Income Tax Discrimination and the Political and Economic Integration of Europe

70 Pages Posted: 24 Feb 2006

See all articles by Alvin C. Warren

Alvin C. Warren

Harvard Law School

Michael J. Graetz

Columbia Law School; Yale Law School


In recent years, the European Court of Justice (ECJ) has invalidated many income tax law provisions of EU member states as violating the guarantees of the European constitutional treaties of freedom of movement for goods, services, persons, and capital. These decisions have not, however, been matched by significant European income tax legislation, because no European political institution has the power to enact such legislation without unanimous consent from the member states. Under the treaties, the member states have retained a veto power over income tax legislation. In this Article, we describe how the developing ECJ jurisprudence threatens the ability of member states to use tax incentives to stimulate their domestic economies and to resolve problems of international double taxation. We conclude that the ECJ approach is ultimately incoherent because it constitutes an impossible quest - in the absence of harmonized income tax bases and rates throughout Europe - to eliminate discrimination based on both origin and destination of economic activity. We also compare the ECJ's jurisprudence with the resolution of related issues in the U.S. taxation of interstate commerce and international taxation. Finally, we consider the potential responses of both the European Union and the United States to these developments.

Keywords: income tax, discrimination, Europe

JEL Classification: H20, H25, H71, H87, K34, P50, O52

Suggested Citation

Warren, Alvin C. and Graetz, Michael J., Income Tax Discrimination and the Political and Economic Integration of Europe. Yale Law Journal, Vol. 115, pp. 1186-1255, April 2006, Available at SSRN:

Alvin C. Warren (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser Hall 308
Cambridge, MA 02138
United States

Michael J. Graetz

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


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