approach), and it has ruled them out, or at least it has considered them justified, if a detrimental tax treatment in one jurisdiction was matched by an exactly [99] corresponding reduction of the taxable base or of the tax burden in the other jurisdiction, as compared to the taxable base or tax burden applicable for purely domestic transactions in that other jurisdiction. Initially, the Court was content if such a neutralizing effect could be proven to occur by the Member State whose discriminatory tax regime was at issue, irrespective of whether the compensatory mechanisms were agreed upon bilaterally or granted unilaterally. [100] But for the sake of legal certainty, [101] this approach was subsequently modified in favour of limiting the consideration of compensatory effects to those negotiated in binding agreements between the Member States concerned. [102] This approach also avoids an overt contradiction to the well-established general prohibition of counterbalancing tax disadvantages with unrelated tax advantages in other jurisdictions. [103] Only an internationally coherent compensation is admissible. [104] In the Burda decision, the Court clarified that compensating effects secured by secondary EU law will also be taken into account on this basis. [105]
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The Courts jurisprudence thus leaves Member States an alternative to the traditional approach of allocating taxing rights through a reciprocal limitation of taxing powers. [106] Instead, they can shift sources of revenue through reciprocal modifications in the factors that are relevant for the determination of the tax liability, provided that these modifications have been agreed upon in a bilateral or multilateral treaty, or in secondary EU law. For instance, if one were to assume as the Court does in the context of individual shareholdings [107] that a Member State levying an exit tax is responsible for taking into account subsequent capital losses arising after the transfer, because the latter would also be relevant for the assessment of capital gains tax in the case of taxpayers or assets that did not move cross-border, aspects of practicability of taxation as well as the territoriality principle would suggest an agreement pursuant to which the receiving state takes over that responsibility in the context of its own capital gains taxation by granting a step-up in value at the time that its tax jurisdiction is established. The combination of strict standards with respect to the avoidance of discriminatory effects in domestic tax law, on the one hand, and an international escape through coordinated compensatory mechanism may thus offer an incentive for Member States to engage in targeted coordination efforts in certain fields of international tax law.
1.2.1.5. Curbing unfair tax competition

Apart from the fundamental free movement guarantees, there is a second kind of primary EU law control of national tax regimes: the Treaty prohibition of State aid, enshrined in article 107 of the TFEU, imposes additional quasi-constitutional limits specifically for tax expenditure rules or other forms of tax relief. While the Commission is authorized to monitor compliance with the State aid rules pursuant to article 108 of the TFEU, it is the ECJ that ultimately decides whether a national measure constitutes State aid. [108] In a series of judgments, the ECJ has left no doubt that the State aid rules of the Treaty also apply in the context of tax expenditure rules, because the ensuing waiver of tax revenue is equivalent to fiscal expenditure in the form of direct subsidies. [109] In general, any form of tax relief that is accessible only for certain undertakings or economic sectors in a Member State and that cannot be regarded as merely a specific expression of the guiding principles of tax justice underlying the respective national tax system or the respective tax, but rather is a derogation from the ordinary tax system and the rationale of the particular tax at issue, will constitute forbidden State aid according to the ECJ. [110] In particular, ring-fenced tax regimes [111] that intend to attract foreign investment by providing a significantly lower level of taxation than the one that generally applies in the Member State concerned (only) for certain activities of multinational groups will accordingly be regarded as State aid by the Court. Obviously, the prohibition of State aid pursues the same objective that is also underlying the fundamental freedoms: to promote equality of competition [112] and thus a level playing field for all economic agents at least within one and the same jurisdiction. [113] While more limited in substantive scope, the restrictions imposed on national tax sovereignty by article 107 of the TFEU are more severe, because its application does not require that the distortions of competition associated with a beneficial tax regime have an adverse effect exclusively or at least predominantly on cross-border commerce. [114] Notwithstanding this important difference, the Courts case law on the implications of the prohibition of State aid for national tax subsidies has had hardly any direct impact on the tax coordination between Member States, for reasons similar to those discussed above in the context of the fundamental freedoms. On the one hand, Member States still retain the option to remove the selective character of a preferential tax regime by extending it to all enterprises and sectors of the economy, thereby avoiding its characterization as forbidden State aid favouring certain undertakings or the production of certain goods. [115] On the other hand, even if a Member State decides to abolish certain forms of biased tax relief, significant disparities with respect to the tax systems of the other Member States will remain. The national differences in effective tax burdens may even increase for the formerly privileged group of taxpayers, especially if the tax concession at issue intended to bring charges in the relevant sector more into line with those of competitors in other Member States. [116] However, the Court rulings on State aid in the area of non-harmonized tax law were certainly instrumental for the efforts of the European Council and the European Commission to curb harmful or unfair tax competition within Europe. [117] In December 1997, the Council had adopted a resolution on a Code of Conduct for Business Taxation. [118] Pursuant to this political, non-binding agreement, ring-fenced tax regimes of the Member States which significantly affect the location of business activity within the internal market should be rolled back under a peer review process, and Member States should refrain from introducing any new measures of this kind. This initiative motivated the Commission to substantiate the fact that it would apply the State aid rules strictly with respect to direct business taxation and to draw up guidelines for that application. [119] So far, over 400 business taxation measures have been assessed under the Code of Conduct and over 100 of these, being considered harmful, have been removed or amended. [120] In a significant number of cases, the Commission took action under the State aid rules when Member States were reluctant to alter their preferential regimes, and it could rely on the authoritative rulings of the Court in doing so. [121] The Courts case law thus made Member States realize that the intentions they had expressed in the Code of Conduct were not merely subject to peer pressure, [122] and thereby ensured that the Code would have the desired broad effect. Notwithstanding this positive indirect effect of the Courts jurisprudence in the context of a coordinated initiative to moderate tax competition between the Member States, it has to be recalled that there are clear limits to the Courts role in this regard, too: the State aid rules prohibit only selectively granted tax relief, hence they do not provide a remedy against tax competition between Member States in general. [123] In particular, even extremely low corporation tax rates will as such never constitute State aid within the meaning of article 107 of the TFEU.
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[124]
The Court therefore cannot motivate Member States to coordinate their tax systems so as to mitigate disparities in effective national tax burdens and the ensuing distortions of competition within the internal market.
Admittedly, it is disputed among scholars and politicians whether such coordination would be desirable at all, [125] and the European Commission has until recently been tellingly silent when laying down its coordination objectives. [126] Since this topic would merit a study of its own, the author would only like to point out that while so-called fair tax competition may provide an incentive for national governments to trim public spending and offer an attractive ratio between cost (taxes) and benefits (public services, etc.) for investors, business and other free movers, [127] the benefit principle alone does not adequately reflect the social solidarity dimension of the imposition of taxes in modern welfare states. [128] National tax systems also pursue social and redistribution policies at the national level, and business or capital income should contribute to these objectives, too. However, fair international tax competition tends to favour the latter kind of income and its mobile sources to the detriment of less mobile sources of revenue, and wage income in particular, [129] which may eventually undermine the ethical and social foundations of society.
1.2.2. Some tentative conclusions for EU tax policy

In the light of the above deliberations, it is suggested that the Commission should focus on streamlining the reaction of the Member States to significant developments in the Courts case law through the timely use of softlaw instruments, which constitute a pragmatic second-best choice [130] as long as genuine Union legislation cannot be achieved. These non-binding communications or recommendations should provide sufficiently clear and detailed guidance on the conclusions drawn by the Commission from the case law with respect to existing tax regimes of the Member States, and they should indicate an alternative that the Commission considers admissible. To facilitate compliance, [131] such an approach would then have to be flanked by the initiation of infringement procedures against Member States that after a certain period of time have not adapted their tax systems. [132] Considering the limited resources of the Commission, [133] it should rely more on private sector agents to monitor compliance with its interpretation of the Courts case law. A model approach for this could be the surveys sometimes commissioned in the area of harmonized taxation [134] or public consultation procedures that are now often initiated before legislative initiatives. [135] Through these concerted efforts, the Commission could likely reduce the risk of a very heterogeneous tax landscape after a negative verdict of the ECJ. In the same vein, the Council should consider amending the Statute of the Court of Justice so as to allow the latter to also hear the national courts that referred questions for a preliminary ruling. This would provide the ECJ with a fuller picture of the dispute at issue and raise its awareness of the reverberations that a ruling might have in the entire tax system, and thus enhance the quality and acceptance of its decisions.
[136]
The Commission has indeed already set out to pursue the above strategy, as it announced in December 2006. However, not much progress has been made after some initial communications, [137] probably because the Commission was engulfed by the financial crisis and the preparation of the Proposal of a Directive for a Common Consolidated Tax Base. [138] This vacuum has spurred the Council to step in, and it has recently adopted a resolution on the coordination of the CFC and thin capitalization rules within the European Union based on the Courts case law. [139] The author would prefer to see the momentum shift back to the Commission because the Councils suggestions are less likely to be impartial, and the Commission should not let the fox guard the hen house. Instead, the Commissions conclusions should be discussed with representatives of the EU Finance Ministers after having been drafted, which could be done in the newly recreated Tax Policy Group [140] and preferably also in the European Parliament. [141] They might then be reinforced by a political commitment of the Council. [142] Furthermore, the Commission should also issue guidelines on an adequate balance between the desire to reduce administrative costs of national tax authorities with respect to cross-border transactions, on the one hand, and compliance burdens for taxpayers, on the other hand. As has been discussed above, the ECJ has so far failed to elaborate on this and has merely stated that compliance burdens must not be excessive or overly formalistic. Besides the enhanced use of soft guidance combined with hard enforcement measures, the Commission should consider intensifying its collaboration with the OECD in order to raise awareness for the interaction between the Courts case law and the rule of reason in particular, on the one hand, and OECD initiatives and recommendations, on the other hand. Considering the deficiencies of the still prevailing mutual agreement procedure without mandatory arbitration in most of the bilateral tax treaties of the Member State, as well as the lack of a comprehensive treaty network in some areas such as inheritance taxation, the Commission could also try to introduce a binding dispute settlement mechanism at least for selected areas of taxation. [143] The EU Arbitration Convention could serve as a model in this regard. Finally, the Commission must not, and apparently will not, cease to apply the State aid provisions strictly in cases of harmful tax competition within the meaning of the Code of Conduct on business taxation. Since the Commission has considerable discretion in this field, it should regularly update the relevant guidelines for fiscal aid so as to enhance legal certainty for Member States.
[144]
It is furthermore respectfully submitted that the Commission should realign its approach towards ambitious harmonization projects such as the creation of a Common Consolidated Corporate Tax Base (CCCTB). [145] Such bold initiatives will tend to meet resistance at least from some Member States, because they fear to lose a competitive edge or revenue, and the ECJ does not and indeed cannot build up sufficient pressure based on primary Union law to overcome this resistance. It may take decades before the necessary consensus is finally reached, and scarce Commission resources will have been bound over a very long period of time for a project
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with an uncertain outcome. A viable alternative to the ab initio elaboration of a detailed and highly complex and thus also highly controversial set of rules could be the formulation of mere framework directives that are confined to stipulating some basic principles and general rules as a broad framework for the approximation of national tax legislation and thus leave Member States with considerable discretion as to their implementation, in order to facilitate unanimous agreement on the proposal. Once adopted and implemented, the ensuing directive might then become more detailed and more comprehensive in subsequent rounds of harmonization. Such a gradual and tentative approach towards substantive harmonization would also spare Member States a choice between the Scylla and Charybdis of either risking petrification of a detailed compromise once adopted, [146] or relinquishing democratic legitimization of taxation to the obscurities of the comitology procedure (art. 291 TFEU) or even to delegated law-making powers of the Commission (art. 290 TFEU). [147] In the context of corporate taxation, this could imply formulating only basic principles and uniform standards for a common tax base, while initially refraining from promulgating an all-encompassing concept of a perfectly harmonized tax base and also from introducing full consolidation. A similar approach has already been tried in the context of indirect taxation, where the First and Second VAT Directives were also confined to the essentials of the VAT system, and a more detailed layer of European harmonization was only enacted 10 years later in form of the Sixth VAT Directive. Should the 27 Member States refuse to agree even on basic principles, then some of them might consider, and the Commission should support, proceeding through enhanced cooperation based on article 20 of the TEU. [148] If a sufficient number of economically potent Member States partakes in such an endeavour, it could also serve as a possible nucleus for broader coordination. [149] Finally, it is suggested that harmonization should also extend to tax rates, in particular when it becomes more comprehensive and more detailed, and, hence, tax competition based on rate differentials becomes more transparent and effective. Obviously, it is neither desirable nor politically feasible to have uniform tax rates for all 27 national tax systems as long as the Union has not evolved into a real federation, which it quite possibly never will. But the Union legislator could set minimum rates so as to avoid excessive competition for mobile sources of revenue and economic growth, [150] a competition that also tends to distort Member States tax systems from within and thus erodes traditional concepts of tax justice. Harmonization of direct taxes, and the CCCTB project in particular, should therefore not merely be concerned with reducing compliance costs and eliminating the danger of international double taxation. [151]
1.3. Harmonized areas of national tax law

