Romance and Divorce between International Law and EU Law: Implications for European Competence on Direct Taxes

Abstract

This article investigates European constitutional competence to harmonize those provisions of direct taxes of Member States which are incidental to the functioning of the single European market. Explicitly, the EU law, since its inception to date, does not confer powers to the Union to harmonize income taxation of Member States. The sole express reference to income taxes in EU law was an Article of the Treaty establishing the European Community (Article 293 EC) that was repealed during the Lisbon revision. The repealed provision urged the Member States to abolish double taxation by using tools of public international law, that is, outside the EU legal framework. The study explores the potential implications this repeal may have for EU tax mandate: (a) whether it implies an end to the EU tax powers at all in the realm of direct taxes? (b) Whether it is a neutral amendment with no consequences to what-so-ever EU tax authority was already put in place? Or, (c) whether the deletion of the sole income tax reference meant for Member States to proceed under the public international law in effect enhances implicit “federal” competence of the Union to intervene in national tax codes for establishment of a true European economic market? The article analyses the demise of the clause in a legal evolutionary paradigm at the interface of international law and EU law. In metaphor, I describe the changing evolutionary relationship between the European and international law regimes as a tale of romance and divorce. The two laws meet curiously during the 1950s; feelings grow and a bond develops between the two regimes; the romance between the two legal regimes attains its peak during the Maastricht phase; strains appear in their relationship after the Amsterdam revision; the split goes deeper after the Nice amendments and the two finally divorce at the Lisbon revision. Based on this ever-changing relationship framework between the two legal regimes, the article concludes (a) that the deletion of Article 293 EC indicates growing reliance of the integration project on European legal order rather than trusting inter-state treaties based on public international law and (b) an inherent growth in the European “federal” mandate to take broad-range actions to harmonize direct taxes in single market during the post-repeal period.