The jurisprudence of the European Court of Justice on direct taxation and the rule of reason doctrine: Preserving consistency between the principles of community law and international taxation

This dissertation critically reviews the decisions of the European Court of Justice to date in the area of direct taxation. Recent decisions of the Court have considered the interaction of national tax measures enacted by EC member states with the provisions of the EC Treaty.; It is argued that the non-discrimination principles developed by the European Court of Justice in its jurisprudence concerning direct taxation have been interpreted so broadly that they have the potential to lead to inconsistencies in their application, resulting in indeterminacies in the resolution of conflicting jurisdictional tax claims. From the perspective of the EC member states, these developments have restricted their ability to structure their national tax systems so as to enable them to fully exercise their taxing jurisdiction in accordance with fundamental international tax policy principles. The ability of member states to enact international anti-avoidance rules, and thus to protect their domestic tax base, has been significantly curtailed, as has their ability to rely on tax policy as an economic measure in pursuing national savings, spending or investment incentives. From the perspective of taxpayers, the Court's jurisprudence has created considerable uncertainty in the application of national tax measures, which ultimately results in increased litigation costs and potentially in unequal treatment of taxpayers in comparable circumstances. Moreover, despite the Court's broad interpretation of the EC Treaty fundamental freedoms, it has, to date, failed to extend the non-discrimination principle to prohibit economic double taxation, arguably one of the most significant impediments to cross-border employment, establishment and capital investment.; These results have the potential to significantly impede the harmonization of direct taxation within the European Community by virtue of the disparate response of EC member states to the judicial decisions rendered by the Court. The provisions of the EC Treaty specifically reflect the reluctance on the part of member states to harmonize their corporate and personal income tax systems.; While the Court has developed a "rule of reason" doctrine, pursuant to which discriminatory or restrictive national tax measures may be justified in exceptional circumstances, it has interpreted these circumstances extremely narrowly. A more expansive interpretation to the potential grounds of justification that the Court has considered to date in its rule of reason doctrine is warranted, pursuant to which a more pragmatic and reasoned test would be applied, which takes into account the specific objectives of the particular national tax measure under consideration within the framework of accepted international tax policy and other relevant principles. In the absence of a formal method of resolving cases involving direct taxation pursuant to the judicial non-discrimination principle under Community law, the Court must judge each case on its merits under the rule of reason doctrine, balancing the extent to which the particular fundamental freedom at issue is infringed (which, by its very nature, would entail an evaluation of how serious the contravention is and the effects thereof) with the implications of a finding that the national tax measure contravenes Community law. This balancing approach must, of necessity, include an analysis of the resultant budgetary and revenue consequences and tax policy principles such as neutrality, inter-nation equity (and, in particular, the appropriate allocation of taxing jurisdiction between EC member states), administrative simplicity and legal certainty.; In reaching this determination, it is argued that the Court must have regard to its own institutional limits, recognizing in applying the rule of reason test that even if the domestic tax provision at issue may restrict the fundamental freedoms in a significant manner, the effects of a ruling that the measure contravenes Community...