Taxation in European Union

Taxation—or more precisely the regulation of tax relations—is a distinctive feature of the institutional systems, since it is essential for the effective implementation of functions related to sovereignty. In fact only the actual availability of material resources—and specifically the financial resources—may help to achieve the purposes of government that the holder of sovereign power is required to seek. It seems so unquestionable in the general perception that the power of taxation is one of the closest features of the sovereignty, in order to make a decisive contribution to its own characterization under an ideological profile.

The sources of European law can be distinguished essentially in two basic types:

The Court of Justice of the European Union (also referred for convenience as the “ECJ”) has the function of ensuring the uniform interpretation and application of EU law in all the Member States (“nomophylactic” function).

The first essential value related to tax matters in the European legal order may be identified in the abolition of the national borders in order to permit the freedom of circulation of goods and services in the common market.

It is well known that the underlying reasons of the accession to the supranational organization established by the European Union is to be found typically in the principle of the unity of the market and, consequently, in the assertion of freedom of movement.

A central role into the European Union in the field of taxation can be certainly attributed to the principle of non-discrimination.

Among the values outlined in the EU legal system it is specifically relevant the general interest in the proper application of the taxation systems of the national States, which qualifies as a specific interest of the European Union to be considered with precedence over the single interest of the nation-State and the peculiar interests of groups or categories of economic operators.

A primary principle of EU taxation system is represented by the harmonization of taxes which is explicitly stated in the art. 113 TFEU (formerly art. 93 of the Treaty of Maastricht and art. 99 of the Treaty of Rome). In this rule it is defined the aim of the harmonization of the laws of the Member States in function to the turnover tax, the consumption tax and other indirect taxation to the extent that harmonization is necessary to ensure the establishment and functioning of the common market.

One of the issues with respect to which is more important the problem of resolving conflicts between national law and EU law is the provision of financial differentiated treatments arranged and facilitated by a Member State in favour of certain categories of domestic enterprises or economic activities.

The topic of “harmful tax competition” has been for many years one of the main arguments used by international organizations (and therefore not only by the EU) to assess the compliance of decisions taken by the individual States in relation to the tax advantages with respect to the development purposes and even to the peaceful coexistence of the States in the international context.

In addition to the rules and principles explicitly stated in the rules of the Treaty it may be recognised a number of principles with an implicit character—and therefore not formalized and expressed in specific EU rules—which take still a primary importance in the axiological plot of the European legal order.

In the modern State the connection between sovereignty and taxation is one of the crucial points of the constellation of values defined at the constitutional level. The sovereignty, which is expressed in constitutional and pluralist democracies using the regulatory powers related to the primary interests and needs of community life according to a logic of balancing and weighting of the conflicts of interest, involves the management of the necessary financial resources as an essential tool for the realization of the general aims. The taxation, which is the key stage of the formation of public financial resources, is presented as well as a basic element of the institutional organization of the social community, as an indispensable condition for achieving the basic collective purposes, including the protection and the development of primary individual rights. In this perspective, taxation can be represented as a kind of transcendental condition of common life, not only aimed at the achievement of the overarching goals of freedom, security and development defined in the constitutional table, but also directly instrumental to the self-realization of the personality of each individual in the social community.