1.3.1. Role of the ECJ
As can be inferred from the deliberations above at 1.2., the role of the ECJ in fostering tax coordination between Member States in the EU is a rather limited one in the absence of positive integration by way of EU legislation. As will be demonstrated in the following sections, this changes significantly once a certain area or certain aspects of taxation have been harmonized at Union level.
1.3.1.1. Enhancing positive integration through uniform interpretation of harmonized tax concepts
Aside from customs law that has been unified by way of regulations, the body of EU tax legislation so far consists almost exclusively of directives within the meaning of article 288 of the TFEU. With respect to the harmonization of direct taxes, no other legally binding instrument is available according to articles 114(2) and 115 of the TFEU; but directives are also the measure of choice for the harmonization of indirect taxes. [152] As a general rule, directives are not directly applicable within the Member States. For that reason, they need to be transposed into national law through the adoption of tax statutes or other legal acts by the national parliaments or by other competent legislative bodies in all 27 Member States. Furthermore, the respective national provisions are applied and interpreted by the national tax administrations and by the national courts of each Member State. Obviously, this can lead to a situation where one and the same provision of a European directive is applied differently in several Member States, especially considering the different legal traditions of the Member States. [153] However, most of these centrifugal tendencies will eventually be countered by the jurisprudence of the ECJ, [154] which by virtue of article 19 of the TEU is ultimately competent to interpret all EU directives. It is settled case law of the Court that Union law must, in principle, be applied uniformly and equally in all Member States. Therefore, it is not feasible to define EU law concepts on the basis of one or more national legal systems unless there is express provision to that effect. [155] Instead, the terms of a provision of Union law which makes no express reference to the law of the Member States for the purpose of determining its meaning and scope must normally be given an autonomous and uniform interpretation throughout the Union. [156] Moreover, every provision has to be interpreted in the light of the versions existing in all the official languages of the Union. [157] In this context, the ECJ has therefore also developed a legal methodology of its own, notwithstanding its foundation in familiar concepts of national legal systems. [158] By virtue of the principle of Union loyalty enshrined in article 4(3) of the TEU and now specified in article 291(1) of the TFEU, Member States are obliged to adhere to the Courts autonomous interpretation of secondary Union law. In particular, national authorities and courts must interpret domestic legislative provisions adopted for the purpose of implementing an EU directive in the light of the wording and the purpose of this directive, as construed by the ECJ. [159] In so far as an interpretation in conformity with Union law cannot be achieved by
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applying the interpretative methods recognized in the domestic legal order, [160] the national legislator can be coerced to amend the tax law at issue through infringement and enforcement procedures initiated by the Commission before the Court, as stipulated in articles. 258 and 260 of the TFEU. National courts that ask for preliminary rulings of the ECJ regarding the compatibility of domestic legal provisions with the relevant secondary Union law based on article 267 of the TFEU, and that are expected to eventually put aside the domestic provisions in case of conflict, [161] provide the Court with another very effective possibility to indirectly enforce national compliance with its understanding of the harmonized aspects or systems of taxation. [162] Against this background, the ECJ plays an eminent role in the effective coordination of the harmonized tax systems of the Member States. It has to be borne in mind, though, that both the opportunities and the capacities of the Court to act as supreme guardian of the faithful implementation of EU tax legislation are subject to legal and factual restraints: usually, questions surrounding the correct implementation and interpretation of EU directives are brought before the Court by one of the two ways mentioned above, i.e. either by request of a national court for a preliminary ruling under article 267 of the TFEU or by the Commission through the infringement procedure contemplated in article 258 of the TFEU. Individual taxpayers cannot file a case before the ECJ on their own motion. [163] However, as regards the infringement procedure, the capacities of the Commission to initiate the corresponding proceedings are limited. As a consequence, not every complaint from interested parties or other information that the Commission receives with respect to a possible non-compliance of national law with the requirements of EU tax legislation will give rise to a formal infringement procedure. [164] And even in so far as this happens, a majority of cases never reaches the ECJ, because the Member State chooses to amend its legislation based on the Commissions interpretation of secondary EU law, as is apparent from the Commission archives. [165] Moreover, the Court has repeatedly held that the Commission enjoys a discretionary power as to whether it will bring an action for failure to fulfil obligations and it is not for the Court to judge whether that discretion was wisely exercised. [166] It is unfortunate that the Commission has thus been granted carte blanche to refrain from initiating proceedings even in cases of severe or obvious failures of a Member State to correctly implement a directive and interpret its national law accordingly, [167] because the preliminary ruling procedure does not actually accommodate a lack of Commission enforcement. Theoretically, any national court or tribunal of last instance is under an obligation to bring any question of the compatibility of national law and its application with a European directive before the ECJ, pursuant to article 267 of the TFEU. However, it is well known that the willingness of national courts to comply with that obligation varies among Member States [168] and even among branches of the national judiciary. Therefore, the Courts jurisprudence on matters of harmonized tax law is far from comprehensive. Finally, the ECJs eight chambers are competent not only for the interpretation of harmonized tax law, but indeed they are responsible for interpreting the entire and still expanding body of primary and secondary Union law. Even though some competencies but not in tax matters have been delegated to a second EU tribunal created in 1988 (the General Court, formerly Court of First Instance) in order to relieve the ECJ from its increasingly heavy workload, the ECJ still has been confronted with between 550 and 600 new proceedings annually in recent years, or around 70 per chamber. The Court therefore encourages national courts to refrain from referring when there is no serious doubt as to whether an ECJ precedence may be applied in the case at hand or when the correct interpretation of the rule of law in question is obvious. [169] In other words, there may be doubtful but not seriously doubtful questions of interpretation that never reach the Court.
1.3.1.2. Avoidance of international double taxation

To the extent that the substantive rules of EU tax legislation are designed to avoid international double taxation or unintentional double non-taxation such as, for example, the place of supply rules in the VAT System Directive [170] it is particularly important to construe and apply these rules uniformly within all Member States so that they may achieve their purpose. As is well known in international direct tax law, conflicting interpretations of tax treaty provisions or conflicts of qualification when applying those provisions will frequently undermine the treatys aim to ensure a balanced allocation of taxing rights without overburdening the taxpayer. These conflicts and thus international double taxation or double non-taxation contrary to the objectives of international tax coordination through EU directives are supposedly avoided with respect to intra-Union commerce by the jurisprudence of the ECJ. Since the ECJ acts as a supreme supranational court vested with ultimate authority to interpret the relevant concepts, its judgments have binding and harmonizing effect for all national jurisdictions linked to the cross-border transaction at issue. [171] Moreover, in the field of comprehensively harmonized tax law, and regarding VAT in particular, the Court has repeatedly gone so far as to demand the abolition of international double taxation even in scenarios not contemplated in the relevant directive. To this end, the Court has relied on the special prohibition of discriminatory and protective taxation of imported goods, [172] as well as on the acknowledgement that the prevention of international double taxation is one of the fundamental objectives of the harmonization of VAT. [173] While the latter line of reasoning is certainly more convincing than the former, which may lead to inappropriate taxation of consumption based on the origin principle rather than on the destination principle, [174] it is nevertheless remarkable that the ECJ is endeavouring at all to coordinate the tax claims of Member States beyond the explicit provisions of the Directive. The Court also shows sufficient deference to the political primacy of the Union legislator by pointing out the provisional character of the indeed not so convincing allocation rules established by its jurisprudence. [175]
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Obviously, the legal and factual restraints of the Courts contribution to international tax coordination in the field of harmonized taxation that have been discussed above apply in the context of the avoidance of double taxation as well. The Courts opportunities to resolve potential jurisdictional conflicts that arise because the relevant taxing power allocation rules in a directive are implemented or interpreted differently across Member States may be even scarcer. Since it takes years to obtain a ruling of the ECJ after the completion of a disputed transaction, business will a priori tend to avoid transactions that might foreseeably give rise to double taxation. Moreover, it must not be overlooked either that the Court has occasionally and inconsistently tolerated international double taxation as a consequence of a lack of full and comprehensive harmonization; [176] and it has recently even backed away from resolving an apparent conflict of qualification with respect to a fully harmonized concept of VAT. [177] Notwithstanding these reservations, however, the Courts role in the coordination of potentially overlapping tax claims of the Member States is certainly more constructive in harmonized than in nonharmonized fields of taxation.
1.3.1.3. Standard-setting through general principles of EU law and fundamental tax principles
The European directives on taxation are not all-encompassing; they do not constitute conclusive codifications that cover all substantive and procedural aspects of a certain type of tax. This is obvious in the field of direct taxation where the existing rudimentary directives do not pretend to establish a common, internationally approximated system of taxation, [178] but instead merely address selective issues where a lack of coordination caused particularly severe distortions of competition or tax fraud opportunities in the past. But the levy of harmonized indirect taxes is not entirely streamlined by European secondary law, either, even though the indirect tax directives represent a more comprehensive approach towards modelling the tax system as such. Member States sometimes have the option of derogating from the standard rules of the directive, they may introduce optional special regimes or keep certain national rules as transitional regimes, [179] and some aspects of indirect taxation are only broadly approximated or not harmonized at all, such as tax rates or tax procedure. However, the Court has clarified that in conformity with its settled case law in other areas of harmonized law, Member States may not exercise their discretionary power in an arbitrary fashion. The constraints formulated by the Court go beyond the limits imposed on the Member States sovereign discretion in non-harmonized parts of their national tax systems by the four freedoms and the prohibition of State aid: Member States and especially national parliaments are subject to review of the conformity of their acts with the Treaties and with the general principles of Union law, when national rules fall within the scope of Union law as measures to implement the law of the Union. [180] Based on these premises, the Court has carried out a rather strict scrutiny of observance of these principles when Member States make use of options granted by EU tax directives, when they flesh out framework provisions contained in a directive, or when they enact procedural, enforcement and punitive rules in the context of harmonized taxation. The most relevant general principles relied on by the Court to limit the remaining sovereign powers of the Member States have been the principle of proportionality, the equality principle and other fundamental rights, the principle of legal certainty and its corollary, the principle of protection of legitimate expectations. [181] With respect to all these principles, the Court has applied a stringent standard of review, especially if compared to the more lenient approach towards acts of EU legislation. The ECJ has furthermore developed a so-called general principle of prohibition of abuse of law to be respected by Member States also when they implement or apply harmonized tax law. [182] By way of this quasi-constitutional control of national legislators, administration and courts based on general principles of Union law, the Court has established certain minimum standards in areas of harmonized tax law that are characterized by a remaining margin of sovereign discretion of the Member States. In doing so, the ECJ has further approximated harmonized national tax systems even beyond the scope of positive integration and has thus enhanced the creation of a level playing field within the internal market and tax coordination between Member States. Besides these general principles, the Court has also invoked the principles of effectiveness and equivalence as additional requirements to be observed by Member States with respect to tax administration procedures [183] and tax litigation procedure. [184] The principle of equivalence is less relevant from the point of view of international tax coordination, since it requires that procedural rules applicable in a Union law context must not be less favourable for taxpayers than those governing similar scenarios under non-harmonized domestic legislation. However, minimum standards throughout the Union are again promoted by the principle of effectiveness, which stipulates that national procedural rules must not render virtually impossible or excessively difficult the exercise of rights conferred by Union law. [185] Finally, the ECJ has elaborated fundamental principles of substantive taxation with respect to the indirect taxes that are comprehensively harmonized by Union law, i.e. for those taxes that are covered by directives aimed at aligning an entire tax system of Member States rather than coordinating isolated aspects. Member States are required to respect these principles when they exercise their remaining legislative discretion or when they apply the national laws that implement the European directives on indirect taxation. [186] In particular, the Court has demanded that VAT and excise tax rules must, in principle, guarantee neutrality of taxation for business. [187] The most important corollaries of this principle are the principle of equal conditions of competition that are undistorted by the harmonized taxes [188] and the requirement that in a multi-stage tax such as VAT taxable persons not acting in their private capacity must be relieved from any input tax burden. [189] Moreover, the ECJ has established the principle that the final VAT burden must correspond to the expenditure of the final consumer, since VAT is a tax on consumption. [190]
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The aforementioned fundamental guidelines are also instrumental in effectively streamlining and thereby coordinating the respective national tax systems. However, it is necessary to point out that the ECJ is not a tax court and it does not even have a chamber that is specialized in tax law. Hence, its judges are, in general, not too familiar with legal and economic debate on concepts of tax justice, equality of taxation, optimal taxation, or with scholarly discussion of the ensuing framework of principles that should underlie indirect taxation in particular. There is thus a certain danger that the Court will shape the fundamental principles of substantive taxation more from an integrationist or internal market perspective than from the point of view of their impact on final taxpayers, as evidenced by the dominance of the neutrality principle in its jurisprudence. [191]
1.3.1.4. Streamlining and restraining constitutional control

