Income Tax Discrimination: Still Stuck in the Labyrinth of Impossibility

46 Pages Posted: 8 Sep 2011 Last revised: 13 Dec 2011

See all articles by Michael J. Graetz

Michael J. Graetz

Columbia Law School; Yale Law School

Alvin C. Warren

Harvard Law School

Date Written: September 6, 2011


In previous articles, we have argued that European Court of Justice’s reliance on nondiscrimination as the basis for its decisions did not (and could not) satisfy commonly accepted tax policy norms, such as fairness, adminstrability, production of desired levels of revenues, avoidance of double taxation, fiscal policy goals, inter-nation fiscal equity, and so on. In addition, we argued that the Court cannot achieve consistent and coherent results by requiring nondiscrimination in both origin and destination countries for transactions involving the tax systems of more than one member state. We demonstrated that - in the absence of harmonized income tax bases and rates - the Court had entered a “labyrinth of impossibility.” Ruth Mason and Michael Knoll claim to have discovered a single, normative criterion that not only resolves this dilemma, but also explains the existing nondiscrimination tax jurisprudence of both the European Court of Justice and the United States Supreme Court. In fact, their crucial, but unrealistic, assumption that taxpayers can never move from one state to another confines the actual scope of their analysis to a very small set of cases involving cross-border workers. Although they endorse economic efficiency as the guidestar for judicial decisions regarding tax discrimination, Mason and Knoll fail to provide any evidence that their proposed norm would reduce tax-induced distortions more than competing norms, even in the limited situations to which their analysis applies. Nor do they make a convincing case that they have found the key to understanding the confusing and inconsistent U.S. and EU judicial decisions, which are not confined to cross-border workers. Finally, implementation of their proposed norm by legislation or litigation is not practical, given the particular tax systems that they say would be required. In short, their proposed norm does not provide a way out of the “labyrinth of impossibility” created by a nondiscrimination approach to taxation of international transactions.

Keywords: taxation, discrimination, European Union, European Court of Justice

JEL Classification: F15, H20, H24, H25, J00

Suggested Citation

Graetz, Michael J. and Warren, Alvin C., Income Tax Discrimination: Still Stuck in the Labyrinth of Impossibility (September 6, 2011). Yale Law Journal, Forthcoming, Columbia Public Law Research Paper No. 11-282, Harvard Public Law Working Paper 11-24, Available at SSRN:

Michael J. Graetz (Contact Author)

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States


Alvin C. Warren

Harvard Law School ( email )

1575 Massachusetts
Hauser Hall 308
Cambridge, MA 02138
United States

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