European Tax Law

1. EuropeanTax Law EuropeanTax Law: Introduction Academic Year 2018-2019 Prof. Pietro Boria

2. What is “European Tax Law”? • The “European Tax Law” is a set of fiscal regulations enacted by the EU institutions. • The aim is to provide control of tax matters over the tax legislations of the Member States. • European Tax Law substantially impacts the domestic tax laws of each Member State and the way those laws must be interpreted and applied. • Tax policy has moved up the agenda in connection with the financial and economic crisis, which compelled European Union (EU) Member States to raise taxes rapidly to find tax revenues for financing spending, while reducing budget deficits and consolidating public finances. Introduction

3. The importance of European Tax Law • Tax policy constitutes an essential tool to face current economic and social challenges, in particular to stimulate growth, economic and monetary. • To this end, the mission letter to Commissioner Pierre Moscovici, in charge of taxation policy, specifically underlines the importance of tax systems: • 'While recognising the competence of Member States, the modernisation of tax systems is essential for delivering on the priorities of the European Semester of economic policy coordination. Reforms should involve promoting a broadening of the tax base, shifting the tax burden away from labour, improving tax compliance and addressing the debt bias in corporate and personal income taxation. All efforts should also be made to combat tax evasion and tax fraud.' • Tax policy is at a crossroads: it remains a national matter, but requires increasing cooperation and coordination at EU and international level to address specific issues and challenges. Introduction

4. European Tax Law as a legal system (1) • It has to be noted that the study of EU Tax Law imposes to understand if these EU rules can be regarded as an area of indipendent and autonomous law. • In fact, the mere existence of EU rules, aimed to regulate the procedures for taxation in each Member States, is not sufficient to assert the tangibility of such an area of law. • If these rules compose an aggregate without a functional meaning or logic connections, there should not be a systematic order of law. Introduction

5. European Tax Law as a legal system (2) • There are several elements which lead to identify a EU Tax Law as an autonomous order of law, mainly described as follows: • specific and peculiar sources of EU Law – EU Regulations, EU Directives, Recommendations – which express the capacity to regulate fiscal issues indipendently of legislative powers of the Member States; • existence of general principles and axiological values of the taxation procedures. • As a consequence these sources and principles, functionally connected to each other, indicate the existence of a systematic core which can appropiately stand as an autonomous legal sector, a sort of “jus commune” concerning tax matters and able to impose itself to national legislations. Introduction

6. European Tax Law as a legal system (3) • The existence of an autonomous and indipendent EU Tax Law is proved by listing the following guidelines of EU fiscal regulation: • removal of cutoms barriers; • protection of fundamental economic freedoms in the common market; • principle of fiscal non – discrimination; • prohibition of State aids; • preservation of national public finances; • tax harmonitazion. Introduction

7. The ratio of the European Tax Law (1) • Once it is clear that EU Tax Law constitutes a systematic legal sector, it must be explained the ratio which supports the whole system. • It must be noted that EU Tax Law deeply diverges from national fiscal regulations and principles. • In fact, the European fiscal system is built on the logic of market integration, in order to enhance the trading free competition regardless of the nationalty or the residence. • The EU Tax Law mainly aims at reducing or eliminating any form of market distortion, caused by unbalanced fiscal policies of the Member States. • The tax system has to be free of its potential load of obstruction regarding the free movements of capitals, people, goods or services (the four European freedoms), gradually transforming into a “free system” based on “neutral fiscal rules”. Introduction

8. The ratio of European Tax Law (2) • The values of the EU Tax Law, as seen, strongly differ from the tradional values which mark the national Tax Law in the Member States. • In this system is self evident the lack of a “fiscalinterest”, the need of a State to gather tax resources in order to provide social services and guarantee the growth of the civil community. • Acorrect distribution of tax burdens among taxpayers is irrilevant in the EU Tax law, although it constitutes the essence of the modern Welfare State, where the logic of national wealth redistribution is at the same time a measure of guarantee and a safeguard of the individual sphere from the public administration excesses operated for the tax burden. Introduction

9. The “negative” function of the European Tax Law • The EU Tax Law has a so called “negative” function over the Member States’ fiscal systems. • The “negative” function is the obvious outcome of the fiscal regulations enacted by the European institutions, which tend to: • limit and restrict the distortionary effect of the taxation system; • not to affect “positively” the national fiscal policies, based on wealth redistribution systems. • These aims are reached through the following system: • development of principles and binding rules which determine a limitation of the power to regulate fiscal matters for each Member State; • containment of tax sovereignty for each Member State, without replacing it. Introduction

10. The “negative” function as anti-sovereign • As higlighted, the complex architecture established by the EU Institutions leads to a correction of the imperfection of the national taxation system, erasing or neutralising all the rules which have the capability to alter market and competition. • Thus, the EU Tax Law can be regarded as an “anti-sovereign” which terminates the fiscal sovereignty of the Member States, without replacing it with a new sovereignty of their own. • The meaning of “anti sovereign” is clearly explained by the Commission with a well known Communication entitled ‘Tax policy in the European Union – Priorities for the years ahead’ (COM(2001) 0260). • In this Communication it is illustrated that each Member State is free to choose the tax system it considers most appropriate. Within this framework, the main priorities for EU tax policy and EU tax rules are only the following : “the elimination of tax obstacles to cross-border economic activity, the fight against harmful tax competition, tax evasion and tax fraud and the promotion of greater cooperation between tax administrations in ensuring control and combating fraud.” Introduction