As early as 1970 the ECJ held that secondary Community law enacted by the (then) EEC institutions must not be subject to judicial review based on national constitutional law. [192] For the sake of an equal and uniform application of EU law, the constitutional control of secondary law will instead be carried out exclusively by the ECJ [193] and the standard of review will be primary Union law. In particular, the ECJ will test the conformity of secondary EU law for its compatibility with the individual rights enshrined in the Charter of Fundamental Rights of the European Union and with the general principles of Union law such as legal certainty. [194] Moreover, the Court has by now clarified that the Union legislator must also respect the free movement guarantees of the Treaty. [195] In a similar vein, the ECJ has recently held that a national provision which merely transposes the mandatory provisions of a European Union directive cannot be subject to national constitutional review; instead, the ECJ will carry out a constitutional scrutiny of the underlying provisions of the directive based on primary EU law requirements. [196] As a consequence, the constitutional standards for the levy of taxes within the EU will be streamlined by the ECJ in so far as national taxes are harmonized by European directives. Obviously, this centralistic approach towards constitutional review preserves the integrity of EU legislation and prevents uncoordinated derogations by single Member States. [197] In theory, it also provides the Court with the opportunity to substantially advance tax coordination between the Member States. By specifying and enforcing the tax-specific requirements of the equality principle and other fundamental rights and general principles of EU law, the Court could and indeed should establish a constitutional framework for future amendments of EU legislation on taxation. The Court could thus raise the standards of tax fairness and equality as well as neutrality of taxation, and ensure proportionality of compliance costs and risks, throughout the internal market and thus positively influence the very substance of tax coordination between Member States. But so far, this has been a lost opportunity. Admittedly, the ECJ has elaborated on some tax-specific implications of fundamental rights and general principles of EU law. A striking example is the Courts acknowledgement that in the area of indirect taxation, the principle of neutrality is the reflection of the equality principle, [198] the latter, of course, being binding also upon the Union legislator. However, and contrary to its rigid review of national measures, the ECJ practises a very lenient constitutional scrutiny of secondary EU law on taxation; indeed, no provision of a tax directive has ever been held to have been enacted in breach of primary law. Of course, the Court should be mindful of the institutional balance of the Union and show deference to the Union legislator by having recourse to reconciliatory interpretation of secondary EU law whenever this is possible without contradiction to established methods of statutory construction. [199] But to the extent that such a solution is not feasible, [200] the ECJ so far has failed, with respect to tax legislation, to deliver its promise to act as a substitute organ of constitutional review in the place of national constitutional courts which have been barred from such a review by the very Courts own jurisprudence. [201] This judicial control deficit has materialized in certain patterns of the ECJs jurisprudence. Occasionally, the Court has explicitly held that eventual infringements of a fundamental right in the case concerned, the equality principle constituted a consequence of a deliberate choice on the part of the Community legislature, [202] without raising any objections as to this choice. In other instances, the ECJ has defended a lack of tax neutrality or other inequalities in substantive taxation or in tax procedure by pointing to certain shortcomings of other elements of secondary law that inhibited a more neutral or fairer tax regime. [203] Obviously, such an approach is inadequate, because the Union legislator itself is responsible for the secondary law imperfections cited in its defence. In a similar vein, an isolated option to derogate from a comprehensively harmonized tax system that would inevitably lead to unequal taxation has been veiled by the Court as an inevitable consequence of the progressive nature of the harmonization process. [204] In fact, such reasoning amounts to sugar-coating phoney compromises during negotiations between Member States, [205] and it also leads to apparent contradictions in the Courts case law. When a directive grants Member States the option of implementing and fleshing out entire tax subsystems such as VAT grouping regimes, any Member State making use of the option will be held accountable for a lack of equality or neutrality by the Court, even though the harmonization process has progressed less in these scenarios than in the case of an isolated derogation from the directive. But most often, the Court has tacitly lowered its standard of review, so that European legislation on taxation will pass the test of primary Union law compatibility. In particular, the Court has frequently relaxed its proportionality requirements as compared to the stricter approach towards national legislation. For instance, the Court has accepted generalizing presumptions of abuse in the Parent-Subsidiary Directive that would have been rejected if implemented by a Member State at its own discretion. [206] The ECJ has also consistently held that in a VAT context, the principle of fiscal neutrality as a reflection of the equality principle requires deduction of input tax to
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be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements set up by a Member State. [207] By contrast, the Court has never questioned the rigidity of the formal requirement of certain particulars on the invoice set out in the VAT Directive as an indispensable precondition for the exercise of the right to deduct. [208] And recently, the Court has held that a restriction of the freedom to provide services that is caused by a provision of the VAT Directive could be justified, inter alia, by the objective to spare the tax authorities administrative difficulties. [209] Compare this to the settled case law according to which administrative difficulties cannot justify a restriction of fundamental freedoms in the context of non-harmonized national taxation. [210] There is no valid reason why the discretion of the Union legislator in a given policy area should be broader, and the standard of constitutional review correspondingly more relaxed, than that of the individual Member States in that same area. Since the Court convincingly does not see fit to apply the minimalist and indeed unsatisfactory manifestly inappropriate test that it sometimes refers to in areas which involve political, economic and/or social choices [211] as standard of review for national measures regarding particular aspects of harmonized taxes with respect to which Member States still enjoy discretion, the Court should also apply a strict level of scrutiny when testing secondary EU tax legislation. It is acknowledged that the present state of affairs offers an incentive for Member States to coordinate their individual interests in safeguarding certain problematic features of their national tax regimes and to transpose them into European tax legislation. A cartel of Member States might be able to bend the European constitutional rules if the Commission that has the exclusive right to make legislative proposals supports them for the sake of progressing with harmonization. Moreover, the Courts biased judicial restraint also helps to stabilize the existing body of harmonized law on taxation. This could be regarded as a contribution to the persistence of tax coordination between the Member States in a policy field where progress is hard to obtain due to a unanimity requirement. However, in the authors view insufficient respect for human rights and general EU law principles is too high a price for a Union that claims to be built on these very values. [212]
1.3.2. Some tentative conclusions for EU tax policy

