How to avoid Double Taxation in the European Union?

Abstract

Double taxation still exists in the European Union. The purpose of this article is to classify double taxation situations and assess to what extent double taxation is inconsistent with EU law principles. It concludes that although not all arguments are equally convincing in this respect, there is enough substance in the Treaty on the Functioning of the European Union to justify further action against double taxation. It is then suggested that the remedies to double taxation should take into account several elements. First, there are cases where one State is indeed to blame for the existence of double taxation. The ECJ could therefore modify its case law and acknowledge that it is for that State to eliminate double taxation. Where no State is to blame, a new procedure must be established at the EU level in order to provide a remedy to double taxation. This procedure should leave States free to design a proper solution to the problem and, failing an agreement between them, provide for an arbitration mechanism. It is argued that this new framework would suit the interests of both taxpayers and the European Union Member States insofar as it would pave the way for the genuine realization of the Internal market without jeopardizing the States’ sovereignty in direct tax matters.