Comparative Fiscal Federalism: Comparing the European Court of Justice and the US Supreme Court's Tax Jurisprudence

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Reuven Shlomo Avi-Yonah, James R. Hines, Dr. Michael Lang
Kluwer Law International, Jan 1, 2007 - Law - 482 pages
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When one compares the recent line of cases decided by the European Court of Justice (ECJ) in the area of taxation to the US Supreme Court's treatment of state taxes under the US Constitution, the difference is striking. In general, the Supreme Court has granted wide leeway to the states to adopt any tax system they wish, only striking down the most egregious cases of discrimination against out of state residents. In contrast, the ECJ interpreted the Treaty of Rome (the 'constitution' of the EU) aggressively to strike down numerous Member State income tax rules on the ground that they were discriminatory. On the face of it, this contrast is surprising. After all, the ECJ is dealing with fully sovereign countries, and taxation is one of the primary attributes of sovereignty. Moreover, the authority of the ECJ to strike down Member State direct taxes is unclear. The Treaty of Rome generally reserves competence in direct taxation to the Member States, and all EU-wide changes in direct taxation have to be approved unanimously by all 25 Member States. Nevertheless, the ECJ has since the 1980s interpreted the 'four freedoms' embodied in the Treaty of Rome (free movement of goods, services, persons and capital) to give it the authority to strike down direct tax measures that it views as incompatible with the freedoms. The Supreme Court, on the other hand, has clear authority under the Supremacy Clause to strike down state laws that are incompatible with the Constitution. As Justice Oliver Wendell Holmes observed, the US will not be hurt if the power to review federal laws were taken away from the Court, but it could not survive if the Court lost its power over state legislation. Moreover, the states are not fully sovereign, and (unlike Member States that are represented in the EU Council), are not even directly represented in Congress, so that the Court could strike down their laws without (in most cases) expecting an outcry from the other branches of the federal government. In light of the foregoing, Comparative Fiscal Federalism: Comparing the European Court of Justice and the US Supreme Court's Tax Jurisprudence will focus on two intriguing aspects of importance to tax practitioners as well as policy makers: What is the explanation for the contrast? Given this divergence of political context, what can the ECJ and the Supreme Court learn from each other's tax jurisprudence?

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Contents

7
1
Ensuring Single Taxation as a Justification for Different
3
Constitutional Tax Principles and Community Legal Order
7
H Is There an Obligation for Member States to Avoid Double Taxation?
14
The Impact of Tax Treaties on the Freedoms
24
Does the ECJ Impose Requirements for the Contents
31
MostFavoredNation Treatment?
42
Responsibility of Member States Concluding Tax Treaties
49
Comparative Case Law
237
Conclusion
260
Company Taxation in the European Court of Justice
268
Implications of the ECJ Decisions
279
The Fork in the Road
296
Similarities and Differences
304
Conclusion
318
Beyond the Requirement of Equal Treatment Prohibition
324

Chapter3
55
The Nondiscrimination Rules Laid Down in the EC Treaty
58
PP
67
31
73
Selected
84
Conclusion
118
Chapter 10
124
HI Tax Assignment and the Design of Subnational Corporate
141
The Role of Residencebased Subnational Taxation
154
State Corporation Income Taxes in the US
170
Concluding Remarks
190
EU vs US Federalism
199
Principles of Intemational and Interstate Taxation
213
Judicial Limitations on Member State Tax Sovereignty
227
Conclusion
330
The Community Law Principle of Equal Treatment MostFavored
349
The Income Tax Case Law of the European Court
361
MostFavoured Nation Principle and Intemal Market Some
401
The Purpose of Tax Treaties
408
Impact of the European Cases on US Tax Treaties
417
Eliminating Tax Treaty Conflicts Through Harmonization
427
A Multilateral Tax Treaty
443
Impediments to a Multilateral Treaty
455
Conclusion
463
Contributors
471
401
478
Copyright

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About the author (2007)

Hines is Professor of Business Economics and Research Director of the Office of Tax Policy Research at the University of Michigan, and a research associate of the National Bureau of Economic Research.

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