Optimization of Tax Sovereignty and Free Movement

This book examines the conflict between tax sovereignty and free movement in the light of ECJ case law.

Winner of the 2012 Dissertation Prize awarded by the Dutch Association for Tax Research (Vereniging voor Belastingwetenschap).

Why this book? 

Tax scholars are heavily divided over the question whether the European Court of Justice is doing a good job in deciding EU direct tax cases. It would either go too far, not go far enough or hand down case law which is internally inconsistent. This book makes an attempt to structure the discussion and to improve the way in which the case law is criticized, by taking a step back and looking at the issue from an external perspective.

The book argues that the notions of tax sovereignty and EU free movement should be regarded as two fundamentally equal principles. The conflict between these two principles is resolved by establishing, in individual cases, the optimum position between two extremes: a general unrestricted freedom of action by states versus a prohibition of any obstacle to the free movement of goods, persons, services and capital. The process of reconciliation of these competing principles is structured by the theoretical optimization model developed in the present study. This model is external to the present case law.

The application of the theoretical optimization model to the ECJ’s case law in the area of direct taxation reveals that this case law is largely in line with the model. It is certainly not as internally inconsistent as claimed in some of the tax literature. Many jigsaw pieces seem to fit after all if the case law is assessed in the light of the model. A number of future developments could be expected on the basis of the model and extensive case law analysis. The most important of these is that, in some cases, truly non-discriminatory tax measures should give rise to a prima facie restriction on free movement.