European Tax Law

1. EuropeanTax Law The Anti-sovereign Academic Year 2018-2019 Prof. Pietro Boria

2. The «negative» taxation in the European Tax Law • As seen through the various lessons of this class, the European Union has developed a fiscal policy which is definable as «negative» taxation. • Indeed, the European Union has always enacted several rules with the purpose to limit the State Members’ sovereignty over fiscal matters, protecting the common market and enhancing the competition. • All the fiscal policies introduced by the European Institutions – for example the VAT legislation – have been guided by the need to contain States’ powers on such delicate area, avoiding tax discrimination, due to the fact that State Members tend to use their sovereignty to introduce binding norms, able to alter market competition, favouring national enterprises and national workers over foreigners. • Having fully described during the previous lessons how European Tax Law works, it is now unavoidable to understand how those rules and policies can affect fiscal sovereignty. • So, the first issue to face is to delimitate the notion of «fiscal sovereignty» in the tradional tax law. The Anti-Sovereign

3. The link between fiscal sovereignty and tax law (1) • The fiscal sovereignty, which is expressed in constitutional and pluralist democracies using the regulatory powers related to the primary interests and needs of community life, involves the management of the necessary financial resources as an essential tool for the realization of the general aims. • At this point, it is evident the connection between sovereignty and taxation due to the fact that taxation represents the key point of the formation of public financial resources. • The taxation is used by each state to achieve basic collective purposes, namely developement of primary individual rights, economic and social growth, self realization of each individual in the social community. • However it has to be clear that the declination of the connection existing between sovereignty and taxation assume different connotations in each state, depending on the constitutional framework, the various needs of civil society and the peculiar history of a country. The Anti-Sovereign

4. The link between fiscal sovereignty and tax law (2) • As an example, it is possible to outline the following ideas of link between sovereignty and taxation: • in the English constitutionalism of seventeenth century the tax interest is presented firstly as a specific interest of the sovereign, who needs all the economic resources to rule the kingdom as his personal estate, without giving relevance to the personal sphere of freedom and needs of his citizens; • French enlightment develops the connection between the sovereignty and the fiscal interest, establishing the role of the tax power with respect to the general purposes of the social community; • The German Idealism poses the fiscal interest in a relevent position within the state architecture, establishing a the attribution of strong public powers to the State with respect to which the individual citizens stand in totally subordinate position; • Finally, in modern Constitutions the popular sovereignty is conceived as a mean to enact tax rules, with the sole purpose to guarantee individual rights and realize the growth of the civil society. The Anti-Sovereign

5. The fiscal sovereignty under European law • The advent of European law has led to a significant restriction on the exercise of legislative powers of nation-States and thus of fiscal sovereignty. • In fact, even if the fiscal sovereignty has remained a core competence of the Member States, the European Institutions have constatly reduced the length and depth of such power, preserving the common market and the competition from being altered. • The legal system coming from the EU sources is marked by the principle of negative taxation: the values of the Treaties, the provisions established by the Directives or Regulations are clearly indicating that the primary aim pursued by the EU is to give limits and constraints to the legislative power of Member States. • So, the negative taxation expresses the following ideas: • limitation of the fiscal sovereignty of Member States; • exclusion of a main process of «positive taxation» through which the supranational organization (European Union) could establish an area of autonomous fiscal rules, draining fiscal sovereignty from national States. The Anti-Sovereign

6. What are the procedural and formal tools of negative taxation? (1) • Analyzing the way EuropeanInstitutions work, itappears easy to identify the toolswhich are used to realized the so called negative taxation. • Directives. First of all, the legaltoolcommonlyused to regulatetaxmatters in the European Union isrepresented by the Directives. Theseonesallow the EuropeanInstitutions to impose limits on State Members, withoutinterfering with the nationallegislationprocess, thanks to the factthatStates are obliged to reach the targets described in the Directive, being free to choose the procedures to do so. • Soft Law. Throughrecommendations, opinions and guidelines the EU operates a legal suasion, aimingat the promotion of certainlines of regulation in eachMember State, on the onehandsuggesting the correctapproch and, on the otherhand, avoiding the use of bindingrules. • Principle of unanimity. The absence of a EU positive taxationisalsodemonstrated by the way the Counciloperates, having to take alltaxrelateddeliberations with unanimity, limitingitspowers on general principlesthat can detectunanimousconsent of eachMember State. The Anti-Sovereign