The above analysis permits some tentative conclusions as to how the Commission could further enhance the Courts positive role in coordinating the harmonized parts of Member States tax systems. The Commission could specify and complement the Courts interpretation of harmonized tax law by way of proposals for implementation regulations, as it has recently successfully endeavoured to do with respect to the reformed place of supply rules under the common system of VAT. [213] If the necessary consent of the Council cannot be obtained, the Commission should have resort to recommendations or other non-binding guidance as a second-best alternative, e.g. through restatements of the Courts jurisprudence. Moreover, the Commission should use soft-law instruments to articulate its views on the impact of general principles of EU law, and of the proportionality principle and the equality principle in particular, on the design of optional regimes, on tax procedure, on tax penalty rules, and, in general, with a view towards all aspects of the implementation of tax directives where Member States still have considerable discretion. A first step in this direction has indeed been undertaken recently when the Commission issued its communication on VAT grouping. [214] In any event, a soft lawapproach should be hardened by infringement procedures against Member States that do not comply with the Commissions conclusions. Here again, private sector involvement seems crucial considering the Commissions limited resources. The Commission should furthermore consider reviving its preparatory work on a proposal for fast-track arbitration mechanism to resolve instances of international double taxation that still do occur even in harmonized areas of tax law. The proposal would ideally also stipulate an advance ruling procedure in cases of imminent double taxation, and this should imply only a provisional dispute settlement, before the ECJ eventually has a final say. Finally, the Commission is called upon to reflect more on its own and the Union legislators restraints in reforming and refining the harmonized tax systems, and it should foster debate at a European level on the role of substantive tax principles and primary Union law requirements in this regard. Such a focused debate could be institutionalized, inter alia, through the creation of an indirect tax policy roundtable that would assist the Commission with carrying out this task. [215] Not the least, Parliament and Council should consider establishing a specialized court for actions in the field of harmonized taxation based on article 257 of the TFEU, so as to ensure higher familiarity of judges with tax law concepts and academic debate. 1. Abundant examples of such inconsistencies do exist; for instance, the German federal legislator has conceded an income tax deduction for contributions for general liability insurances, because such insurances have been considered to cover existential risks, but at the same time levies federal insurance tax on the corresponding insurance contracts. Within the traditional Westphalian nation-state, this could be the federal government, on the one hand, and the states or autonomous provinces that together constitute the federation, on the other hand, and possibly also the municipalities or other entities. J.J.H. Weiler, Federalism and Constitutionalism, Europes Sonderweg, in The Federal Vision: Legitimacy and Levels of Governance in the US and the EU p. 70 (K. Nicolaidis & R. Howse eds., Oxford: Oxford University Press, 2001).
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Art. 26(2) TEU defines the internal market as an area without internal frontiers in which the free movement of goods, persons, services, and capital is ensured in accordance with the provisions of the Treaties. This definition has remained unchanged since its introduction in the EEC Treaty by the Single European Act. 5. 6. Cf. M. Monti, A New Strategy for the Single Market, Report to the President of the European Commission Jos Manuel Barroso, 9 May 2010, p. 79. Cf. Communication from the Commission, Co-ordinating Member States direct tax systems in the Internal Market, 19 Dec. 2006, COM(2006) 823 final, p. 4; see also M. Aujean, Tax Policy in the EU: Between harmonisation and coordination?, 16 Transfer: European Review of Labour and Research 1, p. 11 (2010). Cf. PWC, Impact of corporate income tax reforms at the EU level on European business taxpayers, 9 July 2008 (available at http://ec.europa.eu/taxation_customs/resources/documents/common/publications/studies/ccctb/pwc_compliance.pdf), p. 4 et seq. See also, in this regard, W. Schn, Tax Competition in Europe the legal perspective, EC Tax Review, p. 92 (2000) and the academic references cited there. See, in this regard, B.J.M. Terra & P.J. Wattel, European Tax Law, 5th ed., p. 44 (Alphen aan den Rijn: Kluwer Law International, 2008); M. Gammie, The Compatibility of National Tax Principles with the Single Market, in EU Freedoms and Taxation p. 115 (F. Vanistendael ed., Amsterdam: IBFD, 2006). The Commission has endorsed a broader concept of tax coordination between Member States, cf. Communication from the Commission, Co-ordinating Member States direct tax systems in the Internal Market, 19 Dec. 2006, COM(2006) 823 final, p. 4. Cf. A. Cordewener, The Prohibitions of Discrimination and Restriction within the Framework of the Fully Integrated Internal Market, in EU Freedoms and Taxation, id., p. 4 et seq. Cf. J. Englisch, Wettbewerbsgleichheit im grenzberschreitenden Handel p. 244 et seq. (Tbingen: Mohr Siebeck, 2008); S. van Thiel, Free Movement of Persons and Income Tax Law p. 1 et seq. (Amsterdam: IBFD, 2002). Cf. Aujean, supra n. 6, at p. 20; A. Grau & P.M. Herrera, The link between tax coordination and tax harmonization, EC Tax Review p. 28 (2003); G. Kopits (ed.), Tax Harmonization in the European Community p. 3 et seq. (Washington DC: International Monetary Fund, 1992); T. Oshea, Tax Harmonization vs. Tax Coordination in Europe: Different Views, 46 Tax Notes International 2, p. 811 (2007). Communication from the Commission, Co-ordinating Member States direct tax systems in the Internal Market, 19 Dec. 2006, COM(2006) 823 final, p. 4. Cf. ECJ, 15 June 2010, Case C-211/08, Commission v. Spain, n.y.r., para. 61; ECJ, 14 Oct. 2010, Case C-345/09, Delft, n.y.r., para. 99. See also J. Malherbe et al., Direct Taxation in the Case-Law of the European Court of Justice, paras. 312 et seq. (Bruxelles: Larcier, 2008), who draw the dividing line between measures that leave national tax sovereignty intact and measures that are aimed at streamlining national tax systems. This study is also available in an online version titled The impact of the rulings of the European Court of Justice in the area of direct taxation (2008); accessible at http://www.europarl.gr/ressource/static/files/projets_pdf/econ_2007_27.pdf; here, the relevant statement is made in paras. 213 et seq. As regards the range of soft law instruments, see Communication from the Commission, Tax Policy in the European Union Priorities for the Years Ahead, 23 May 2001, COM(2001) 260 final, p. 22. For a comprehensive overview, consult L. Senden, Soft Law in European Community Law p. 123 et seq. (Oxford: Hart Publisher, 2004). See also Websters Collegiate Dictionary, 11th ed. 2003, coordinate: to bring into a common action, movement, or condition: harmonize. Cf. ECJ Case C-300/89, Commission v. Council, [1991] ECR I-2867, at para. 15. See landmark ruling ECJ, 14 Feb. 1995, Case C-279/93, Schumacker [1995] ECR I-225, para. 21; settled Case law, cf. ECJ, 13 Dec. 2005, Case C-446/03, Marks & Spencer [2005] ECR I-10837, para. 29; see also Englmair, The Relevance of the Fundamental Freedoms for Direct Taxation, in Introduction to European Tax Law on Direct Taxation paras. 92 et seq. (M. Lang et al. (Wien: Linde Verlag, 2010). The free movement of goods (arts. 34 et seq. TFEU), the free movement of workers (art. 45 TFEU), the freedom of establishment (art. 49 TFEU), the free movement of services (art. 56 TFEU) and the free movement of capital (art. 63(1) TFEU). See landmark Cases ECJ, 3 July 1974, Case 192/73, Van Zuylen [1974] ECR 731, paras. 2/5; ECJ, 4 Dec. 1974, Case 41/74, van Duyn [1974] ECR 1337, paras. 5/7; ECJ, 21 June 1974, Case 2/4, Reyners
7.
8. 9.
10. 11.
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13. 14. 15.
16.
17. 18. 19.
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21.
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[1974] ECR 631, paras. 24/28 et seq.; ECJ, 3 Dec. 1974, Case 33/74, van Binsbergen [1974] ECR 1299, para. 27; ECJ, 14 Dec. 1995, Case C-163/94, Sanz de Lera [1995] ECR I-4821, para. 48 (with respect to the fundamental freedoms); ECJ, 8 Nov. 2001, Case C-143/99, Adria Wien Pipeline [2001] ECR I-8365, paras. 26 et seq. (with respect to the prohibition of State aid). 22. Cf. ECJ, 19 Nov. 2009, Case C-314/08, Filipiak [2009] ECR I-11049, para. 81; ECJ, 22 June 2010, Case C-188/10, Melki, n.y.r., para. 43. For further details, consult M. Lang, Der Anwendungsvorrang der Grundfreiheiten auf dem Gebiet des Steuerrechts, in Gestaltung der Rechtsordnung Festschrift fr Joachim Lang p. 1003 et seq. (K. Tipke et al., Kln: Schmidt Otto Verlag, 2010). ECJ, 12 Feb. 2008, Case C-199/06, CELF [2008] ECR I-469, para. 40. For further details, consult U. Geisenberger, Der Einfluss des Europarechts auf steuerliches Verfahrensrecht p. 48 et seq. (BadenBaden: Nomos, 2010). Cf. ECJ, 15 Mar. 2007, Case C-35/05, Reemtsma Cigarettenfabriken [2007] ECR I-2425, para. 40; ECJ, 6 Oct. 2009, Case C-40/08, Asturcom [2009] I-9579, para. 38. See also A. van Eijsden et al., in Procedural Rules in Tax Law in the Context of European Union and Domestic Law p. 16 et seq. (M. Lang et al. eds., Alphen aan den Rijn: Kluwer Law International, 2010); Terra & Wattel, supra n. 9, at p. 88. For an explanation in a nutshell, see ECJ, 8 Mar. 2011, Case C-240/09, Lesoochranrske zoskupenie, n.y.r., para. 48, with references to the Courts Case law. For further details, see infra at notes 183-185. See landmark ruling ECJ, 3 May 1978, Case C-112/77, August Tpfer [1978] ECR 1019, para. 19; see also ECJ, 10 Sept. 2009, Case C-201/08, Plantanol [2009] ECR I-8343, para. 46; ECJ, 2 Dec. 2009, Case C-358/08, Aventis Pasteur [2009] ECR I-11305, para. 47. Cf. Terra & Wattel, supra n. 9, at p. 29 et seq. See, in this regard, the Communication from the Commission., Tax Policy in the European Union Priorities for the Years Ahead, 23 May 2001, COM(2001) 260 final, p. 22; H. Gribnau, Improving the Legitimacy of Soft Law in EU Tax Law, Intertax, p. 30 (2007); Terra & Wattel, supra n. 9, at p. 163 et seq. For further details, consult A. Cordewener, in EU Freedoms and Taxation p. 8 et seq. (F. Vanistendael ed.). See, for instance, ECJ, 18 Sept. 2003, Case C-168/01, Bosal [2003] ECR I-9409, para. 27; ECJ, 19 Jan. 2006, Case C-265/04, Bouanich [2006] ECR I-923, paras. 30 et seq. See, for instance, ECJ, 14 Feb. 1995, Case 279/93, Schumacker [1995] ECR I-225, paras. 26 et seq.; ECJ, 27 June 1996, Case C-107/94, Asscher [1996] ECR I-3089, paras. 38 et seq. Cf. C. Barreiro Carril, National tax sovereignty and EC fundamental freedoms: The impact of tax obstacles on the internal market, Intertax p. 107 (2010); Cordewener, supra n. 29, at p. 27 et seq.; P. Farmer, The Courts Case law on direct taxation: A castle built on shifting sands?, EC Tax Review p. 80 et seq. (2003); D. Hohenwarter, Verlustverwertung im Konzern p. 52 (Wien: LexisNexis, 2010); H. Kube, EuGH und Steuerrecht Steuerrechtliche Probleme bei der Ausbung der Grundfreiheiten, in Europisches Gesellschafts- und Steuerrecht p. 235 (M. Dillmann et al., Mnchen: Beck, 2007); S. Lammel & E. Reimer, Europisches Unternehmenssteuerrecht. Eine Einfhrung, in Europisches Gesellschafts- und Steuerrecht p. 179, id.; M. Lang, Die Rechtsprechung des EuGH zu den direkten Steuern p. 34 et seq. (Frankfurt am Main/Wien: Peter Lang Frankfurt, 2007); R. Lyal, Non-discrimination and direct tax in Community law, EC Tax Review p. 74 (2003; W. Schn, Unternehmensbesteuerung und Europisches Gemeinschaftsrecht, in Steuerberater-Jahrbuch 2003/2004 p. 31 (N. Herzig, M. Gnkel & U. Niemann eds., Kln: Otto Schmidt, 2004); S. van Thiel, The Direct Income Tax Case Law of the European Court of Justice: Past Trends and Future Developments, Tax Law Review p. 149 et seq. (2008); P. Wattel, Commentary: Judicial Restraint and Three Trends in the ECJs Direct Tax Case Law, Tax Law Review p. 208 et seq. (2008); see also ECJ, 25 Oct. 2007, Case C-240/06, Fortum Project Finance [2007] ECR I-9413, para. 27; M. Graetz & A. Warren, Income Tax Discrimination and the Political and Economic Integration of Europe, The Yale Law Journal p. 1199 (2006); W. Hellerstein, G. Kofler & R. Mason, Constitutional Restraints on Corporate Tax Integration in the EU and the U.S., Tax Law Review 62 p. 24 et seq. (2008). Likewise M. Lang, Recent Case Law of the ECJ in Direct Taxation: Trends, Tensions and Contradictions, EC Tax Review p. 99 (2009); T. Oshea, Freedom of Establishment Tax Jurisprudence: Avoir Fiscal Revisited, EC Tax Review p. 269 et seq. (2008); F. Vanistendael, The ECJ at the Crossroads: Balancing Tax Sovereignty Against the Imperatives of the Single Market, Eur. Taxn. p. 414 (2006). Cf. ECJ, 23 Feb. 2006, Case C-513/03, van Hilten-van der Heijden [2006] ECR I-1957, paras. 45 et seq.; ECJ, 6 Dec. 2007, Case C-298/05, Columbus Container [2007] ECR I-10451, paras. 39 et seq. and para. 49. See, for instance, ECJ, 28 Sept. 2006, Joined Cases C-282/04 and C-283/04, Commission v. Netherlands [2006] ECR I-1941, para. 20; ECJ, 11 Mar. 2010, Case C-384/08, Attanasio, n.y.r., para. 43; ECJ, 16 Mar. 2010, Case C-325/08, Olympique Lyonnais, n.y.r., para. 34; ECJ, 11 Nov. 2010, Case C-543/08, Commission v. Portugal, n.y.r., para. 47; As S. van Thiel, Removal of income tax barriers to market integration in the European Union: Litigation by the Community citizen instead of harmonization
