Progressive Turnover-Based Taxes and Their Legal Repercussions Under EU Law

Abstract

In recent tax policy trends, the introduction of turnover-based progressive taxes can be observed. However, the structure of these taxes raise various legal concerns under EU law. These taxes can be challenged under both EU State aid rules and the fundamental freedoms. Both the State aid and fundamental freedom questions are swirling around a similar issue: whether the different treatment of undertakings, caused by the progressive rate structure of those taxes, on the grounds of the level of their turnover can be justified by the ability to pay principle. This article will point out the problems of the application of this principle in the field of turnover-based taxation. In addition, under the fundamental freedoms, it must also be ascertained that the differentiation based on the level of turnover indirectly disadvantages foreign-owned undertakings. In this contribution, the author argues in favour of a stricter indirect discrimination test than the one that can be currently inferred from the CJEU’s case law. The compatibility of turnover-based business taxes with Article 401 of the VAT Directive has been confirmed by the CJEU, however, such a stance should also be questioned in light of the objective of this provision of the VAT Directive, namely to safeguard the goals of the common VAT system from interference by other domestic taxes.