11. Difficulties for identifying a notion of European Tax Law (1) • Even though it is possibile to describe the main characteristics of EU Tax Law, it appears complex to give it a comprehensive notion, especially if compared to the tax law as tradionally known. • As seen, there are elements which are hardly adaptable one to another: • there exists a set of regulations which undoubtly qualifies EU Tax Law as an autonomous legal system; • all the EU fiscal rules are strictly connected with the common market; • the EU Tax Law lacks of essential features of the traditional tax law such as i) constitutional values, ii) absence of a link with the States’ sovereignty, iii) possibility to regulate all the areas of the taxation phoenomenon • As a consequence, a notion of EU Tax Law must differ from the notion of tax law as it is traditionally known and studied. Introduction

12. Difficulties for identifying a notion of European Tax Law (2) • A direct consequence of the difficulties on finding a clear notion of “EU Tax Law” are the lessical doubts which arises even on its name. • According to various interpretations, the main nominalistic choices are the following: • “European Union Tax Law”, essentially indicating the relevance of the tax regulations to the competence of the EU institutions; • “Taxation Law in EU Relations”, expressing the tendential suparnational dimension of the EU tax system; • “EU International Law” bringing the taxation system of the European Union in the context of the international tax law. • However, the choice which seems more advisable is “European Tax Law” due to the fact that it combines great qualifying simplicity, didactic assertivness and a relevant axiological impetus towards the establishment of a European Union as a real federal state. Introduction

13. Some numerical data on European fiscal system (1) • In order to allow a good comprehension of the European Tax Law, it appears relevant to give some numerica data which describe the contest of the fiscal phoenomenon in the Member States. • EU-28 taxes and compulsory actual social contributions accounted for 38.7 % (1) of GDP in 2015. In general, the EU tax level is high compared to other advanced economies: around 12 percentage points of GDP above the level for the USA and 7 percentage points above that recorded by Japan (in 2014). • It is also significantly higher than the level for New Zealand (32.8 %), Canada (31.9 %), Australia (27.8 % in 2014) and South Korea (25.3 %). • Compared to its EFTA neighbours, the EU records an average tax-to-GDP ratio almost identical to that of Iceland and Norway. However, Switzerland has a lower ratio of 28.1 %. • Source: All data come from DG Taxation and Customs Union, based on Eurostat and OECD data Introduction

14. Some numerical data on European fiscal system (2) Introduction

15. Some numerical data on European fiscal system (3) • In the European Union, the role played by the EU Tax Law seems quite important due to the fact tax revenues as a percentage of GDP are very high, demonstrating the capacity of national tax policies to influence the common market. • Despite significant rises since 2010, EU-28 tax revenues as a percentage of GDP reach a plateau in 2015, with the euro area following a broadly similar trend. • Nevertheless, 22 Member States recorded an increase in tax revenue relative to GDP in 2015 compared with 2014, most notably, Lithuania (1.5 percentage points of GDP), Estonia (1.3 p.p) and Slovakia (1.1 p.p.). In six Member States tax-to-GDP fell, with the largest decreases in Ireland (- 5.3 p.p.) and Denmark (- 2.7 p.p.). The fall in Ireland coincided with a very large jump in Irish GDP (see Annex A for more details). • The level of taxation in the EU differs greatly according to the Member State (Graph 3), with Denmark, France and Belgium having the highest ratio of tax revenue to GDP (46.6 %, 45.9 % and 45.1 % respectively), and Ireland (23.9 %), Romania (28.0 %) and Bulgaria (29.0 % of GDP) the lowest. Introduction

16. Some numerical data on European fiscal system (4) Introduction

17. Conclusions • As demonstrated by the data just analyzed, the fiscal phenomenon inside the European Union constitutes an unavoidable and structural reality which has to be controlled and governed by the EU Institutions in order to ensure a correct development of the common market, on the basis of the four freedoms (free movements of capitals, people, goods or services). • The present class wants to fully examine the whole European Tax Law, starting with its sources and thus studying the most important tools through wich the EU Institutions operate as an «anti-sovereign» (VAT, ban of State aids, etc.). • Particularly, the general framework of the EU institutions is outlined, addressing a special attention to the set of regulations regarding taxation, with reference to the stage of formation of EU rules and to the potential contrast with the national legal systems. • Finally, it is proposed an overall judgement about the development of the European integration process, with particular regard to the nexus between taxation power and sovereignty and to the values of taxation matters, in order to highlight the possible and desirable next stages of the evolution of "European tax law". • The main purpose is to allow students to fully understand how EU Tax Law works and how it impacts on current juridical, social and economic issues. Introduction