7. What are the procedural and formal tools of negative taxation? (2) • Court of Justice. The case law developed by the Court of Justice on tax related issues is very specific and strongly connected with the peculiarities of each case. That highlights an highly pragmatic approach, aimed primarily at the declination of the obstructive rules formalized under EU law, without showing any impuse toward a judicial construction of a “positive”system. • Distribution of powers within the European Union. The powers given by Member States to the European Institutions are a clear evidence of such a“negative” architecture on tax issues. In fact, the bodies of the European Union have only regulatory power (although limited) in the field of indirect taxes and protection of the common market, leaving the direct taxes to the exclusive competence of Member States. The Anti-Sovereign

8. The function of the negative taxation • At this point it is clear the role played by the policies of negative taxation in the European Union:all the EU fiscal regulation have a delimiting function, using sovereignty to contain and circumscribe the power of taxation of each Member State, which is able to destabilize: • the common market; • the mechanisms of competition. • As a consequence, it is possible to outline the following statement: “The European Union has abandoned the axiological core of tax law, tradionally conceived as a tool to obtain resources to guarantee individual rights and social or economic growth, in favour of a minimal position oriented towards the negative logic of non discrimination.” The Anti-Sovereign

9. The ratio of negative taxation lies in the principle of neutrality (1) • If the function of EU negative taxationis to guarantee the correctequilibrium of the common market, the ratio has to be found in the followingfact: the phenomenon of taxationislikely to affect the flows of goods and capital towardsmostproductivelocations, therebydistorting the functioning of the common market. • As a consequence, the common market can work in a condition of equilibriumonlyif the principle of fiscal neutralityisapplied. • Thisconceptidentifies a context in whichtaxationbecomeirrilevant for national or internationalenterprises, interested in crossboarderoperations. • The neutralityassumesseveralaspects, beingable to configure a criterion for the adjustment of fiscal policiesrelated to the commercial or financialtransactions for inbound or outbound. The Anti-Sovereign

10. The ratio of negative taxation lies in the principle of neutrality (1) • The principle of neutrality assumes the following forms: • Capital export neutrality, which is the situation where the tax factor does not distort nor discourage crossborder operations and investments, equalizing the tax treatment of income produced abroad compared to the national income earned in the country; • Capital import neutrality, which is the situation where the capital arriving at the financial market of a given country receive a tax treatment which is equal to the one reserved to nationals, according to a perspective of competitive neutrality. The Anti-Sovereign

11. Advantages deriving from fiscal neutrality • The EU negative taxation, aiming at the establishment of a fiscal neutrality within the common market, can guarantee undeniable advantages. • First of all, the capital export neutrality favours: • the outflow of capital to locations with greater economic attractivness. In fact, capital and economic activites are thus oriented towards the production sites on the basis of evaluation linked exclusively to the degree of effectiveness and efficiency in the combination of production factors; • tax soverignty of the individual States, because each of them is able to mantain the full capacity to establish the system of taxation applicable to the economic agents, without interfering with the efficient allocation of productive resources at the international level. • Second of all, the capital import neutrality favours: • flow of capital in the domestic market because of an equality of tax treatment; if the tax rates in a given country seems to be more attractive than those of the foreign States, capitals flow into the market of the importing State on the basis of assessments of fiscal convenience and not of economic opportunity. The Anti-Sovereign

12. The instrumentality of the taxation power to the the market in European Tax Law (1) • It seems clear that negative taxation is a legal instrument to prevent national tax regulations that can take an obstructive connotation about the free development of the common market. • So, the cardinal point in the European Tax Law can be identified in the concept of “market” or, better, in the convinction that the protection of market represents the primary goal of the process of European integration. • The market equilibrium and effectiveness represent the maximum goal towards the whole European system tends, being a kind of regulatory mechanism of social and economic balances, to serve as a parameter of the allocative efficiency only on the basis of individual capacities. • Therefore, the fiscal phenomenon is adjusted accordingly: the European order comes to reducing the weight of the tax measures, while necessary for the achievement of essential resources for the public expenditures, in order to avoid that taxes can result in impediments that alter the ability of the natural functioning of the market. The Anti-Sovereign

13. The instrumentality of the taxation power to the the market in European Tax Law (2) • The instrumentality of the taxation phenomenon to the market contrasts sharply with the choices adopted in the Constitutions of Member States, where the taxation is not identified as a subordinate of the market but as propulsive force with respect to the process of social transformation and growth. • In the national tax laws, the involvement of all citizens in the payment of taxes, allows to operate a distribution of resources in order to reduce economic inequalities, strengthen social services and elevate weaker social classes. • So, traditionally, the fiscal phenomenon is far from the neutrality of the market, aiming exclusively at the promotion of social integration and implementation of social freedom. • In this perspective, it is clear the strong demarcation between the Eu law and the national Constitutions, the first conceiving the tax law as a tool of «horizontal equality», the second as a tool of «vertical equality». The Anti-Sovereign

