Income Tax Discrimination and the Political and Economic Integration of Europe

In recent years, the European Court of Justice (ECJ) has invalidated many income tax law provisions of EU member states as violating the guarantees of the European constitutional treaties of freedom of movement for goods, services, persons, and capital. These decisions have not, however, been matched by significant European income tax legislation, because no European political institution has the power to enact such legislation without unanimous consent from the member states. Under the treaties, the member states have retained a veto power over income tax legislation. In this Article, we describe how the developing ECJ jurisprudence threatens the ability of member states to use tax incentives to stimulate their domestic economies and to resolve problems of international double taxation. We conclude that the ECJ approach is ultimately incoherent because it constitutes an impossible quest – in the absence of harmonized income tax bases and rates throughout Europe – to eliminate discrimination based on both origin and destination of economic activity. We also compare the ECJ\u27s jurisprudence with the resolution of related issues in the U.S. taxation of interstate commerce and international taxation. Finally, we consider the potential responses of both the European Union and the United States to these developments

Integration of Corporate and Shareholder Taxes

Integration of the corporate and individual income taxes can be achieved by providing shareholders a credit for corporate taxes paid with respect to corporate earnings distributed as dividends. When such integration was previously considered in the U.S., proponents emphasized that it could reduce or eliminate many of the familiar distortions of a classical corporate income tax. Integration would also provide a framework for addressing current concerns for tax incentives for U.S. companies to shift income to foreign affiliates in lower-taxed countries or to expatriate in inversion transactions. A recent Congressional proposal for a corporate dividend deduction coupled with withholding on dividends could achieve equivalent results, while also reducing effective U.S. corporate tax rates

Income Tax Discrimination and the Political and Economic of Europe

In recent years, the European Court of Justice (ECJ) has invalidated many income tax law provisions of European Union (EU) member states as violating European constitutional treaty guarantees of freedom of movement for goods, services, persons, and capital. These decisions have not, however, been matched by significant EU income tax legislation, because no EU political institution has the power to enact such legislation without unanimous consent from the member states. In this Article, we describe how the developing ECJ jurisprudence threatens the ability of member states to use tax incentives to stimulate their domestic economies and to resolve problems of international double taxation. We conclude that the ECJ approach is ultimately incoherent because it is a quest for an unattainable goal in the absence of harmonized income tax bases and rates: to eliminate discrimination based on both origin and destination of economic activity. We also compare the ECJ\u27s jurisprudence with the resolution of related issues in international taxation and the U.S. taxation of interstate commerce, and we consider the potential responses of both the European Union and the United States to these developments