European Tax Law - JKU

damental freedoms under the EC Treaty results in creating
“new taxing rights” which did not exist before. This is
indeed the inevitable consequence of using the technique
of “fundamental rights” under the EC Treaty, but
also under other international treaties and even under
national constitutions.
If we look at the legal consequences of the application of
fundamental rights by national constitutional courts in
national legal systems, we find that, on the basis of these
fundamental rights, the constitutional courts have created
rights to employment and access to professions,
education and equal pay that did not exist before. In fact,
in the area of non-discrimination or equal protection
under the law, the national constitutional courts have
used exactly the same technique as the ECJ by using
their negative power to strike down national statutes and
other regulations that excluded women or specific
minority groups from access to professions, education,
employment, medical care, etc. The major difference
with the EU has been that the national legislature in
most, but not all, cases has reacted very quickly to implement
the constitutional court’s negative decisions in a
positive way in the framework of national legislation. In
creating these “rights”, including “taxing rights”, the ECJ
has acted precisely in the same way as international
courts and national supreme and constitutional courts
have acted on the basis of similar legal texts.
The argument that the ECJ has no legitimate basis to
make such decisions because it was not elected is not
valid because national constitutional courts are also not
elected. The constitutional freedoms on which they
based their decisions have, of course, been approved by
democratically elected constitutional assemblies, but so
has the EC Treaty been approved in special laws by all
democratically elected national parliaments of all the
Member States.
The argument that no one could have envisaged on 25
March 1957 at the signing of the Treaty of Rome the farreaching
consequences for direct taxation of the fundamental
freedoms is also not valid. This is clear when we
apply the same reasoning outside the area of taxation.
Most people could also not have envisaged the farreaching
consequences for criminal law, family law or
labour or educational law of some national constitutional
and international treaty freedoms with respect to
the rights of minority groups. This has not been a valid
reason for rejecting the decisions of courts in creating or
upholding these rights on the basis of international
treaties or constitutional texts.
This way of making tax laws is rather new. It is not the
traditional way founded on the principle of “no taxation
without representation”, which is strongly based on the
principle of legality and the approval of detailed statutes
in parliament. We should not overlook the fact, however,
that in many other areas of law, including even criminal
law, judge-made case law by the European Court of
Human Rights has sometimes taken the place of the
national legislature. In all these cases, it is because the
legislature was unwilling to confront these new develop-
Articles
ments that judges have taken the driver’s seat. But their
decisions are always based on treaty provisions that were
democratically approved by national parliaments.
3.3. In which direction should the ECJ go?
3.3.1. Role of the concept of the internal market
Once we have accepted that the application of the fundamental
freedoms by court decisions inevitably results
in changing the substantive national tax law by abolishing
some tax rules and thereby creating some new taxing
rights, the question put by García Prats and Pistone, of
course, remains: In which direction to go? The easy and
general answer to this question is clear: in the direction
of an internal market without borders and free and fair
competition and in the direction of a level playing field
at the snooker table. That, however, is only part of the
answer. The other part is that, within the internal market,
the Member States should have viable national tax systems
capable of raising the major part of the revenue
needed to provide public services for their citizens,
although the EC Treaty does not contain substantive tax
principles to build such national systems. The more difficult
question is: What is the correct balance between
these two objectives and which are the fundamental
principles achieving such balance?
There are many questions of tax policy on which the
concept of the internal market does not give the slightest
indication of an answer and on which consequently the
ECJ should not take a position – for example: double or
single taxation of dividend distributions to individuals,
the unit for personal income taxation (couple or individual),
the progressivity of the tax scale in the personal
income tax, etc. Regarding such questions, the role of the
ECJ should be to stay out of any possible discussion of
these issues in the framework of a national tax system.
3.3.2. Concept of the internal market is decisive between
CLIN and CLEN
There is, however, one major question of policy on
which the ECJ could justifiably take a position, and that
is the question whether CLEN or CLIN is the tax system
most compatible with the internal market. Many academics
in Europe have made a convincing plea from a
theoretical point of view to adopt CLIN as the general
tax system for the internal market. The essence of the
internal market has indeed been defined in Arts. 3(c)
and (g) of the EC Treaty as: “A ... market characterised by
the abolition, as between Member States, of obstacles to
free movement of goods, persons, services and capital ....
And a system ensuring that competition ... is not distorted.”
24 The core of the internal market is based on
competition, not only between business enterprises, but
also between the tax systems of the Member States, and
24. Although in the renewed Treaty agreed upon at the Lisbon summit in
October 2007 the notion of competition is no longer specifically mentioned
in the concept of the internal market, the protocol to the Treaty makes it clear
that this vital element in the definition of the internal market remains
unchanged.
© IBFD BULLETIN FOR INTERNATIONAL TAXATION MARCH 2008 95