European Tax Law - JKU

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Restricting the tax base of residents by exempting, by
treaty or unilaterally, parts of the worldwide tax base is
an act, not of determining tax jurisdiction, but of exercising
it, and such exercise may have discriminatory
effects. One example is the Ritter-Coulais decision 30
where Germany taxed residents on foreign real estate
income, but then by treaty excluded foreign income and
then by domestic provisions excluded foreign losses, but
included foreign profits for calculating the progressive
tax rate. By the combination of these two measures, Germany
did not determine its tax jurisdiction, but did exercise
it. If we restrict the rules determining the tax base to
their basic functions, it is logical that such rules escape
scrutiny under the fundamental freedoms because they
operate in the internal market in a strictly neutral way. In
all other cases, the state is exercising its tax jurisdiction,
and these rules are subject to scrutiny by the ECJ, also in
cases where there is economic or juridical double taxation
because of the juxtaposition of legal systems.
3.3.5. Which national tax system must make the
concession?
When there is pure juxtaposition and no discrimination,
the final question that has been haunting the European
tax scene is: Which Member State must give in and on
what legal ground? In some cases, the choice for CLIN
may give an indication to the ECJ which priority to follow.
However, when the Member States have clearly chosen
to follow another road, like for residence taxation of
interest paid to individuals, the ECJ should follow the
priority indicated by the Member States. As the guiding
principle for the ECJ, I propose the policy choice of the
overwhelming majority of the Member States on any
given tax issue on the condition, of course, that this issue
raises a question of cross-border discrimination or
restriction under the EC Treaty. The legal basis for such a
decision is, on the one hand, the ECJ’s mandate under
the EC Treaty to enforce the basic freedoms in the sense
of the internal market and, on the other, the consideration
that a single Member State or a few Member States,
representing only a very small part of the total European
population, should not be in a position to block a judicial
decision on an important issue of market integration
in the EU. Unanimity on a directive may be required
because the results are mandatory for all the Member
States within a given period of time. The judicial process
of the ECJ decisions and their implementation in the
Member States are quite a different and a much slower
and gradual process. Therefore, the ECJ would be fully
justified in taking a decision on double burdens and
double taxation in the sense of facilitating the internal
market if that decision is fully backed by the national
policy choices of a large majority of the Member States.
After a decision by the ECJ, the Member States have
more room for choice and manoeuvre than when a
directive or regulation has been approved. Therefore,
decisions of the ECJ on policy issues are satisfactorily
legitimized when they fulfil two conditions: (1) they
facilitate movements in the internal market, and (2) they
reflect the policy choices of the large majority of the
Member States. This also means that where the policy
choice of the Member States is not clear or is not supported
by a large majority, the ECJ should abstain from
making decisions and refer the solution to the legislative
process of harmonization, subject to the unanimity
requirement.
4. Concluding Remarks
My concluding remarks can be very short.
We should all keep in mind that building a multistate
tax system by case law is much more difficult
that building a multi-state tax system by legislation,
even though the latter is also considered a very
difficult enterprise. What the ECJ is doing in
Europe is trying to reshape national tax systems so
that they become compatible with the EC Treaty in
general and the internal market in particular. The
ECJ is not in the business of harmonizing all
national tax systems. The mandate for this mission
is the EC Treaty, and the ECJ is using the Treaty in
the same way as other international courts and
national supreme and constitutional courts are
using their basic texts to reach decisions in many
fields of law, including taxation. In doing so, the ECJ
is acting the same way as the English common law
courts which have been building the English legal
system on a case-by-case basis. Citing John Avery
Jones: “It is difficult enough for a court to decide the
case before it. When the ECJ has been deciding
cases for as long as the courts have in English
common law, there will be less difficulty in seeing
where it is going.” 31 The English courts have taken
more than 500 years; the ECJ, so far, has taken 50.
30. Case C-152/03, Ritter-Coulais, 21 February 2006.
31. Closing oral remarks of the intervention by John Avery Jones at the 2007
EATLP annual meeting in Helsinki.
98 BULLETIN FOR INTERNATIONAL TAXATION MARCH 2008 © IBFD