- the effectiveness of fiscal supervision/administrative difficulties;35
- the absence of reciprocal treatment under a double tax treaty: Treaty rights
are unconditional and cannot be made subject to the contents of a tax
treaty.
- aims of a purely economic nature, such as the intention to promote the
economy of the country by encouraging investment by individuals in
companies with their seat in that country.
- other advantages enjoyed by the person suffering from the restriction.
Other than in the Marks & Spencers case, where the ECJ accepted a combination of
three justifications (broadly: territoriality, cohesion of the tax system and tax
avoidance), ECJ decisions have almost invariably privileged EU rules on the freedom
of capital movements over the attempts of national Finance Ministries and Tax
Authorities to protect their corporate tax bases. Indeed challenges brought by
taxpayers have had a success rate of more than 90 percent. These decisions therefore
have potentially strong effects in facilitating and supporting further FDI flows and the
transnationalisation of companies across the EU.36
The need to uphold Community law is the foundation stone for ECJ decisions which
appear to encroach on the realm of Member States’ sovereignty in relation to direct
taxation matters. The ECJ does however recognise that “it is neither the intention nor
the avowed aim of Community law to call in question the limits inherent in any power
of taxation, or to disturb the order of priority of the allocation of tax competences as
between Member States ... and, in the absence of Community harmonisation, the
Court is not competent to interfere in the conception or organisation of the tax
systems of the Member States”.37
ECJ judgements in these matters however have served to increase pressures for tax
harmonisation at the EU level and have strengthened the determination of certain EU
member states to push ahead with proposals for a Common Consolidated Corporate
Tax Base.
35 In Futura (Case C-250/95; 1997; ECR I-2471) the justification on the effectiveness of fiscal
supervision was accepted in principle but the particular measure failed the proportionality test.
36 Pavelin and Barry (2005) provide evidence on the geographic diversification (“transnationalisation”)
across the EU of the 300 or so largest manufacturing firms in Europe in 1987 and 1993. They show
that the coming-into-being of the Single Market coincided with an increase in the number of these
firms that were multinational (i.e. had production bases in other EU countries) and in the geographic
diversification of firms that were already multinational. As predicted by the theory of the multinational
corporation, furthermore, firms in R&D-intensive and advertising-intensive sectors were found to
produce in a broader range of countries than firms in other sectors.
37 Bachmann (Case C-204/90) [1992] ECR I-249, para.23.
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