Income Tax Discrimination: Still Stuck in the Labyrinth of Impossibility

By Graetz, Michael J.; Warren, Alvin C., Jr. | The Yale Law Journal, March 2012 | Go to article overview

Income Tax Discrimination: Still Stuck in the Labyrinth of Impossibility


Graetz, Michael J., Warren, Alvin C., Jr., The Yale Law Journal


ESSAY CONTENTS

INTRODUCTION

I. EFFICIENCY AS THE NORM

II. THREE EFFICIENCY STANDARDS FOR INTERNATIONAL TAX NEUTRALITY

Ill. THE ASSUMPTION THAT TAXPAYERS CANNOT CHANGE RESIDENCE

IV. THE NORMATIVE CASE FOR COMPETITIVE NEUTRALITY

V. THE TAX LAW REQUIREMENTS OF COMPETITIVE NEUTRALITY

VI. THE PROPOSED CONSTITUTIONAL VERSION OF COMPETITIVE
NEUTRALITY

VII. THE POSITIVE CLAIM FOR COMPETITIVE NEUTRALITY

VIII. COMPETITIVE NEUTRALITY AS A WAY OUT OF THE LABYRINTH OF
IMPOSSIBILITY

CONCLUSION

INTRODUCTION

The foundational treaties of the European Union establish a unique system of government. (1) In general, they leave decisions about how to levy income taxes and at what rates to the member states. If the member states agree unanimously--a rare occurrence indeed--the European Commission, Council, and Parliament can together issue income tax directives, but so far these few directives have been limited to rather technical matters. (2) Within Europe, as elsewhere, cross-border transactions involving income taxation are also governed by an extensive network of bilateral income tax treaties that, while reflecting many common principles, often vary in their details. (3)

In this context, the European Court of Justice (ECJ) is charged with ensuring, to the extent appropriate and practicable, that the member states' income tax laws do not interfere unduly with the "four freedoms" guaranteed by the Treaties: free movement of goods, (4) services, (5) labor, (6) and capital. (7) These freedoms of movement were intended to create an economic market relatively free of internal barriers, as well as greater social and political union within Europe.

There is considerable tension inherent in this structure, in which each member state retains a veto over European income tax legislation, including proposals that would promote the cohesion of the internal market, while the ECJ reviews the tax laws of the member states to ensure that they do not violate the Treaties' guarantees of free movement. The national income tax laws at issue vary across the Union, generally providing an important source of revenue and implementing national distributive and economic policy goals in light of each member state's economic and social conditions, as well as internal political dynamics and conflicts. Variations in income tax laws and rates across Europe affect taxpayers' decisions about where to work, live, and invest, as well as tax planning efforts about where to locate income and deductions to minimize income tax burdens. (8)

In the 1980s, the European Court of Justice began deciding income tax cases with an aim to strengthening the Union and to limiting the member states' ability to favor their own residents or to favor domestic over foreign investments? Although there is considerable doctrinal confusion in the decided cases, the essential construct used by the ECJ to achieve its goals is the concept of discrimination against cross-border transactions as compared to purely domestic transactions. (10) While a number of commentators, including us, have criticized these decisions as being incoherent in terms of tax policy, doctrinally confusing, sometimes conflicting, and constitutionally questionable in terms of democratic decisionmaking, those decisions have no doubt contributed to the economic, social, and political union in Europe?' In recent years, the European Union has expanded to twenty-seven members, enlarging the membership of the court and creating even greater diversity among the member states' economies and income tax laws. After that expansion and the rejection of a proposed European constitution, the court has become less aggressive in striking down aspects of member states' income tax laws, accepting justifications offered by the member states that in earlier times the court would have rejected. (12)

Competition in Europe has had a notable effect on income tax structures and rates in the member states. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Income Tax Discrimination: Still Stuck in the Labyrinth of Impossibility
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.