14. The instrumentality of the taxation power to the the market in European Tax Law (3) • Horizontalequality: according to the European system, taxationshouldnot alter in any way the opportunity to enter the market, so as to ensure a levelling of the taxburdens for homogeneouscategories of subjects (individual and enterprises). • Vertical equality: the taxationshould be joined to the purpose of promoting the equality of chances betweenconsociates, and thusshouldovercome the differences of the starting positions in order to seekequal treatment amongthem. The Anti-Sovereign

15. The Anti-sovereign (1) • The negative taxation indicates how the EU legal system is characterised by a subtractive but non substitutive function with regard to taxation power, which is reserved to the Member States. • In other words, the European Tax Law does not represent a positive regulation of taxation but produces only a restriction on the national tax powers, avoiding the obstruction of the common market and of the competitive business. • As a consequence, the European Institutions can be regarded as an “anti-sovereign”, in opposition to national powers, due to the fact that EU does not want to introduce a new sovereignty but to contain and sometimes to exclude the sovereignty of nation-States. • The nature of “anti-sovereign” for the European fiscal system is also demonstrated by the fact that the European Union lacks of the following elements, which are typical of sovereignty: • lack of ascending powers deriving from popular representativeness; • connection with a nation of people; • lack of democratic legitimacy; • absence of a unique political subject. The Anti-Sovereign

16. The Anti-sovereign (2) • The negative taxation is the natural tool used by an anti-sovereign, who exercises its powers in a way that is opposite to the one used by a State. • In this context, the fiscal phenomenon: • loses all social elements; • eliminates all the aspirations to the income redistribution among citizens; • conceives as irrilevant the promotion of human rights and needs. • On the other hand, due to its negative nature, it: • becomes a mere instrument for raising national economic resource, respectng the market equilibrium; • Is useful to enhance the market copetition; • Is neutral with respect to the productive ambitions of the economic agents. The Anti-Sovereign

17. The dangers of the Anti-sovereign (1) • As seen, the concept of negative taxation and, thus, of Anti-sovereign are opposite to the national tax law and constitutional values. • This situation of contrast is produced by the current international economic needs, which are summarized in the phenomenon of “economic globalization”. • The economic globalization and the development of productive entities with a multinational character have changed the logic of the economic phenomena: the first need which arises from the current economic world is only the freedom and self-regulation of the globalized market. • As a consequence, the new institutions born in this context, as the European Union, present themselves as an “a-political framework”, partially disengaged from the fabric of social values and the needs of the civil society , concentrating exclusively on the regulation of the common market and on the needs of commercial exchange. The Anti-Sovereign

18. The dangers of the Anti-sovereign (2) • It must be highlighted that putting market first in the political and fiscal strategy of the European Union (the Anti-sovereign) determines several dangers that has to be analyzed, even if they have not occured yet: • subordination of Member States to market logic; • weakening of national sovereignty; • abandonement of the States’ social function; • democracy of the market substitutes democracy of the Constitutions. The Anti-Sovereign

19. The dangers of the Anti-sovereign: subordination of Member States to market logic • The first danger is the subordination of Member States to market logic. • In fact, through the EU negative taxation, Member States begin to become functional to the markets and adhere to the decisions emerging from the market itself, slowly utting away the protection of social needs and the traditional concept of sovereignty. • It determines a clear reversal of the relationship between economic power and political power: the plan of the choices made by the States risks to be controlled by the international finance and supranational economy. The Anti-Sovereign

20. The dangers of the Anti-sovereign: weakening of national sovereignty • The major threat deriving from the EU negative taxation is the weakening of the national sovereignty. • In fact, bringing the decisions on fiscal policies to the mechanisms of the common market and to the economic competition has the consequence of reducing the state sovereignty, favouring the interests of the international economic community. • The evidence is that multinational corporations, trade unions and productive organizations acquire a strong position and have nowadays the possibility to directly influence national policies on such a delicate area –the tax law- through the role played by the common market and the European Institutions. The Anti-Sovereign

21. The dangers of the Anti-sovereign: abandonement of the States’ social function • Another relevant danger, coming from the establishment of an Anti-sovereign, is the abandonement of the traditional States’ social function highlighted in each Constitution. • The risk is that the equilibrium between market needs and interest of the social community could vanish due to the fact that the main prerogative is market efficiency and not social welfare. • This scenario clearly determine a structure of economic relations uncontrollably generated by market forces and related to the ungovernable and casual composition of interests through the trading transactions. • The modus procedendi clearly causes a : • strengthening of «strong and rich agents»; • weakening of «poor agents». The Anti-Sovereign

