What is Tax Discrimination?
University of Virginia School of Law
Michael S. Knoll
University of Pennsylvania Law School; University of Pennsylvania - Real Estate Department
Yale Law Journal, Vol. 121, Pg. 1014, 2012
U of Penn, Inst for Law & Econ Research Paper No. 12-17
Prohibitions of tax discrimination have long appeared in constitutions, tax treaties, trade treaties and other sources, but despite their ubiquity little agreement exists as to how such provisions should be interpreted. This has led prior commentators to conclude that tax discrimination is an incoherent concept. In this Article, we argue that in common markets, like the European Union and the United States, the best interpretation of the nondiscrimination principle is that it requires what we call “competitive neutrality,” which prevents states from putting residents at a tax-induced competitive advantage or disadvantage relative to nonresidents in securing jobs. We show that, contrary to the prevailing view, maintaining a level playing field between resident and nonresident taxpayers requires neither tax rate harmonization nor equal taxation of residents and nonresidents. Our approach produces simple rules of thumb that provide states and courts with clear direction in writing tax laws and evaluating challenges to those laws.
Number of Pages in PDF File: 104
Keywords: tax discrimination, capital export neutrality, capital import neutrality, capital ownership neutrality, European Court of Justice, Schumacker, Gerritse, de Groot, competitive neutrality
JEL Classification: H20, H24, J61, K34Accepted Paper Series
Date posted: March 27, 2011 ; Last revised: April 12, 2012
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