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27. 28.
29. 30. 31. 32.
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by the Community legislature?, EC Tax Review 12 p. 5 (2003), correctly pointed out, this far-reaching jurisprudence on access restrictions has obliged Member States, in principle, to recognize home-state standards, and has thus greatly reduced the need for further harmonization to those limited aspects of domestic regulatory systems that serve mandatory requirements of a non-economic nature. The latter qualification is a consequence of the rule of reason (see 1.1.2.). 36. 37. For further details, consult J. Englisch, Wettbewerbsgleichheit im grenzberschreitenden Handel (Kln: Verlag Mohr Siebeck, p. 234 et seq., 2008). See, for instance, ECJ, 13 May 2003, Case C-463/00, Commission v. Spain [2003] ECR I-4581, para. 61; ECJ, 19 May 2009, Case C-531/06, Commission v. Italy [2009] ECR I-4103, paras. 44 et seq.; ECJ, 8 July 2010, Case C-171/08, Commission v. Portugal, n.y.r., para. 67; ECJ, 11 Nov. 2010, Case C-543/08, Commission v. Portugal, n.y.r., para. 68; see also, however, ECJ, 21 Oct. 2010, Case C-81/09, Idryma Typou, n.y.r., para. 58 et seq. For critical comments, see O. Thoemmes et al., Thin Capitalization Rules and Non-Discrimination Principles, Intertax 32 p. 135 (2004). For a seemingly different analysis of the implications of the Case law of the Court, see Terra & Wattel, supra n. 9, at p. 717 et seq. If the transaction at issue falls under the scope of the free movement of capital, it will also be protected by the non-discrimination requirement with respect to third countries; however, justifications might be more readily available than in an internal market context, cf. ECJ, 12 Dec. 2006, Case C-446/04, FII Group Litigation [2006] ECR I-11753, para. 171; ECJ, 18 Dec. 2007, Case C-101/05, A [2007] ECR I-11531, paras. 28 et seq.; ECJ, 18 Dec. 2007, Case C-101/05, A. [2007] ECR I-11531, paras. 36 et seq.; ECJ, 23 Apr.2008, Case C-201/05, Test Claimants in the CFC and Dividend Group Litigation [2008] ECR I-2875, para. 93; ECJ, 20 May 2008, Case C-194/06, Orange Smallcap [2008] ECR I-3747, para. 90; ECJ, 4 June 2009, Cases C-439/07 and C-499/07, KBC Bank [2009] I-4409, para. 73; ECJ, 28 Oct. 2010, Case C-72/09, tablissements Rimbaud, n.y.r., para. 40. For further discussion, see 1.2.1.2. See also P. Farmer & A. Zalasinski, General Report, in Direct Tax Rules and the EU Fundamental Freedoms p. 399 (X.L. Xenopoulos ed., Nicosia: FIDE Congress, 2006). Cf. C. Brokelind, in Towards a Homogeneous EC Direct Tax Law p. 13 (C. Brokelind ed., Amsterdam: IBFD, 2007); J. Hey, Wettbewerb der Rechtsordnungen oder Europisie-rung des Steuerrechts, in Europisches Gesellschafts- und Steuerrecht p. 309 (M. Dillmann et al., Mnchen: Beck, 2007); Malherbe et al., supra n. 15, at para. 61. ECJ, 12 Dec. 2002, Case C-324/00, Lankhorst-Hohorst [2002] ECR I-11779. ECJ, 12 Sept. 2006, Case C-196/04, Cadbury Schweppes [2006] ECR I-7995. Likewise, A. Grau & P.M. Herrera, The link between tax coordination and tax harmonization, EC Tax Review p. 34 (2003). Cf. C. Brokelind, in Towards a Homogeneous EC Direct Tax Law p. 16 et seq.; Malherbe et al., supra n. 15, at para. 61. See also R. Szudoczky, How Does the European Court of Justice Treat Precedents in Its Case Law? Cartesio and Damseaux from a Different Perspective: Part I, Intertax 37 p. 348 (2009). Cf. A. Arnull, The European Union and its Court of Justice, 2nd ed. p. 10 (Oxford: Oxford University Press, 2006). See also L. Mutn, The effects of ECJ rulings on Member States direct tax law Introductory speech, in Towards a Homogeneous EC Direct Tax Law p. 31 (C. Brokelind ed., Amsterdam: IBFD, 2007): [T]he texts of the rulings, even before they get through the fateful translation procedure, often bear the sign of compromise [between dissenting judges]. Considering the asymmetry of Member States reaction to ECJ rulings, negative integration should indeed not be regarded as tantamount to an alternative form of harmonization, cf. Brokelind, in Towards a Homogeneous EC Direct Tax Law p. 401, id. ECJ, 6 June 2000, Case C-35/98, Verkooijen [2000] ECR I-4071. ECJ, 7 Sept. 2004, Case C-319/02, Manninen [2004] ECR I-7477. Likewise, W. Schn, Tax competition in Europe the legal perspective, EC Tax Review 9 p. 98 et seq. (2000). See, in this regard, ECJ, 27 Jan. 2009, Case C-318/07, Persche [2009] I-359, para. 47. Cf. ECJ, 15 July 2004, Case C-365/02, Lindfors [2004] ECR I-7183, para. 34; ECJ, 12 July 2005, Case C-403/03, Schempp [2005] ECR I-6421, para. 45; in a similar vein, ECJ, 28 Feb. 2008, Case C-293/06, Deutsche Shell [2008] I-1129, para. 43. See also, by analogy, ECJ, 1 Oct. 2009, Case C-3/08 Leyman [2009] ECR I-9085, para. 45; ECJ, 14 Oct. 2010, Case C-345/09, Delft, n.y.r., para. 100, regarding social security. It should be noted that this argument has also been brought forward to defend the presumed compatibility of international double taxation with the fundamental freedoms, cf. ECJ, 12 Feb. 2009, Case
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C-67/08, Block [2009] ECR I-883, para. 35. In this context, though, it cannot be accepted, because double (tax) burdens cannot be regarded as a consequence of disparate national tax systems; they might persist even if Member States tax systems were fully harmonized (see, for further discussion, 1.2.1.3.). 55. Cf. R. de la Feria & C. Fuest, Fhrt die EuGH-Rechtsprechung zu einem Abbau steuerlicher Verzerrungen im Europischen Binnenmarkt?, in Gestaltung der Rechtsordnung Festschrift fr Joachim Lang p. 1051 et seq. (K. Tipke et al., Kln: Schmidt Otto Verlag, 2010). As regards the reservations of many Member States with respect to a harmonization of taxes on income, see Van Thiel, supra n. 35, at p. 4. See, e.g. ECJ, 18 Dec. 2007, Case C-101/05, A [2007] ECR I-11531, paras. 55 et seq.; ECJ, 17 Jan. 2008, Case C-105/07, Lammers & Van Cleeff [2008] ECR I-173, para. 25; ECJ, 11 June 2009, Case C-157/08, Passenheim-van Schoot [2009] ECR I-5093, para. 47; settled Case law, cf. L. Hinnekens, in EU Freedoms and Taxation p. 91 et seq. (F. Vanistendael ed., Amsterdam: IBFD, 2006); M. Isenbaert, EC Law and the Sovereignty of the Member States in Direct Taxation p. 372 et seq. (Amsterdam: IBFD, 2010). See also T. Tridimas, The General Principles of EU Law, 2nd ed., p. 209 et seq. (Oxford: Oxford Univ. Press, 2006). ECJ, 20 Feb. 1979, Case 120/78, Cassis de Dijon [1979] ECR 649, para. 8. See landmark Case ECJ, 11 July 1974, Case 8/74, Dassonville [1974] ECR 837, para. 5. Cf. ECJ, 30 Nov. 1995, Case C-55/94, Gebhard [1995] ECR I-4165, para. 37. For a comprehensive overview, consult A. Cordewener, G. Kofler & S. van Thiel, The Clash Between European Freedoms and National Direct Tax Law: Public Interest Defences Available to the Member States, Common Market Law Review 46 p. 1951 et seq. (2009). ECJ, 13 Dec. 2005, Case C-446/03, Marks & Spencer [2005] ECR I-10837. Cf. ECJ, 10 Feb. 2011, Case C-25/10, Missionswerk Werner Heukelbach, n.y.r., para. 31, and the Case law cited there; see also M. Dahlberg, Direct Taxation in Relation to the Freedom of Establishment and the Free Movement of Capital p. 271 et seq. (The Hague: Kluwer Law International, 2005), with references to the Courts Case law. For critical comments with respect to some consequences of this development, see S. van Thiel & M. Vascega, X Holding: Why Ulysses Should Stop Listening to the Siren, Eur. Taxn. 50 p. 338 et seq. (2010). Besides the Cases mentioned in the following notes, see also ECJ, 29 Mar. 2007, case C-347/04 Rewe Zentralfinanz [2007] ECR I-2647, para. 42; ECJ, 18 July 2007, Case C-231/05, Oy AA [2007] ECR I-6373, para. 54; ECJ, 18 June 2009, Case C-303/07, Aberdeen Property Fininvest Alpha [2009] ECR I-5145, para. 66. Cf. ECJ, 13 Dec. 2005, Case C-446/03, Marks & Spencer [2005] ECR I-10837, para. 46; ECJ, 15 May 2008, Case C-414/06, Lidl Belgium [2008] ECR I-3601, paras. 31 et seq.; ECJ, 25 Feb. 2010, Case C-337/08, X Holding, n.y.r., paras. 28 et seq. Cf. ECJ, 7 Sept. 2006, Case C-470/04, N. [2006] ECR I-7409, para. 46; ECJ, 29 Nov. 2011, Case C-371/10, National Grid Indus, n.y.r., para. 46; ECJ, 12 July 2012, Case C-269/09, Commission / Spain, n.y.r., para. 78. Cf. ECJ, 12 Sept. 2006, Case C-196/04, Cadbury Schweppes [2006] ECR I-7995, paras. 55 et seq.; ECJ, 23 Apr. 2008, Case C-201/05, CFC and Divided GL [2008] I-2875, para. 77 (CFC regime); ECJ, 13 Mar. 2007, Case C-524/04, Thin Cap GL [2007] ECR I-2107, paras. 74 et seq.; ECJ, 17 Jan. 2008, Case C-105/07, Lammers & Van Cleeff [2008] ECR I-173, para. 28 (thin capitalization); ECJ, 21 Jan. 2010, Case C-311/08, SGI, n.y.r., para. 60 (transfer pricing). Even in this regard the response is not uniform due to several questions still surrounding the correct implementation of the Courts minimum requirements. Cf. ECJ, 13 Dec. 2005, Case C-446/03, Marks & Spencer [2005] ECR I-10837, para. 58. For further details, see Commission Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB), 16 Mar. 2011, COM(2011) 121/4; see also Communication from the Commission, Towards an Internal Market without tax obstacles, 23 Oct. 2001, COM(2001) 582 final, 15 et seq.; Communication from the Commission, An Internal Market without company tax obstacles, 24 Nov. 2003, COM(2003) 726 final, 11 et seq.; Communication from the Commission, Progress Report, 2 May 2007, COM (2007) 223 final. For a comprehensive overview, consult M. Lang, Common Consolidated Corporate Tax Base (Vienna: Linde Verlag, 2008). For the latest developments and additional materials, see also http://ec.europa.eu/taxation_customs/taxation/company_tax/common_tax_base/index_en.htm.
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Cf. ECJ, 7 Sept. 2006, Case C-470/04, N [2006] ECR I-7409, para. 45; ECJ, 15 May 2008, Case C-414/06, Lidl Belgium [2008] ECR I-3601, para. 22 and Case law cited there. See also ECJ, 23 Feb. 2006, Case C-513/03, van Hilten-van der Heijden [2006] ECR I-1957, para. 48. 73. For further details, see the OECD Report on the Transfer Pricing Aspects of Business Restructurings, approved by the OECD Council on 22 July 2010; available at http://www.oecd.org/dataoecd/22/54/45690216.pdf. See, e.g. ECJ, 10 Mar. 2005, Case C-39/04, Laboratoires Fournier [2005] ECR I-2057, para. 23; ECJ, 25 Oct. 2007, Case C-464/05, Geurts and Vogten [2007] ECR I-9325, para. 27; ECJ, 17 Jan. 2008, Case C-256/06, Jger [2008] ECR I-123, para. 51; ECJ, 22 Dec. 2010, Case C-287/10, Tankreederei, n.y.r., paras. 30 et seq. While the Court does not consider direct subsidies intended to promote national welfare, national infrastructure, the national educational system, etc., to constitute an infringement of the fundamental freedoms, it obviously holds it to be contrary to the internal market objective when a Member State grants incentives to private sector agents to give preference to domestic suppliers or supplies of goods, services or capital in order to promote the national economy etc.; cf. ECJ, 11 Sept. 2007, Case C-76/05, Schwarz and Gootjes-Schwarz [2007] ECR I-6849, para. 71. The dividing line is rather artificial from the perspective of an economic analysis, though, at least in so far as direct subsidies have similar effects of attracting private investments or activities to national rather than foreign sectors of the economy. Arguably, the Courts Case law therefore is in need of refinement. Cf. ECJ, 18 Dec. 2007, Case C-281/06, Jundt [2007] ECR I-12231, paras. 60 et seq.; ECJ, 16 June 2011, Case C-10/10, Commission v. Austria, n.y.r., paras. 33 et seq. Cf. ECJ, 26 Oct. 2006, Case C-345/05, Commission v. Portugal [2006] ECR I-10633, paras. 34 et seq.; ECJ, 17 Jan. 2008, Case C-152/05, Commission v. Germany [2008] ECR I-39, paras. 27 et seq. But see also the more tentative approach in ECJ, 15 Oct. 2009, Case C-35/05, Busley and Cibrian [2009] ECR I-9807, paras. 31 et seq. See landmark ruling ECJ, 28 Jan. 1992, Case C-204/90, Bachmann [1992] ECR I-249, paras. 21 et seq. For further details, see A. Cordewener, G. Kofler & S. van Thiel, The Clash Between European Freedoms and National Direct Tax Law: Public Interest Defences Available to the Member States, Common Market Law Review 46 p. 1969 et seq. (2009); J. Englisch, Dividend Taxation and Fiscal Cohesion, Part I and Part II, Eur. Taxn. pp. 323 et seq. and 355 et seq. (2004). The only exception that is relevant in the context of diminished incentives for tax coordination is the decision of the ECJ, 27 Nov. 2008, Case C-418/07, Papillon [2008] ECR I-8947, paras. 41 et seq., concerning discriminatory elements of the French group taxation regime that were held to be justified, in principle, by the need to safeguard fiscal cohesion, and deemed disproportionate only with respect to their concrete implementation. See the Case law cited in notes 66 and 68; as compared to, e.g. ECJ, 11 Mar. 2004, Case C-9/02, Lasteyrie du Saillant [2004] ECR I-2409, paras. 50 et seq.; ECJ, 4 Dec. 2008, Case 330/07, Jobra [2008] ECR I-9099, paras. 35 et seq. See, e.g. ECJ, 28 Oct. 1999, Case C-55/98, Vestergaard [1999] ECR I-7641, para. 25; ECJ, 26 Sept. 2000, Case C-478/98, Eurobonds [2000] ECR I-7587, para. 38; ECJ, 14 Sept. 2006, Case C-386/04, Stauffer [2006] ECR I-8203, para. 47; ECJ, 11 Oct. 2007, Case C-451/05, ELISA [2007] ECR I-8251, para. 81; ECJ, 11 June 2009, Joined Cases C-155/08 and C-157/08, X & Passenheim van Schoot [2009] ECR I-5093, para. 45. Cf. ECJ, 26 Oct. 1995, Case C-151/94, Commission v. Luxemburg [1995] ECR I-3685, para. 21; ECJ, 8 July 1999, Case C-254/97, Baxter [1999] ECR I-4809, paras. 19 et seq.; ECJ, 10 Mar. 2005, Case C-39/04, Laboratoires Founier [2005] ECR I-2057, para. 25; ECJ, 14 Sept. 2006, Case C-386/04, Stauffer [2006] ECR I-8203, para. 49. Cf. ECJ, 3 Oct. 2006, Case C-290/04, Scorpio Konzertproduktionen [2006] ECR I-9461, paras. 35 et seq.; ECJ, 22 Dec. 2008, Case C-282/07, Truck Center [2008] ECR I-10767, paras. 33 et seq. See, e.g. ECJ, 3 Oct. 2002, Case C-136/00, Danner [2002] ECR I-8147, para. 50; ECJ, 30 Jan. 2007, Case C-150/04, Commission v. Denmark [2007] ECR I-1163, para. 54; ECJ, 27 Jan. 2009, Case C-318/07, Persche [2009] I-359, paras. 53 et seq. Cf. Terra & Wattel, supra n. 9, at p. 88 et seq. See ECJ, 30 June 2011, Case C-262/09, Meilicke, n.y.r., paras. 42 et seq.; see also ECJ, 10 Feb. 2011, Case C-436/08, Haribo Lakritzen, n.y.r., paras. 91 et seq.; ECJ, 15 Sep. 2011, Case C-310/09, Accor, n.y.r., paras. 77 et. seq. Cf. ECJ, 15 July 2004, Case C-315/02, Lenz [2004] ECR I-7063, paras. 34 et seq.; ECJ, 13 Mar. 2007, Case C-524/04, Thin Cap GL [2007] ECR I-2107, paras. 68 et seq.; ECJ, 1 July 2010, Case C-233/09, Dijkman, n.y.r., paras. 49 et seq. (fiscal cohesion); ECJ, 12 Sept. 2006, Case C-196/04, Cadbury
