A light in the darkness: Recent developments in the ECJ’s direct tax jurisprudence

Abstract

This article will examine the Court’s case law from 2001 to 2007 in one of its most challenging and, due to national sensitivities about tax sovereignty, controversial areas of competence at present: its application of the Treaty free movement rules to national direct tax provisions. First, the article will focus on the Court’s evolving approach to the question of which national tax rules amount to a prima facie breach of the free movement rules – in particular, the Court’s shift from defining breach purely in terms of “restriction” to a discrimination-based approach. Second, it will consider developments in the Court’s attitude to justifications for prima facie breaches of Treaty free movement rules, including the nebulous concept of justification on grounds of “fiscal cohesion”. Finally, it will look at the application of the EU citizenship rules to national tax rules, and the Court’s stance on remedies where national tax rules contravene Community law. Its conclusion will be that, after a substantial period of uncertainty, the Court seems to be moving away from a pure restriction-based approach, towards a more predictable and logical system distinguishing between those restrictions of free movement which should be prohibited by the free movement rules (restrictions resulting from the discriminatory rules of one tax jurisdiction) and those restrictions which, as inevitable consequences of national tax sovereignty, should not fall within the scope of the free movement provisions at all (restrictions resulting from the interaction between two different tax jurisdictions).