2. The Role and Procedures of the European Court of Justice
The role of the ECJ is to uphold the Treaties of the European Union and to ensure that
European law is uniformly interpreted and applied throughout the Union. It has
jurisdiction in disputes involving Member States, EU institutions, businesses and
individuals. Over recent years it has played an increasingly significant role in shaping
Member States’ tax regimes.
While direct taxation remains outside the competence of the Community, the Court
has consistently reaffirmed that national tax laws must respect the fundamental
freedoms which are provided for by the EC Treaty and which seek to prohibit
discrimination based on nationality.4 If a conflict arises between Community law and
the law of a Member State, Community law prevails. If national courts experience
difficulty in interpreting Community law, they may require a ruling from the ECJ on
the issue in question.
When faced with referrals from Member States regarding the compatibility of national
tax provisions with Community law, the ECJ uses certain criteria to weigh the
measures in question. The two cornerstone principles of the ECJ’s approach to
safeguarding the EC Treaty are (1) the prohibition of discrimination, direct or indirect,
and (2) the prohibition of restrictions on the exercise of the fundamental freedoms,
which include:
- Freedom from discrimination on grounds of nationality (Article 12)
- Free movement of goods (Articles 28 and 29)
- Free movement of persons (Article 39 to 42)
- Freedom of establishment (Article 43 to 48)
- Freedom to provide services (Article 49 to 55)
- Free movement of capital (Article 56 to 60)
Any national tax measures which infringe on these freedoms are invalid unless they
can be justified by the relevant Member State.
2.1 Non-Discrimination
One of the fundamental principles in Community law is the principle of non-
discrimination. Direct discrimination involves differentiation based on nationality (of
an individual or of the corporate seat of a company), while indirect discrimination
involves differentiation based on criteria other than nationality. Once discrimination
has been identified, the next step is to determine whether that difference in treatment
can be justified on any grounds. In some instances, discrimination may be justified on
the basis of the public interest, though it has become almost impossible for Member
States to succeed in justifying measures which the ECJ has found to be contrary to the
principles enshrined in the EC Treaty.
When determining whether or not a particular measure is discriminatory, the ECJ
typically compares the situation of residents and non-residents. It is only in cases
where a resident and non-resident are in ‘objectively comparable situations’ that
discrimination may be at issue. The Schumaker case was important because it
4 By way of contrast, the EC Treaty (Article 93) contains specific provisions in relation to the
harmonisation of indirect taxes, to ensure the establishment and effective functioning of the internal
market. This has resulted in a strong harmonisation of indirect taxes, particularly VAT.