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83. 84.
85. 86.
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Schweppes [2006] ECR I-7995, paras. 30 et seq.; ECJ, 21 Jan. 2010, Case C-311/08, SGI, n.y.r., para. 71 (abusive tax schemes). 88. 89. 90. Cf. ECJ, 26 Oct. 2010, Case C-97/09, Schmelz, n.y.r., paras. 56 et seq. For further comments, see 1.2.1.4. See, e.g. ECJ, 8 Sept. 2009, Case C-42/07, Liga Portuguesa [2009] ECR I-7633, para. 61; ECJ, 17 Nov. 2009, Case C-169/08, Regione Sardegna [2009] ECR I-10821, para. 42; ECJ, 10 Mar. 2009, Case C-169/07, Hartlauer [2009] ECR I-1721, para. 55; ECJ, 1 June 2010, Case C-570/07, Blanco Prez, n.y.r., para. 94. See also Opinion of Advocate General Poiares Maduro, 30 Sept. 2009, Case C-570/07, Blanco Prez, n.y.r., point 21. For an in-depth analysis, consult G. Mathisen, Consistency and Coherence as Conditions for Justification of Member State Measures Restricting Free Movement, Common Market Law Review 47 p. 1021 et seq. (2010). See also ECJ, 14 Feb. 1995, Case C-279/93, Schumacker [1995] ECR I-225, paras. 43 and 46 (regarding different source state treatment of frontier workers depending on their state of residence); ECJ, 18 Sept. 2003, Case C-168/01, Bosal [2003] ECR I-9409, para. 36. See, e.g. ECJ, 12 Dec. 2006, Case C-374/04, ACT Group Litigation [2006] ECR I-11673, paras. 84 et seq.; ECJ, 20 May 2008, Case C-194/06, Orange Smallcap [2008] ECR I-3747, paras. 50 et seq.; however, see also the obiter dictum in ECJ, 11 June 2009, Case C-521/07, Commission v. Netherlands [2009] ECR I-4873, paras. 36 et seq. and para. 58. See also ECJ, 6 Dec. 2007, Case C-298/05, Columbus Container Services [2007] ECR I-10451, paras. 43 et seq. It should be pointed out, though, that the ECJ routinely fails to sufficiently distinguish between an MFN obligation regarding the allocation of taxing rights, on the one hand, and limitation of benefits (LOB) clauses, on the other hand; see, e.g., ECJ, 12 Dec. 2006, Case C-374/04, ACT Group Litigation [2006] ECR I-11673, paras. 84 et seq. and paras. 89 et seq.; P. Pistone, The Need for Tax Clarity and the Application of the Acte Clair Doctrine to Direct Taxes, Intertax p. 534 (2007). The internal market impact analysis with respect to an abolition of LOB-clauses based on their eventual classification as restrictions of fundamental freedoms indeed differs markedly from the analysis with respect to the rejected MFN obligation. For an in-depth discussion, see J. Englisch, Meistbegnstigung im EG-Steuerrecht: Der Weg ins Chaos, in Meistbegnstigung im Steuerrecht der EU-Staaten p. 176 et seq. (A. Cordewener, S. Enchelmaier & C. Schindler eds. (Mnchen: Beck, 2006); see also A. Cordewener & E. Reimer, The Future of MostFavoured-Nation Treatment in EC Tax Law Did the ECJ Pull the Emergency Brake without Real Need? Part I and Part II, Eur. Taxn. pp. 239 et seq. and 291 et seq. (2006); Wattel, Tax Law Review p. 208 (p. 211 et seq. (2008). For a different opinion, consult J. Schuch, Critical Notes on the ECJs D-Case decision on most-favoured nation treatment under tax treaties, EC Tax Review p. 6 et seq.(2006); S. van Thiel, Free Movement of Persons and Income Tax Law p. 186 et seq. (Amsterdam: IBFD, 2002). See also 1.2.1.5. Cf. ECJ, 14 Nov. 2006, Case C-513/04, Kerckhaert and Morres [2006] ECR I-10967, paras. 20 et seq.; ECJ, 6 Dec. 2007, Case C-298/05, Columbus Container [2007] ECR I-10451, para. 44; ECJ, 12 Feb. 2009, Case C-67/08, Block [2009] ECR I-883, paras. 27 et seq.; ECJ 16 July 2009, Case C-128/08, Damseaux, n.y.r., paras. 20 et seq.; ECJ 15 April 2010, Case C-96/08, CIBA, n.y.r., para. 25; ECJ, 10 Feb. 2011, Case C-437/08, sterreichische Salinen, n.y.r., paras. 170 et seq.; ECJ, 8 Dec. 2011, Case C-157/10, Banco Bilbao Vizcaya, paras. 38 et seq. But see also the inconsistent statements in ECJ, 21 Jan. 2010, Case C-311/08, SGI, n.y.r., paras. 53 et seq. This is even less convincing against the background of some judgments in which the Court indeed has proceeded to (implicitly) allocate responsibilities to grant certain forms of tax relief etc., cf. ECJ, 14 Feb. 1995, Case C-279/93, Schumacker [1995] ECR I-225, paras. 32 et seq.; ECJ, 7 Sept. 2006, Case C-470/04, N [2006] ECR I-7409, para. 54; ECJ, 23 Oct. 2008, Case C-157/07, Krankenheim Wannsee [2008] ECR I-8061, para. 51. See also Malherbe et al., supra n. 15, at paras. 204 et seq., who contrast this judicial restraint with the Courts more active approach towards double burdens in the fields of VAT and social security contributions. Some authors will tend to view this favourably, since they argue for an enhanced role of the EU in the working groups of the OECD that contemplate improvements or amendments of the OECD Model, instead of elaborating a distinct European Tax Model, cf. T.J. Obhof, Is a Closer Cooperation between the Organization of Economic Cooperation and Development (OECD) and the European Union (EU) Needed? A Practical Approach to Real-World Tax Issues Concerning the EU and Beyond, Intertax 37 p. 412 et seq. (2009). Cf. ECJ, 6 Oct. 2009, Case C-562/07, Commission v. Spain, n.y.r., para. 45; ECJ, 19 Nov. 2009, Case C-540/07, Commission v. Italy, n.y.r., para. 37.
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Cf. ECJ, 7 Sept. 2006, Case C-470/04, N. [2006] ECR I-7409, para. 54; ECJ, 14 Dec. 2006, Case C-170/05, Denkavit Internationaal [2006] ECR I-11949, paras. 46 et seq.; ECJ, 13 Mar. 2007, Case C-524/04, Thin Cap GL [2007] ECR I-2107, paras. 54 et seq. and para. 69. 101. 102. Cf. Opinion of Advocate General Mengozzi, 7 June 2007, Case C-379/05, Amurta [2007] ECR I-9569, points 77 et seq. Cf. ECJ 8 November 2007, Case C-379/05, Amurta [2007] ECR I-9569, paras. 77 et seq.; confirmed by ECJ 11 September 2008, Case C-43/07, ECJ 11 September 2008, Case C-11/07, Eckelkamp [2008] ECR I-6845, para. 69; ECJ 11 September 2008, Case C-43/07, Arens-Sikken [2008] ECR I-6887, para. 66. For further references and critical remarks (which the author of this contribution does not endorse), consult Terra & Wattel, supra n. 9, at p. 741 et seq. See, to that effect, ECJ, 26 Oct. 1999, Case C-294/97, Eurowings [1999] ECR I-7447, para. 43; ECJ, 26 June 2003, Case C-422/01, Skandia [2003] ECR I-6817, para. 52; ECJ, 15 July 2004, Case C-315/02, Lenz [2004] ECR I-7063, para. 43. See, however, D. Weber, In Search of a (New) Equilibrium Between Tax Sovereignty and the Freedom of Movement Within the EC, Intertax 34 p. 607 (2006), who rejects even this viewpoint; likewise, B. Santiago, Non-Discrimination Provisions at the Intersection of EC and International Tax Law, Eur. Taxn. p. 261 (2009). ECJ, 26 June 2008, Case C-284/06, Burda [2008] ECR I-4571, paras. 89 et seq. Likewise, S. van Thiel & M. Vascega, X Holding: Why Ulysses Should Stop Listening to the Siren, Eur. Taxn. 50 p. 388 (2010). Cf. ECJ, 7 Sept. 2006, Case C-470/04, N. [2006] ECR I-7409, para. 54; see, however, ECJ, 29 Nov. 2011, Case C-371/10, National Grid Indus, n.y.r., paras. 54 et seq., regarding exit taxes on occasion of business transactions. Cf. ECJ, 22 Dec. 2008, Case C-487/06, British Aggregates Association [2008] ECR I-10515, para. 111. See landmark ruling ECJ, 23 Feb. 1961, Case C-30/59, Steenkolenmijnen in Limburg [1961] ECR p. 42 (in abstract terms), see furthermore (tax-specific), inter alia, ECJ, 15 Mar. 1994, Case C-387/92, Banco Exterior de Espaa [1994] ECR I-877, para. 14; ECJ, 8 Nov. 2001, Case C-143/99, Adria-Wien Pipeline und Wietersdorfer & Peggauer Zementwerke [ECR] 2001 I-8365, para. 38; ECJ, 15 July 2004, Case C-501/00, Spain v. Commission [2004] ECR I-6717, para. 90; ECJ, 15 June 2006, Joined Cases C-393/04 and C-41/05, Air Liquide Industries Belgium [2006] ECR I-5293, paras. 29 et seq.; ECJ, 22 June 2006, Case C-217/03, Forum 187 [2006] ECR I-5479, para. 87. Cf. landmark ruling ECJ, 2. July 1974, Case C-173/73, Italy v. Commission [1974] ECR 709, para. 33; 29. Apr. 2004, Case C-308/01, GIL Insurance u. a. [2004] ECR I-4777, para. 69; ECJ, 8 Nov. 2007, Case C-143/99, Adria-Wien Pipeline und Wietersdorfer & Peggauer Zementwerke [2001] ECR I-8365, para. 42; ECJ, 22 June 2006, Case C-217/03, Forum 187 [2006] ECR I-5479, para. 120; ECJ, 6 Sept. 2006, Case C-88/03, Portugal v. Commission [2006] ECR I-7115, paras. 52, 56 and 80 et seq.; See also Commission notice on the application of the State aid rules to measures relating to direct business taxation, OJ C 384, 10 Dec. 1998, para. 16. Cf. OECD Report, Harmful Tax Competition an Emerging Global Issue, 1998, para. 62; see also W. Schn, Tax Competition in Europe the legal perspective, EC Tax Review 9 p. 96 et seq. (2000). Cf. General Court, 9 Sept. 2010, Case T-359/04, British Aggregates, n.y.r., para. 91; Cremer, in EUV/EGV, 3rd ed., Art. 87 EGV para. 4 (Calliess & Ruffert eds., 2007); W. Roth, Nationales Steuerrecht und europisches Beihilfenrecht Kommentar, in Steuer- und Sozialstaat im europischen Systemwettbewerb, p. 120 (U. Becker & W. Schn eds., Tbingen: Mohr Siebeck, 2005). Cf. P. Rossi-Maccanico, Community Review of direct Business Tax Measures: Selectivity, Discrimination and Restrictions, European State Aid Law p. 491 (2009). Cf. Roth, supra n. 112, at p. 122. Cf. Terra & Wattel, supra n. 9, at p. 78 et seq. See, e.g. ECJ, 2 July 1974, Case 173/73, Italy v. Commission [1974] ECR 709, paras. 36/40; ECJ, 3 Mar. 2005, Case C-172/03, Heiser [2005] ECR I-1627, para. 54; see furthermore ECJ, 22. Mar. 1977, Case C-78/76, Steinike & Weinlig [1977] ECR 595, para. 24; H. Lpez Lpez, General Thought on Selectivity and Consequences of a Broad Concept of State Aid in Tax Matters, European State Aid Law p. 818 (2010). See, in this regard, F. Bolkestein, Taxation and competition: The realization of the Internal Market, EC Tax Review 9 p. 78 (2000); M. Monti, The Single Market and Beyond, EC Tax Review 6 p. 2 (1997). Cf. Resolution of the Council and the Representatives of the Governments of the Governments, Meeting within the Council, of 1 Dec. 1997, on a code of conduct for business taxation, OJ 1998 C 2/2.
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Cf. Commission notice on the application of the State aid rules to measures relating to direct business taxation, OJ C 384, 10 Dec. 1998, 3 et seq. 120. 121. 122. Cf. Communication from the Commission, Promoting Good Governance in Tax Matters, 28 Apr. 2009, COM(2009) 201 final, 6. See also the report on the implementation of the Commission notice on the application of the State aid rules to measures relating to direct business taxation, 9 Feb. 2004, C(2004) 434. See, in this regard, F. Bolkestein, Taxation and competition: The realization of the Internal Market, EC Tax Review 9 p. 80 (2000); F. Nanetti & G. Mameli, The creeping normative role of the EC Commission in the twin-track struggle against State aids and harmful tax competition, EC Tax Review 11 p. 185 (2002). Cf. Rossi-Maccanico, supra n. 113, at p. 496; Roth, supra n. 112, at p. 128; see also Nicolaides, World Competition 2004, p. 365 (369). Cf. W. Schn, Taxation and State Aid Law in the European Union, Common Market Law Review 36 p. 924 et seq. (1999). See, e.g. the academic discussions reflected in the Congress Report published by Sommerhalder, Congress Review: Harmful tax competition or harmful tax harmonization, EC Tax Review 8 p. 244 et seq. (1999); and in the article by Schn, Tax Competition in Europe, supra n. 111, at p. 92 et seq., with further reference; see also the political statements made by C. Randzio-Plath, Tax coordination in the enlarged European Union, EC Tax Review 13 p. 162 et seq. (2004), as well as by various Commissioners of the EU Commission (see, in this regard, the references provided by Oshea, Tax Notes Intl, May 21, 2007, pp. 881 et seq.). For a theoretical underpinning of the distinction between harmful and fair international tax competition from an international law perspective, see Rosembuj, Harmful Tax Competition, Intertax 27 p. 316 et seq. (1999). Cf. Communication from the Commission, Co-ordinating Member States direct tax systems in the Internal Market, 19 Dec. 2006, COM(2006) 823 final, 4, where the Commission mentions only the compliance costs associated with being subject to more than one tax system as a relevant drawback of persisting disparities among Member States tax systems. See, however, the new Commission Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB), 16 Mar. 2011, COM (2011) 121/4, p. 4: Fair competition on tax rates is to be encouraged. Differences in rates allow a certain degree of tax