The Case-Law of the European Court of Justice on Direct Taxes: Variations upon a Theme
| Author | Jan Wouters |
| Published date | 01 June 1994 |
| Date | 01 June 1994 |
| DOI | http://doi.org/10.1177/1023263X9400100205 |
| Subject Matter | Article |
Jan Wouters *
The Case-Law of the European Court of Justice on Direct
Taxes: Variations upon a Theme
§1. Introduction
In a steadily increasing number of cases the EC Court of Justice isbeing asked to assess
the compatibility with Community law, and especially with the EC Treaty's provisions
on free movement, of national rules in the field of direct taxation. Some of the Court's
judgments on this subject have attracted strong criticism. One of the objections
sometimes heard is that these days the Court seems more willing to take into account
Member States' national interests in fiscal matters than it was in the past. 1
The central proposition of this contribution is that the Court's case-law in the area of
direct taxation should rather be seen as variations on an underlying theme, namely the
delicate balancing act whereby the Court undertakes to weigh national interests in a
politically sensitive area against the Community's interest in safeguarding the free
movement of goods, persons, services and capital within the European Community.
If
anything has changed in the Court's case-law, it is not so much the responsiveness to
Member States' interests, but rather the parameters within which the Court balances the
Community interest and thenational interest. Byputting theCourt's judgments on direct
taxation in that perspective, this study hopes to clarify the way in which the Court
approaches national measures in this area. The analysis of the relevant judgments
(section 4) is preceded by a series of preliminary caveats which are necessary for a
proper understanding of the Court's case-law on direct taxation (section 2) and a concise
overview of current developments in the Court's case-law on the free movement of
persons and services (section 3).
*Legal Secretary, Court of Justice of the European Communities; Lecturer in Law, University of
Limburg. The author would like to thank Koen Coppenholle, Piet Eeckhout, Paul Farmer, Gerhard
Grill, Charles Lewis, Bernard Mongin, Hildegard Schneider, Takis Tridimas and Peter van den
Bossche for their stimulating comments. The opinions expressed are personal.
I. See for instance Berlin, 'Trends in the Tax Jurisprudence of the Court of Justice of the European
Community', EC Tax Review (1993),80, at 90.
MJ 1 (1994) 179
IThe Case-Law of the European Court ofJustice on Direct Taxes
§2. Preliminary caveats
A.
LACK
OF EXPLICIT TREATY PROVISIONS ON DffiECT TAXATION
At present under Community law the area of direct taxation comes almost exclusively
within the province
of
national legislators, and this is likely to remain the case for the
foreseeable future. The sanctity of the Member States' power to levy direct taxes - and
use these taxes for budgetary, trade-cycle, redistributive and other policies - is
illustrated by the
Ee
Treaty's almost complete silence on this subject. 2Of the original
Treaty provisions, only Article 220 touches briefly on the subject by referring, in its
second indent, to the task of abolishing double taxation within the Community 'so far
as is necessary' for negotiations between the Member States, i.e. outside the institutional
framework of the Community. 3EC legislation on free movement has only remotely
touched on the issue of direct taxation." .
In practical terms, the only basis for Community action in this field is provided by the
generic harmonization clause of Article 100 EC Treaty, which empowers the Council
to adopt, on the basis of unanimity, directives for the approximation of laws, regulations
or administrative provisions which directly affect the establishment or functioning of the
common market. Both requirements (unanimity and a direct effect on the common
market), and also the lack of political accountability of the Council for tax measures
adopted, 5help to explain why it has taken the Community legislator more than twenty
2. Cf. Thommes, 'The European dimension in international tax law',
Intertax
(1990), 464, at 465. See
point lO): 'It is of course quite clearly for the Member States alone to lay down the rules governing
income tax; as Community law stands at present, direct taxation is outside the scope of the EEC
Treaty'.
3. On this basis, the 'High Contracting Parties to the Treaty Establishing the European Economic
Community' concluded the Convention of 23 July 1990 on the elimination of double taxation in
connection with the adjustment of profits of associated enterprises (90/463/EEC), [1990] 0.1. L225/lO.
