What is Tax Discrimination?

104 Pages Posted: 27 Mar 2011 Last revised: 12 Apr 2012

See all articles by Ruth Mason

Ruth Mason

University of Virginia School of Law

Michael S. Knoll

University of Pennsylvania Carey Law School; University of Pennsylvania Wharton School -- Real Estate Department


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.

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, K34

Suggested Citation

Mason, Ruth and Knoll, Michael S., What is Tax Discrimination?. Yale Law Journal, Vol. 121, Pg. 1014, 2012, U of Penn, Inst for Law & Econ Research Paper No. 12-17, Available at SSRN: https://ssrn.com/abstract=1647014

Ruth Mason (Contact Author)

University of Virginia School of Law ( email )

United States

Michael S. Knoll

University of Pennsylvania Carey Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-898-6190 (Phone)
215-573-2025 (Fax)

University of Pennsylvania Wharton School -- Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

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