competition to be maintained in the internal market and fair tax competition based on rates offers more transparency and allows Member States to consider both their market competitiveness and budgetary needs in fixing their tax rates. As regards this predominant view of international tax competition in modern public finance theory, Schn, Tax Competition in Europe, supra n. 111, at p. 93 and the references cited there. For further elaboration on these arguments, consult Schn id., at p. 94 et seq. and the references cited there. Likewise, M. Monti, A new Strategy for the Single Market, Report to the President of the European Commission Jos Manuel Barroso, 9 May 2010, 80; J. Stiglitz, Economics of the Public Sector, 3rd ed., p. 738 et seq. (New York: Norton, 2000). H. Gribnau, Improving the Legitimacy of Soft Law in EU Tax Law, Intertax 35 (2007): 32. See also ECJ, 15 July 1960, Case 29/59, Netherlands v. High Authority [1960] ECR 1960, 374: the predecessor to the modern infringement procedure has been characterized by the Court as an instrument to overcome inertia and resistance of the Member States. While originally perceived as ultima ratio, it has evolved into an effective complementary instrument, cf. C. Brokelind, in Towards a Homogeneous EC Direct Tax Law, p. 14; K. Lenaerts, D. Arts & I. Maselis, Procedural Law of the European Union, 2nd ed., p. 129 et seq. (London: Sweet & Maxwell, 2006); M.E. Scoppio, The role of infringements, in Towards a Homogeneous EC Direct Tax Law, p. 42 (C. Brokelind ed., Amsterdam: IBFD, 2007). As regards the relevance of proactive enforcement through a coherent and determined use of the infringement procedure, see also M. Monti, A new Strategy for the Single Market, Report to the President of the European Commission Jos Manuel Barroso, 9 May 2010, p. 97. Such an approach is particularly relevant with respect to those Member States whose judiciary is reluctant to bring tax cases before the ECJ by way of a request for a preliminary ruling; see, in this regard, Brokelind, id., p. 405; P. Pistone, Intertax p. 534 (2007). Cf. A. J. Gil Ibez, The Administrative Supervision and Enforcement of EC Law: Powers, Procedures and Limits p. 149 et seq. (Oxford: Hart, 1999). See, e.g. Ernst & Young, Survey of the Implementation of Council Directive 90/434/EEC (2008); Copenhagen Economics/KPMG, VAT in the Public Sector and Exemptions in the Public Interest p. 53 et seq. (2011).
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135.
Since the submission of the original version of this paper, a few such consultation procedures have actually been carried out by the Commission; see Public Consultation Paper of June 2010, Possible approaches to tackling cross-border inheritance tax obstacles within the EU; Public Consultation Paper of 28 Jan. 2011, Taxation problems that arise when dividends are distributed across borders to portfolio and individual investors and possible solutions. The consultation on inheritance tax obstacles has subsequently led to the publication of the Communication of the Commission on Tackling cross-border inheritance tax obstacles within the EU, 15 Nov. 2011, COM(2011) 864. Communication from the Commission, Co-ordinating Member States direct tax systems in the Internal Market, 19 Dec. 2006, COM(2006) 823 final, p. 5. The Commission had occasionally relied on such an approach before, cf. Communication from the Commission, The elimination of tax obstacles to the crossborder provision of occupational pensions, 19 Apr. 2001, COM(2001) 214 final; Communication from the Commission, Dividend taxation of individuals in the Internal Market, 19 Dec. 2003, COM(2003) 810 final. See also the Communication of the Commission, Towards a more effective use of tax incentives in favour of R&D, 22 Nov. 2006, COM(2006) 728 final, p. 4 et seq. Communication from the Commission, Tax Treatment of Losses in Cross-Border Situations, 19 Dec. 2006, COM(2006) 824 final; Communication from the Commission, Exit taxation and the need for coordination of Member States tax policies, 19 Dec. 2006, COM(2006) 825 final; Communication from the Commission, The application of anti-abuse measures in the area of direct taxation, 10 Dec. 2007, COM (2007) 785 final. Only recently has the Commission added a Communication on Tackling cross-border inheritance tax obstacles within the EU, 15 Nov. 2011, COM(2011) 864. Indeed, one of the most recent soft-law initiatives on direct taxation is the Commissions communication published in the wake of the financial crisis, Promoting Good Governance in Tax Matters, 28 Apr. 2009, COM(2009) 201 final. Cf. Council Resolution of 8 June 2010, 2010/C 156/01 and comments by Gutmann, H&I 2010, p. 5 et seq. Cf. Press Release IP/10/1312, 12 Oct. 2010. See, in this regard, F. Bolkestein, Taxation and competition: The realization of the Internal Market, supra n. 117, at p. 80 et seq. (2000): It must be stressed that the use of non-legislative approaches should never lead to the exclusion of the European Parliament. If non-legislative approaches were used, a mechanism for the proper consultation of the European Parliament would have to be found. This has happened in the field of exit taxes, cf. Council Resolution on coordinated arrangements for exit taxation of 2 Dec. 2008. See also M. Monti, A new Strategy for the Single Market, Report to the President of the European Commission Jos Manuel Barroso, 9 May 2010, p. 79. The Commission has apparently taken up this suggestion and it has pledged to consider double taxation problems in detail in a Communication that it aims to adopt in 2011, with a view to presenting possible solutions in 2012, such as a binding dispute resolution mechanism regarding the taxation of income and capital; cf. Communication from the Commission, Removing cross-border tax obstacles for EU citizens, 20 Dec. 2010, COM(2010) 769 final, p. 5. However, in its recent Communication on Double Taxation in the Single Market, 11 Nov. 2011, COM(2011) 712 final, pp. 10 et seq., the Commission has avoided a clear commitment to the establishment of a binding dispute resolution mechanism within the European Union. As regards this (in the authors view, positive) effect of Commission guidance in the field of fiscal State aid, see F. Nanetti & G. Mameli, The creeping normative role of the EC Commission in the twin-track struggle against State aids and harmful tax competition, EC Tax Review 11 p. 186 (2002). Cf. Commission Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB), 16 Mar. 2011, COM(2011) 121/4. This is actually a plague of the common system of EU VAT, which fails to keep pace with best practice developed in more modern VAT systems; a failure that can largely be attributed to the unanimity requirement for any reform in a Union of 27 different Member States, as stipulated in article 113 of the TFEU. See also R. van Brederode, System of General Sales Taxation p. 279 (Alphen aan den Rijn: Kluwer International, 2009): All in all, progress on the path to further harmonization since the Sixth VAT Directive [adopted in 1977] has been modest and the steps taken regard technical detail more than grand design. As regards the lack of democratic accountability of the comitology procedure prior to the Lisbon Treaty revision with a view towards both, European Parliament and the Council as the assembly of democratically legitimized governments of the Member States, see, e.g., P. Lintner & B. Vaccari, The European Parliaments Right of Scrutiny under Comitology, in 21st Century Comitology, p. 101 et seq. (T. Christiansen, J.M. Oettel & B. Vaccari eds., Luxembourg: EIPA, 2009) (concerning the EP); and A. Ballmann, D. Epstein & S. OHalloran, Delegation, Comitology, and the Separation of Powers in the European Union, International Organization p. 571 et seq. (2002). Arguably, the changes in the comitology framework brought about by the Treaty of Lisbon (cf. Arts. 290 and 291 TFEU) and the new examination procedure introduced by Regulation 182/2011/EU laying down the rules and general
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principles concerning mechanisms for control by Member States of the Commissions exercise of implementing powers, of 16 February 2011, do not substantially alter the above analysis. In particular, it is highly unsatisfactory that the Commission may exercise quasi-legislative functions under the new regime of delegated powers provided for in article 290 of the TFEU, and can be vetoed by the Council only on the basis of qualified majority, whereas regarding the comitology procedure still relevant for traditionally broadly interpreted implementing acts based on article 291 of the TFEU, oversight of the Commission will now be delegated to technical experts of the Member States administration even to a larger degree than before. For a more positive assessment of the use of the comitology procedure in taxation, see P. Adriaansen, Comitology: An alternative route towards European direct tax integration?, in Traditional and Alternative Routes to European Tax Integration, p. 140 et seq. (D. Weber ed., Amsterdam: IBFD, 2010). The Commission has backed away from its original plans to make extensive use of the comitology procedure, cf. article 127 et seq. of the Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB), 16 Mar. 2011, COM(2011) 121/4: only minor aspects of the CCCTB in reality implementing act that should be subject to comitology are eligible for delegated acts of the Commission to be adopted according to the procedure laid down in article 290 of the TFEU. This implies, though, a significantly reduced flexibility of Member States to respond to changes in national or international economic parameters or to advancements in the theory and practice of corporate taxation, should the proposal be adopted. 148. 149. 150. This has also been tentatively been suggested by the former Commissioner F. Bolkestein, Taxation and competition, supra n. 117, at p. 81 (2000). See also Terra & Wattel, supra n. 9, at p. 169. Likewise, G. Meussen, The EU-fight against harmful tax competition: Future developments, EC Tax Review 11 p. 158 et seq. (2002); but see also Schn, Tax Competition in Europe, supra n. 111, at p. 103, who considers that the Treaties provide a legal basis only for the approximation of corporation tax rates. However, the Commission has decided not to pursue any corporation tax rate harmonization in the foreseeable future, cf. Commission Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB), 16 Mar. 2011, COM(2011) 121/4, p. 5: There is no intention to extend harmonisation to the rates. With the exception of a few implementation regulations and decisions, all the relevant provisions are stipulated in directives; see, in particular, Council Directive 2006/112/EC of 28 Nov. 2006 on the common system of value added tax, OJ L347, p. 1; and Council Directive 2008/118/EC of 16 Dec. 2008 concerning the general arrangements for excise duty, OJ L9, p. 12. A striking example is the VAT treatment of a finance lease of movable goods, cf. Opinion of Advocate General Mazk, 30 Sept. 2010, Case C-277/09, RBS Deutschland, n.y.r., points 20 et seq.; and the subsequent judgment of the ECJ, 22 Dec. 2010, Case C-277/09, RBS Deutschland, n.y.r., paras. 12 et seq.; M. Tumpel, in Umsatzsteuer im Europischen Binnenmarkt DStJG 32, p. 80 (R. Seer ed., Kln: Otto Schmidt, 2009). For further examples, consult E. Traversa & C.H. Helleputte, Double (Non-) Taxation in VAT and Direct Taxes, in Value Added Tax and Direct Taxation, p. 352 et seq. (M. Lang et al., Amsterdam: IBFD, 2009). Cf. Traversa & Helleputte, id., at p. 351. See, e.g. ECJ, 14 Jan. 1982, Case 64/81, Corman [1982] ECR 13, para. 8; ECJ, 2 Apr. 1998, Case C-296/95, EMU Tabac [1998] ECR I-1605, para. 30; ECJ, 18 Dec. 2007, C-314/06, Socit Pipeline Mditerrane et Rhone [2007] ECR I-12273, para. 21. See to that effect, inter alia, ECJ, 15 July 2004, Case C-321/02, Harbs [2004] ECR I-7101, para. 28; ECJ, 18 Oct. 2007, Case C-195/06, sterreichischer Rundfunk [2007] ECR I-8817, para. 24; ECJ, 29 Oct. 2009, Case C-174/08, NCC Construction Danmark [2009] ECR I-10567, para. 24. Cf. ECJ, 7 Dec. 1995, Case C-449/93, Rockfon [1995] ECR I-4291, para. 28; ECJ, 2 Apr. 1998, Case C-296/95, EMU Tabac [1998] ECR I-1605, para. 36; ECJ, 8 Dec. 2005, Case C-280/04 Jyske Finans [2005] ECR I-10683, para. 31; ECJ, 13 Dec. 2007, Case C-408/06, Gtz [2007] ECR I-11295, para. 29 et seq. Cf. A. Arnull, The European Union and its Court of Justice, 2nd ed., pp. 607 et seq.; KPE. Lasok & T. Millet, Judicial Control in the EU: Procedures and principles, pp. 661 et seq. (2004). See ECJ, 5 Oct. 2004, Joined Cases C-397/01 et al., Pfeiffer and Others [2004] ECR I-8835, para. 113 and the case law cited there. Cf. Pfeiffer and Others, id., paras. 115, 116, 118, and 119; ECJ, 4 July 2006, Case C-212/04, Adeneler and Others [2006] ECR I-6057, para.111; ECJ, 15 Apr. 2008, Case C-268/06, Impact [2008] ECR I-2483, para. 100 et seq. Cf. ECJ, 19 Jan. 2010, Case C-555/07, Kckdeveci, n.y.r., para. 54, with further references. For a detailed analysis, see K. Alter, The European Courts Political Power, p. 114 et seq. (Oxford: Oxford University Press, 2009).
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163. 164. 165. 166.
