Breaking Borders? The European Court of Justice and Internal Market

53 Pages Posted: 18 Nov 2020

See all articles by Christoph Spengel

Christoph Spengel

Centre for European Economic Research (ZEW)

Leonie Fischer

ZEW – Leibniz Centre for European Economic Research

Kathrin Stutzenberger

University of Mannheim

Date Written: 2020

Abstract

Upon more than 400 judgements on direct taxation, the case law of the European Court of Justice has considerably shaped Member States’ tax systems. Based on Member States’ tax law adjustments in the context of four landmark rulings on corporate income taxation, we analyse whether case law is a suitable instrument to eliminate tax distortions towards the realisation of a European internal market. Our analysis is based on effective tax burdens using the Devereux/Griffith methodology. Overall, we find that due to Member States’ mostly heterogeneous adjustments and varying levels of compliance, cross-border investment continues to be discriminated in some Member States following the Marks & Spencer and National Grid Indus judgements. In addition, differences in the general availability of the rules under scrutiny and design of related provisions, cross-country differences in effective tax burdens and hence distortions to the internal market might persist. We conclude that a comprehensive harmonisation of Member States’ tax systems by way of positive integration would be necessary to sustainably eliminate tax obstacles to cross-border business activities.

Keywords: European Court of Justice, Internal Market, Effective Tax Rates, Thin Capitalisation Rules, Cross-Border Loss Relief, Controlled Foreign Company Rules, Exit Taxatio

JEL Classification: H25, K34

Suggested Citation

Spengel, Christoph and Fischer, Leonie and Stutzenberger, Kathrin, Breaking Borders? The European Court of Justice and Internal Market (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-059, Available at SSRN: https://ssrn.com/abstract=3732064 or http://dx.doi.org/10.2139/ssrn.3732064

Christoph Spengel (Contact Author)

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany

Leonie Fischer

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Kathrin Stutzenberger

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

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