Direct taxation is considered as an area within the almost exclusive
competence of the individual Member States of the European Union. Some
politicians believe that if the European Union intervenes in the tax systems
of the Member States, the financing of the public sector of the Member States
could be at risk. Even against this background, however, the European Union
has exercised considerable influence in the area of direct taxation of Member
States. Despite the fact that unanimity among the Member States is required to
reach a Community decision in the area of direct taxation, it is now clear
that the European Union has gained legal competence in the field. The adoption
of pertinent directives is clear evidence of that. Of greater significance,
however, is the increasing number of cases in which the European Court of
Justice decides that specific elements of national tax legislation are in
breach of fundamental freedoms provided for in the EC Treaty.
This major new study analyses the case-law of the European Court of Justice on
the freedom of establishment and the free movement of capital in matters of
direct taxation. The author identifies two areas where cases from the European
Court of Justice are especially important: what constitutes discrimination,
and which circumstances may justify such discrimination. Among his specific
approaches to the complex issues involved may be noted the following:
-
the Court's interpretation of discrimination and restriction, both in general
and in particular regarding the freedom of establishment and the free movement
of capital;
-
the grounds of justification, according to the rule-of-reason doctrine,
accepted by the Court, such as the prevention of tax abuse, the preservation
of fiscal coherence, the effectiveness of fiscal supervision, and the fiscal
principle of territoriality;
-
grounds rejected by the Court, such as lack of harmonisation, counterbalancing
advantages, a new form of establishment being seen as subject to equal
treatment, lack of Community competence in the field of tax treaty law, and
the protection of tax revenue;
-
the characteristics of national legislation on direct taxation that the Court
has found to be in breach of the freedom of establishment and the free
movement of capital;
-
the neutrality between different forms of establishment, in the form of either
a branch or a subsidiary (the pending Marks & Spencer case is subject to a
thorough analysis in this respect);
-
the degree of convergence between the freedom of establishment and the free
movement of capital, especially in cases on direct taxation; and
-
the territorial extension of the free movement of capital.
Direct Taxation in Relation to the Freedom of Establishment and the Free
Movement of Capital uncovers the present principal standpoints of the
Court, how those standpoints have evolved, and how they are likely to develop
in the coming years. As all proposals on unified corporate taxation of the
European Union must consider the findings of the European Court of Justice on
the compatibility of national tax legislation with Community law, and as
individual Member States must consider and follow the case-law of the European
Court of Justice when revising old tax legislation and adopting new
legislation in this area, the significance of this penetrating analysis cannot
be underestimated. It will be of immeasurable value not only to European
policymakers and tax lawyers, but to tax and business lawyers worldwide
engaged in European commerce.