See also, in general terms, ECJ, 6 Oct. 1982, Case 283/81 Cilfit [1982] ECR 3415, para. 9; ECJ, 10 Jan. 2006, Case C-344/04, IATA and ELFAA [2006] ECR I-403, para. 28 et seq. Cf. A. J. Gil Ibez, The Administrative Supervision and Enforcement of EC Law: Powers, Procedures and Limits, p. 149 et seq. See http://ec.europa.eu/taxation_customs/common/infringements/infringement_Cases/index_en.htm. See also A. Arnull, The European Union and its Court of Justice, 2nd ed., p. 35. See, in particular, ECJ, 21 June 1988, Case C-416/85, Commission v. United Kingdom [1988] ECR I-3127, para. 9; ECJ, 14 Feb. 1989, Case 247/87, Star Fruit [1989] ECR 291, para. 12; ECJ, 17 May 1990, Case C-87/89, SoNITo [1990] ECR I-1981, para. 6 et seq.; ECJ, 6 July 2000, Case C-236/99, Commission v. Belgium [2000] ECR I-5657, para. 28; ECJ, 14 May 2002, Case C-383/00, Commission v. Germany [2002] ECR I-4219, para. 19. See also L. Prete & B. Smulders, The Coming of Age of Infringement Proceedings, Common Market Law Review 47 p. 17 (2010). This is also met with mild criticism by A. Arnull, The European Union and its Court of Justice, 2nd ed., p. 47. Cf. Arnull, id., p. 100 et seq.; C. Brokelind, in Towards a Homogeneous EC Direct Tax Law, p. 17 et seq. Cf. Court of Justice, Informative Note on References by National Courts for Preliminary Rulings, OJ C297 p. 1, 5 Dec. 2009, para. 12. See also the even further-reaching suggestions made by Advocate General Ruiz-Jarabo Colomer, Opinion of 30 June 2005, Case C-461/03, Gaston Schul [2005] ECR I-10513, points 58 et seq. See, e.g. ECJ, 4 July 1985, Case 168/84, Berkholz [1985] ECR 2251, para. 14; ECJ, 26 Sept. 1996, Case C-327/94, Dudda [1996] ECR I-4595, para. 20; ECJ, 6 Nov. 1997, Case C-116/96, Reisebro Binder [1997] I-6103, para. 12; ECJ, 9 Mar. 2006, Case C-114/05, Gillan Beach [2006] ECR I-2427, para. 14. Cf. T. Ecker, Tax Treaties A Solution to VAT/GST Double Taxation, in Value Added Tax and Direct Taxation, p. 1270 (M. Lang, P. Melz & E. Kristoffersson eds., Amsterdam: IBFD, 2009). Cf. ECJ, 5 May 1982, Case 15/81, Schul [1982] ECR 1409, para. 31 et seq.; ECJ, 11 Dec. 1984, Case 134/83, Abbink [1984] ECR 4097, para. 15; ECJ, 25 Feb. 1988, Case 299/86, Drexl [1988] ECR 1213, para. 10; ECJ, 26 Feb. 1991, Case C-159/89, Commission v. Italy [1991] ECR I-691, para. 7. Cf. ECJ, 6 July 1988, Case 127/86, Ledoux [1988] ECR 3741, para. 11. As acknowledged by the Court itself, cf. ECJ, 26 Feb. 1991, Case C-159/89, Commission v. Greece [1991] ECR I-691, para. 14. Cf. Commission v. Greece, id., para. 14. Cf. ECJ, 7 Dec. 2006, Case C-240/05, Eurodental [2006] ECR I-11479, paras. 55 et seq. Cf. ECJ, 22 Dec. 2010, Case C-277/09, RBS Deutschland, n.y.r., paras. 41 et. seq. and 48 et seq. Cf. M. Aujean, Tax policy in the EU: Between harmonisation and coordination?, 16 Transfer: European Review of Labour and Research 1, p. 16 (2010). As regards the common system of VAT in particular, see also R. van Brederode, Systems of General Sales Taxation, p. 280: [T]he European legislation allows for many options, rights and transitional arrangements, which lead to an overall system that is extremely diverse and invested with a multitude of derogations. See, e.g. ECJ, 18 June 1991, Case C-260/89, ERT [1991] ECR I-2925, para. 42; ECJ, 24 Mar. 1994, Case C-2/92, Bostock [1994] ECR I-955, para. 16; ECJ, 13 Apr. 2000, Case C-292/97, Karlsson [2000] I-2737, para. 37 et seq.; ECJ, 3 May 2007, Case C-303/05, Advocaten voor de Wereld [2007] ECR I-3633, para. 45; ECJ, 21 Dec. 2011, Case C-499/10, Vlaamse Oliemaatschappij, n.y.r., para. 20. See also Malherbe et al., supra n. 15, at para. 54. For a comprehensive overview, consult K.P.E. Lasok & T. Millet, Judicial Control in the EU, paras. 585-632 (Richmond: Richmond Law, 2004); T. Tridimas ed., The General Principles of EU Law, 2nd ed., p. 59 et seq. Cf. ECJ, 5. July 2007, Case C-321/05, Kofoed [2007] ECR I-5795, para. 38; ECJ, 8 Nov. 2007, Case C-251/06, Auer [2007] ECR I-9689, para. 40 et seq. For further details and the development of the case law, see Opinion of AG Poiares Maduro, 7 Apr. 2005, Case C-255/02, Halifax [2006] ECR I-1609, point 62 et seq.; and the contributions in the conference volume Prohibition of Abuse of Law (S. Vogenauer & R. de la Feria eds., Oxford: Hart Publishing, 2011). See, e.g. ECJ, 8 May 2008, Case C-95/07, Ecotrade [2008] ECR I-3457, para. 46. See, e.g. ECJ, 3 Sept. 2009, Case C-2/08, Olimpiclub [2009] ECR I-7501, para. 24; ECJ, 21 Jan. 2010, Case C-472/08, Alstom Power Hydro, n.y.r., para. 17.
167. 168. 169.
170.
171. 172.
173. 174. 175. 176. 177. 178. 179.
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See, e.g. ECJ, 17 June 2004, Case C-30/02, Recheio [2004] ECR I-6051, para. 17; ECJ, 6 Oct. 2005, Case C-291/03, MyTravel [2005], ECR I-8477, para. 17 and the case law cited therein. 186. 187. See, e.g. ECJ, 10 Apr. 2008, Case C-309/06, Marks & Spencer [2008] ECR I-2283, paras. 34 and 49 et seq. For detailed references, see J. Englisch, VAT/GST and Direct Taxes: Different Purposes, in Value Added Tax and Direct Taxation, p. 18 et seq. (M. Lang et al. eds., Amsterdam: IBFD, 2009); J. Englisch, VAT and General Principles of EU law, in Traditional and Alternative Routes to European Tax Integration, p. 239 et seq. (D. Weber eds., Amsterdam: IBFD, 2010). Cf. ECJ, 11 June 1998, Case C-283/95, Fischer [1998] ECR I-3369, paras. 21 and 27; ECJ, 13 May 2001, C-481/98, Commission v. France [2001] ECR I-3369, para. 22; ECJ, 23 Oct. 2003, Case C-109/02, Commission v. Germany [2003] ECR I-12691, para. 20; ECJ, 7 Dec. 2006, Case C-240/05, Eurodental [2006] ECR I-11479, para. 46; ECJ, 22 May 2008, Case C-162/07, Ampliscientifica and Amplifin [2008] ECR I-4019, para. 25 et seq. Cf. ECJ, 8 June 2000, Case C-400/98, Breitsohl [2000] ECR I-4321, para. 37; ECJ, 23 Apr. 2009, Case C-460/07, Puffer [2009] ECR I-3251, para. 47. Cf. ECJ, 24 Oct. 1996, Case C-317/94, Elida Gibbs [1996] ECR I-5339, para. 19 et seq.; ECJ, 15 Oct. 2002, Case C-427/98, Commission v. Germany [2002] ECR I-8315, para. 22 et seq.; see also ECJ, 29. July 2010, Case C-40/09, Astra Zeneca UK, n.y.r., para. 28 et seq. See also A. Fantozzi, A Force of the European Constitution beyond its Formal Adoption: From NonDiscrimination Towards a Tax Equality Principle, in A vision of taxes within and outside European borders Festschrift in honour of Frans Vanistendael, p. 388 (L. Hinnekens & P. Hinnekens eds., Dordrecht: Kluwer Law International, 2008). Cf. ECJ, 17 Dec. 1970, Case 11/70, Internationale Handelsgesellschaft [1970] ECR 1125, para. 3; confirmed by ECJ, 13 Dec. 1979, Case 44/79, Hauer [1979] ECR 3727, para. 14; ECJ, 8 Oct. 1986, Case 234/85, Keller [1986] ECR 2897, para. 7; ECJ, 17 Oct. 1989, Cases 97/87 et al., Dow Chemical Ibrica et al. [1989] ECR 3165, para. 38; ECJ, 8 Sept. 2010, Case C-409/06, Winner Wetten, n.y.r., para. 61. Cf. ECJ, 22 Oct. 1987, Case 314/85, Foto Frost [1987] ECR 4199, para. 12 et seq.; ECJ, 10 Jan. 2006, Case C-344/04, IATA and ELFAA [2006] ECR I-403, para. 27; ECJ, 18 July 2007, Case C-119/05, Lucchini [2007] ECR I-6199, para. 53; ECJ, 22 June 2010, Case C-188/10 et. al., Melki, n.y.r., para. 54. Cf. ECJ, 3 Sept. 2008, Joined Cases C-402/05 P and C-415/05 P, Abdullah Kadi [2008] ECR I-6351, para. 326; see also ECJ, 15 Oct. 2009, Case C-101/08, Audiolux [2009] ECR I-9823, para. 63; A. Metzger, Extra legem, intra ius: Allgemeine Rechtsgrundstze im Europischen Privatrecht, p. 405 et seq. (Mohr Siebeck, 2009); T. Tridimas ed., The General Principles of EU Law, 2nd ed., pp. 6 and 31. As regards fundamental rights in particular, see also article 51(1) of the Charter of Fundamental Rights. Cf. ECJ, 25 June 1997, Case C-114/96, Kieffer and Thill [1997] ECR I-3629, para. 27; ECJ, 26 Oct. 2010, Case C-97/09, Schmelz, n.y.r., para. 50. For further details, see the comprehensive analysis carried out by J. Zazoff, Der Unionsgesetzgeber als Adressat der Grundfreiheiten, p. 70 et seq. (BadenBaden: Nomos, 2011). Cf. ECJ, 22 June 2010, Case C-188/10, Melki, n.y.r., paras. 54 and 56. Cf. A. Arnull, The European Union and its Court of Justice, 2nd ed., p. 257 et seq. Cf. ECJ, 26 May 2005, Case C-498/03, Kingscrest Associates, [2005] ECR I-4427, para. 54 et seq.; ECJ, 27 Apr. 2006, Joined Cases C-443/04 and C-444/04, Solleveld a.o. [2006] ECR I-3617, para. 35; ECJ, 8 June 2006, Case C-106/05, L.u.P. [2006] ECR I-5123, para. 48; ECJ, 7 Dec. 2006, Case C-240/05, Eurodental [2006] ECR I-11479, para. 55; ECJ, 10 Apr. 2008, Case C-309/06, Marks & Spencer [ECR 2008] I-2283, paras. 47 and 49; ECJ, 10 July 2008, Case C-484/06, Fiscale eenheid Koninklijke Ahold [2008] ECR I-5097, para. 36; ECJ, 23 Apr. 2009, Case C-460/07, Puffer [2009] ECR I-3251, para. 53. As regards the Courts preference for reconciliatory interpretation, see K. E. Srensen, Review of legality of secondary legislation based on infringements of the rights of free movement, in Traditional and Alternative Routes to European Tax Integration, p. 145 (D. Weber ed., Amsterdam: IBFD, 2010). See, e.g. ECJ, 22 Dec. 2008 Case C-48/07, Les Vergers du Vieux Tauves [2008] ECR I-10627, para. 44; ECJ, 15 July 2010, C-582/08, Commission v. Great Britain, n.y.r., para. 51. For a critical comment, see also R. de la Feria, VAT and the EU internal market: The paradoxes of harmonization, in Traditional and Alternative Routes to European Tax Integration, p. 308 (D. Weber ed., Amsterdam: IBFD, 2010). Cf. ECJ, 8 May 2003, Case C-269/00, Seeling [2003] ECR I-4101, para. 53 et seq. Cf. ECJ, 23 Apr. 2009, Case C-460/07, Puffer [2009] ECR I-3251, para. 44 et seq.; ECJ, 29 Oct. 2009, Case C-174/08, NCC Construction Danmark [2009] ECR I-10567, para. 46; ECJ, 26 Oct. 2010, Case
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C-97/09, Schmelz, n.y.r., para. 6 et seq. (in this last Case, though, with auxiliary deliberations regarding the inadequacy of alternative solutions). 204. Cf. ECJ, 13 July 2000, Case C-36/99, Idal Tourisme [2000] ECR I-6049, para. 34 et seq.; see also A.P. Dourado, The relationship between primary and secondary EU law in tax law: The legitimacy of different interpretation criteria applied to EU and national legal sources, in Traditional and Alternative Routes to European Tax Integration, p. 182 (D. Weber ed., Amsterdam: IBFD, 2010). Cf. Opinion of Advocate General Jskinen, 20 May 2010, Case C-582/08, Commission v. United Kingdom, n.y.r., point 62: In my view, the various rules concerning deductions and refunds in the VAT system reflect choices of fiscal policy rather than logical or legal necessities. Historical examples show that the legislator may sometimes opt for regulative choices in the field of VAT that are incoherent or even dysfunctional from an economic or fiscal policy point of view. Historically there was a need to manipulate the VAT system, primarily in the field of deductions, so that the imposition of substantially higher rates than were charged under the cumulative turnover tax system could be avoided. Such interferences with a pure VAT system are still present today. Cf. ECJ, 17 Oct. 1996, Joined Cases C-283/94, C-291/94 and C-292/94, Denkavit International, VITIC, and Vormeer [1996] ECR I-5063, para. 31, as contrasted with, e.g. ECJ, 17 July 1997, Case C-28/95, Leur-Bloem [1997] ECR I-4161, paras. 40-42. Cf. ECJ, 30 Sept. 2010, Case C-392/09, APEH, n.y.r., paras. 38 et seq.; ECJ, 8 May 2008, Case C-95/07, Ecotrade [2008] ECR I-3457, para. 63; ECJ, 1 Apr. 2004, Case C-90/02, Bockemhl [2004] I-3303, para. 49 et seq.; see also ECJ, 21 Apr. 2005, Case C-25/03, HE [2005] ECR I-3123, para. 80, and case law cited therein. See, e.g. ECJ, 1 Apr. 2004, Case C-90/02, Bockemhl [2004] I-3303, para. 47; ECJ, 21 Apr. 2005, Case C-25/03, HE [2005] ECR I-3123, para. 80. ECJ, 26 Oct. 2010, Case C-97/09, Schmelz, n.y.r., para. 68 et seq. For a critical analysis, see J. Englisch, Weird VAT The ECJ ruling in Schmelz, British Tax Review 2011, forthcoming. Cf. ECJ, 4 Mar. 2004, Case C-334/02, Commission v. France [2004] ECR I-2229, para. 29; ECJ, 12 Dec 2006, Case C-446/04, FII GL [2006] ECR I-11753, para. 70. See also A. Cordewener, G. Kofler & S. van Thiel, The Clash Between European Freedoms and National Direct Tax Law: Public Interest Defences Available to the Member States, Common Market Law Review 46, p. 1963 et seq. (2009). Cf. ECJ, 12 Nov. 1996, Case C-84/94, Working Time [1996] ECR I-96, para. 58; ECJ, 14 Dec. 2004, Case C-210/03, Swedish Match [2004] ECR I-11893, para. 48; ECJ, 12 July 2005, C-154/04, Alliance for Natural Health [2005] ECR I-6451, para. 52; X. Groussot, General Principles of Community Law, p. 148 (Europa Law Publishing, 2006). Cf. Art. 2 TEU. Cf. VAT Implementing Regulation 282/2011/EU. Cf. Communication from the Commission to the Council and the European Parliament on the VAT group option provided for in Article 11 of Council Directive 2006/112/EC on the common system of value added tax, 2 July 2009, COM(2009) 325. Some steps in this direction have very recently been undertaken through the creation of an EU VAT Forum (see Commission Decision of 3 July 2012 setting up the EU VAT forum, 2012/C 198/05) and of a VAT Experts Group (see Commission Decision of 26 June 2012 setting up a group of experts on value added tax, 2012/C 188/02).
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Citation: J. Englisch et al., Horizontal Tax Coordination (M. Lang et al. eds., IBFD 2012), Online Books IBFD (accessed 2 Aug. 2013).
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Tax Coordination Between Eu

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Chapter 1: Tax Coordination between Member States in the EU Role of the ECJ

1.2. Non-harmonized areas of national tax law

1.2.1.2. Rule of reason: A disincentive for tax coordination

1.2.1.3. No incentives for the harmonization of tax treaty law

1.2.1.4. Limited admission of a supranational perspective on discriminatory effects

1.2.1.5. Curbing unfair tax competition

1.2.2. Some tentative conclusions for EU tax policy

1.3. Harmonized areas of national tax law

1.3.1.2. Avoidance of international double taxation

1.3.1.4. Streamlining and restraining constitutional control

1.3.2. Some tentative conclusions for EU tax policy

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