22. The dangers of the Anti-sovereign: democracy of the market substitutes democracy of the Constitutions • The final risk is the replacement of the democracy of the Constitutions by the democracy of the market which appears unfair and socially disharmonious. • The negative taxation could determine the abandonment of any social connotation about the redistribution of the tax burden considered as a mere financial instrument fot the coverage of public debt. • The protection of social needs and the redistribution of resources among citizens, as the main purpose of the Welfare State and of national Constitutions, risks to become a secondary issue, sacrificed for the common market efficiency. The Anti-Sovereign

23. The remedies against the risks of the Anti-sovereign • The dangers deriving from the establishment of an Anti-sovereign, able to influence the national fiscal policies, could be contained by few remedies: • creation of a European Constitution, • formation of a European Financial Administration; • defensiveness of Member States. The Anti-Sovereign

24. The European Constitution as a partial antidote to the Anti-sovereign (1) • The principal remedy to contain the dangers previously represented is the promulgation of the European Constitution, which can be defined as a pattern of the values that serves to trace the path of the EU legislation. • As a consequence, the European Constitution could oppose the Anti-sovereign acquiring the social principles described in the national Constitutions. • In particular the European Constitution should address the following issue: • formalize the principle of popular representativeness as a source of legitimation of the taxation power in the European Union, highligthting the role of democratic legitimacy; • display the principles of the ability to pay and of the tax interest, which are typical of national Constitutions; The Anti-Sovereign

25. The European Constitution as a partial antidote to the Anti-sovereign (2) • introduce the principle of allocation of taxburdensamong the citizens, aimingat the pursuit of a genuine equality of chances of the individuals; • strengthen the development of social policiesthrough an accurate management of the fiscal phenomenon. • The claim in the EuropeanConstitution of the basicvalues of the fiscal dialecticintroduces a fundamentalelement of impulse in order to limit the consequences of negative taxation, orienting the taxfunctiontowards a social and redistributive task thatfits with the modernconcept of sovereignty and alsofavouring the construction of a Europeansovereignty. The Anti-Sovereign

26. The formation of a European Financial Administration (1) • The second element which seems to provide a significant boost to overcome the logic of the ant-sovereign is the formation of a European financial administration. • It consists in initiating a process of organise a force of control for all tax related matters whithin the territory of European Union • This body should determine a lot of advantages: • Implementation of EU tax policies without having to depend on the degree of adhesion and cooperation of the Member States; • Creation of autonomous offices, able to fully pursue the EU purposes, in coordination with the Member States; • Enhancing of European integration. The Anti-Sovereign

27. The formation of a European Financial Administration (2) • The European Financial Administration should have the following functions: • cognitive functions, relating to the acquisition of specific information on tax-relevant behaviours of EU residents; • control functions, relating to the monitoring and to the control of the economic agents residing in EU territory; • conciliatory functions, to be achieved through the establishment of offices and conciliation procedures of the tax disputes out of court; • functions of study, relating to the trends of national fiscal systems and international taxation; • advisory functions, consisting in technical assistance to the European Institutions over harmnization of regulations and procedures. The Anti-Sovereign

28. The formation of a European Financial Administration (3) • As seen, the creation of a fiscal administrative body should facilitate the relationship between market needs and social expectations. • In fact, the dialectic between the interests and the values involved in the tax matters should be reconciled by a European financial administration, having to balance individua rights and taxation interests. • Such a body should facilitate the creation of an effective European Taxation Law, establishing a European taxation sovereignty and helping to overcome the current negative taxation system. The Anti-Sovereign

29. The defensiveness of Member States • At the current stage of evolution of the European Union, the most important tool of defense against the dangers of the Anti-sovereign is found in the defensiveness of fiscal sovereignty sought by each Member State. • In fact, the strong defense of national taxation policies, especially on direct taxes, have an evident indirect and accidental outcome: the preserving of the constellation of values consecrated in the Constitutions which are the fundamental principles of equality, social promotion and protection of individual rights against the power of the economic market. The Anti-Sovereign

30. Conclusion • In essence, the maintenance of the strong core of the national taxation power is one of the last goals of the democratic Constitutions, having the following positive effects: • it is a bridge for the transition to new higher constitutional Charter of European dimension; • it is a syptom of the vitality of the constitutional values in the democratic society; • it is the expression of the ability to resist to the urges coming from the market and its economic forces. The Anti-Sovereign

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