Tax Law and the Internal Market: A Critique of the Principle of Mutual Recognition

Abstract

AbstractThe principle of mutual recognition tests a potential breach of internal market treaty provisions and restricts the scope for a Member State to justify a breach by reference to what happens, or has happened, in a different Member State. The principle of mutual recognition is a distinct principle to that of non-discrimination and does not apply by reference to the functional equivalence of Member States’ regulatory regimes. Mutual recognition has been developed by the Court of Justice of the European Union (CJEU) as a distinct principle (perhaps a general principle) of EU Law, quite separate to the settled principles of non-discrimination and prohibition of obstacles to market access. The principle of mutual recognition entrenches a neo-functionalist model of the Union project and acts as an accelerant to the harmonisation of the domestic regimes of Member States which are subject to its application, in areas where harmonisation is realistically possible. In areas where harmonisation is not realistically possible, the application of the internal market by reference to the principle of mutual recognition sets aside non-internal-market-compliant Member States’ regulatory provisions, leaving an unsatisfactory space in these regulatory regimes. However, the principle of mutual recognition is, in the light of the application of the principles of non-discrimination and the prohibition of obstacles to market access, quite unnecessary and operates to frustrate legal certainty and the legitimate expectations of the Member States.