4. See Article 7 of Regulation (EEC) 1612/68 of 15 October 1968 on freedom of movement for workers
within the Community, 0.1. English Special Edition 1968 (II), 475, which provides that workers who
are nationals of a Member State are to enjoy, in the territory of another Member State, the same tax
advantages as national workers. An extension of this provision has been proposed by the Commission:
0.1.
Cll9/10.
See also the general programmes for the abolition of restrictions on freedom to provide
services and on freedom of establishment,
0.1.,
English Special Edition, SecondSeries IX, 3 and 7,
which both in their title III ('Restrictions') under (e) prescribe the elimination of national provisions
which treat nationals of other Member States differently and make their provision of services or their
taking up or pursuit of an activity as a self-employed person more costly 'through taxation or other
financial burdens'.
5. In a recent article, Prof. Vanistendael has rightly stressed this lack of political accountability as the
most important barrier to the progress of the Community'S tax order: 'Decisions on the collection of
revenue would entirely escape control by national governments, while the same governments would
remain accountable to their national parliaments and national electorates for the social and economic
~
180 MJ 1 (1994)
I
Ian
Wouters
years to approve the first substantive 6directives concerning direct taxation, namely the
of
yet unsuccessful, attempts to harmonize aspects of direct taxation, have also been
based on Article 100 EC Treaty. 8
taxation.
It
did so by inserting into the EC Treaty Article 100a(2), according to which
Article 100a(1) - which provides for harmonization measures for the internal marketon
the basis of qualified majority voting - does not apply interaliato fiscal provisions. In
relate to the establishment and functioning of the internal market, tax harmonization
must still be pursued on the basis of unanimity under Article 100. 9
In spite of the efforts of some governments to provide a stronger legal basis for
harmonization in the area of direct taxation, matters have not been changed by the
Treaty on European Union. On the contrary, the new Article 73d of the EC Treaty
5.
--..
consequences of their decisions on spending. Governments would remain politically responsible on the
spending side, while losing control of the revenue side. This is like someone wrestling with one hand
tied behind his back': 'The Limits to the New Community Tax Order', CML Rev (1994),293, at 296-
297.
6. In 1977, a directive of a procedural nature was adopted in the area: Council Directive 771799/EEC of
19 December 1977 concerning mutual assistance by the'competent authorities of the Member States
in the field of direct and indirect taxation, [1977] 0.1. L336/15, as amended by Council Directive
79/1070/EEC, [1979] 0.1. L331/8 and most recently by Council Directive92/12/EEC, [1992] 0.1.
L76/1.
7. Respectively, Council Directive 90/434/EEC on the common system of taxation applicable to mergers,
divisions, transfers of assets and exchanges of shares concerning companies of different Member
applicable in the case of parent companies and subsidiariesof different Member States, [1990] 0.1.
L225/6. Evidently, also the Commission's more recent proposals to amend the aforementioned
directives are based on Article 100 EC Treaty: see proposal for a Council Directive amending
90/435/EEC, [1993] 0.1. C225/5.
8. Those attempts include a proposed directive concerning the harmonization of systems of company
taxation and of withholding taxes on dividends [1975], 0.1.
C25312;
a proposed directive concerning
the harmonization of income taxation provisions with respect to freedom of movement for workers
within the Community, [1980] 0.1. C21/6; a proposed directive on the harmonization of the laws of
the Member States relating to tax arrangements for the carry-over of losses of undertakings, [1984]
0.1. C253/5, with amendments published in [1985] 0.1.
CnO/3;
a proposed directive on a common
system of withholding tax on interest income, [1989], 0.1. C141/5, together with a proposed directive
amending the 'mutual assistance' directive referred to in note 5, [1989] 0.1. C14117; and a proposed
directive on a common system of taxation applicable to interest and royalty payments made between
parent companies and subsidiaries in different Member States, [1991]
0.1.
C53/26, with amendments
published in [1993] 0.1. C178/18. .
9. Cf. D. Berlin, Droitfiscal communautaire, (PUF, 1988),30.
MJ
1(1994) 181
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