European Tax Law - JKU

European Union
This article is the basis for the Graduation
Lecture (Maarten J. Ellis Lecture) delivered by
Prof. Frans Vanistendael on 30 August 2007 at
the International Tax Center Leiden (LLM
Program in International Taxation) at the
University of Leiden, the Netherlands.
1. Introduction
Criticism of the tax decisions of the European Court of
Justice (ECJ) is a venerable tradition in the European
Union. 1 The former Dutch State Secretary of Finance,
Willem Vermeend, characterized the decisions of the
ECJ as the “Alice in the Wonderland” of fiscal legislation, 2
while David Williams, the distinguished British professor
and judge, once described the ECJ as “the power to
destroy”. 3 At the end of 2006, the German Minister of
Finance characterized an opinion of the Advocate-General
as “unreasonable” and “completely incompatible and
in violation of the fundamental interests of a Member
State and its citizens”. 4 From across the Atlantic, Alvin
Warren and Michael Graetz sent the message in The Yale
Law Journal that “[o]ur principal conclusion is that the
European Court of Justice (ECJ) is undermining the fiscal
autonomy of member states by articulating an interpretation
of income tax arrangements that is ultimately
unstable”. 5 Finally, most recently, similar criticisms were
formulated in abundance at the annual meeting of the
European Association of Tax Law Professors (EATLP) in
Helsinki in June 2007, where four young and promising
tax professors, Dennis Weber, Raymond Luja, Francisco
Alfredo García Prats and Pasquale Pistone, debated with
experienced judges and academics the question of
which way the ECJ should go. 6 This criticism echoes the
critical remarks by Julian Ghosh in his recent book Principles
of the Internal Market and Direct Taxation. 7 The
purpose of this lecture is to (1) summarize the essence of
these criticisms, (2) find out whether they are justified,
and (3) consider the direction in which the Court should
go. The title of the lecture gives an indication of my
opinion on the first two questions.
2. Summary of Criticisms Levelled at the ECJ
Although one of the major criticisms is the inconsistency
in the reasoning of the ECJ in tax matters, this
summary reveals that the critics themselves do not
always point in the same direction and that the criticisms
are therefore not always consistent with each
other.
2.1. The ECJ exceeds its judicial powers and infringes
on the fiscal autonomy of the Member States
This thesis, which is also often heard in Europe, is best
documented by Graetz and Warren when they wrote in
Articles
Prof. Dr Frans Vanistendael*
In Defence of the European Court of Justice
their learned article: “The ECJ decisions to date suggest
potentially staggering constraints on countries’ freedom
to resolve what strike us as quintessentially legislative
issues – constraints that are fundamentally inconsistent
with the fiscal autonomy retained by the member states
in their right to veto EU taxing provisions.” 8 They
pointed to the fact that it is impossible to achieve simultaneously
capital-export neutrality (CEN) and capitalimport
neutrality (CIN) in a single tax system: “The conflicts
underlying this impossibility result can produce
irreconcilable claims of discrimination.” 9 On the other
hand, they argued that, based on the concept of discrimination,
there are no theoretical arguments to prefer
CIN over CEN and therefore that the ECJ would not be
entitled to make a choice:
There is simply no principled basis to prefer it [CEN] over the
opposite argument that exemption of foreign income (and
source taxation) is discriminatory. Putting the point more generally,
prohibiting discrimination based on destination is ultimately
inconsistent with prohibiting discrimination based on
origin. This indeterminacy confirms the limits of nondiscrimination
as a tool for resolving basic issues of international taxation.
The core tax policy issue here is the division of the tax base
between source and residence countries, the resolution of which
has depended more on compromise and practice than on any
overarching principle. Regulating that division by reasoning
from a principle of nondiscrimination ultimately produces an
incoherent result. 10
* Prof. Frans Vanistendael is the Academic Chairman of the IBFD and
Director of the European Tax College.
1. See Avery Jones, John, “Carry on Discriminating”, European Taxation 2
(1996), at 46, 49, criticizing the Wielockx and Schumacker decisions: “What is
needed is some independent body which can give the Court the big picture
when the Court’s attention is focused on one small, and ... deceptively simple,
area.”
2. Vermeend, Willem, “The Court of Justice of the European Communities
and direct taxes: ‘Est-ce que la justice est de ce monde’?”, EC Tax Review
1996/2, at 54, 55.
3. Williams, David, “Asscher, the European Court of Justice and the power
to destroy”, EC Tax Review 1997/1, at 4: “The flaw to which I refer is the effect
of the European Union law on the tax and social security systems of the Member
States, and the creation with the power to destroy is the European Court
of Justice.”
4. Press release of the German Ministry of Finance of 5 October 2006 on
the day of the submission of the opinion of Advocate-General Stix-Hackl in
Meilicke, Case C-292/04.
5. Graetz, Michael J. and Alvin C. Warren, “Income Tax Discrimination and
the Political and Economic Integration of Europe”, 115 The Yale Law Journal
1186 (2006), at 1188.
6. The reports submitted by Raymond Lula (Maastricht University), Dennis
Weber (Amsterdam University), Francisco Alfredo García Prats (University
of Valencia) and Pasquale Pistone (University of Salerno and Economic
University of Vienna) together with the other proceedings of the annual
meeting of the EATLP are published in Accounting and Taxation & Assessment
of ECJ Case Law, 2007 EATLP Congress, Helsinki (2008).
7. Ghosh, Julian, Principles of the Internal Market and Direct Taxation
(Oxford Key Haven Publications, 2007), at 266.
8. Graetz and Warren, supra note 5, at 1207.
9. Id. at 1217.
10. Id. at 1219.
90 BULLETIN FOR INTERNATIONAL TAXATION MARCH 2008 © IBFD