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When one compares the recent line of cases decided by the European Court of
Justice (ECJ) in the area of taxation to the US Supreme Court’s treatment of
state taxes under the US Constitution, the difference is striking. In general,
the Supreme Court has granted wide leeway to the states to adopt any tax
system they wish, only striking down the most egregious cases of
discrimination against out of state residents. In contrast, the ECJ
interpreted the Treaty of Rome (the ‘constitution’ of the EU) aggressively to
strike down numerous Member State income tax rules on the ground that they
were discriminatory.
On the face of it, this contrast is surprising. After all, the ECJ is dealing
with fully sovereign countries, and taxation is one of the primary attributes
of sovereignty. Moreover, the authority of the ECJ to strike down Member State
direct taxes is unclear. The Treaty of Rome generally reserves competence in
direct taxation to the Member States, and all EU-wide changes in direct
taxation have to be approved unanimously by all 25 Member States.
Nevertheless, the ECJ has since the 1980s interpreted the ‘four freedoms’
embodied in the Treaty of Rome (free movement of goods, services, persons and
capital) to give it the authority to strike down direct tax measures that it
views as incompatible with the freedoms.
The Supreme Court, on the other hand, has clear authority under the Supremacy
Clause to strike down state laws that are incompatible with the Constitution.
As Justice Oliver Wendell Holmes observed, the US will not be hurt if the
power to review federal laws were taken away from the Court, but it could not
survive if the Court lost its power over state legislation. Moreover, the
states are not fully sovereign, and (unlike Member States that are represented
in the EU Council), are not even directly represented in Congress, so that the
Court could strike down their laws without (in most cases) expecting an outcry
from the other branches of the federal government.
In light of the foregoing, Comparative Fiscal Federalism: Comparing the
European Court of Justice and the US Supreme Court’s Tax Jurisprudence will
focus on two intriguing aspects of importance to tax practitioners as well as
policy makers:
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What is the explanation for the contrast?
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Given this divergence of political context, what can the ECJ and the Supreme
Court learn from each other’s tax jurisprudence?
Chapter 1. ECJ Direct Tax cases and Domestic Constitutional Principles:
an Overview. Chapter 2. Double Taxation and EC Law. Chapter 3.
Non discrimination from the Perspective of the OECD Model and the Ec treaty –
Structural and Conceptual Issues. Chapter 4. The US Supreme Court’s
State Tax Jurisprudence: A Template for Comparison. Chapter 5. The Long
Shadow of History: Sovereignty, Tax Assignment, Legislation, and Judicial
Decisions on Corporate Income Taxes in the US and the EU. Chapter 6.
Tax Discrimination: A Comparative Analysis of US and EU Approaches. Chapter
7. Income Tax Discrimination and the Political and Economic Integration in
Europe. Chapter 8. The Future of Non-Discrimination – Direct Taxation
in Community Law. Chapter 9. The Future of the Principle of
Non-Discrimination in the EU: Towards a Right to Most Favoured Nation
Treatment and a Prohibition of Double Burdens? Chapter 10.
Most-Favoured Nation Principle and Internal market – Some Afterthoughts To
Case D. Chapter 11. US Tax Treaty Policy and the European Court of
Justice. Chapter 12. What Can the US Supreme Court and the European
Court of Justice Learn from Each Other’s Tax Jurisprudence?.
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