“European tax law” is not a tax of its own kind, such as corporate tax. Rather, this means supranational requirements of European law, which are important for the design of national tax systems. These European laws can affect national tax standards in different ways. For example, the European Union can harmonize national tax law through legal acts that partially replace national tax law. Furthermore, even in the non-harmonised area, European law principles restrict the exercise of tax sovereignty. This contribution deals with the competence of the European Union to harmonise national tax standards.

The primary objective of the European Union is to achieve an internal market between the Member States. For this purpose, the European legislator has the competence to harmonise other areas of tax law (Art 113, Art 115 f. TFEU). Union law is divided into primary and secondary law. Primary law refers to the founding treaties TFEU and TEU. Secondary Union law, on the other hand, encompasses the rules adopted by the European Union. Primary Union law gives the EU competence to standardise, approximate and coordinate the law of the Member States through secondary Union law. The EU is bound by the principle of limited powers (Article 5 I, II TEU). This means that the European Union has no more rights than the Member States have conferred on it. It has no competence to acquire further competences (competence-competence).

Acts of tax harmonisation shall be adopted regularly by the Council, acting unanimously on a proposal from the Commission, after consultation of the European Parliament and the Economic and Social Committee.

According to Art. 288 I GG, the EU can adopt regulations, directives, decisions, recommendations and opinions as legal acts. A regulation becomes directly applicable law in the Member State. Consequently, individual EU citizens can invoke the regulation directly. A directive, on the other hand, requires transposition by the national legislature. EU citizens can only invoke the directive under certain conditions. In particular, Commission decisions on State aid are taken through decisions. Decisions may be addressed to a specific addressee and in this case shall be binding only on that addressee. National tax law is generally harmonised by directives. Insofar as the national law of a directive is already sufficient when it is introduced, no separate transposition measure is required. Harmonised law shall be interpreted in accordance with the Directive. Consequently, where a standard is ambiguous, the relevant interpretation is that which is compatible with the underlying directive.

Effect of a Directive as Harmonisation

A direct effect of the directive with priority over a provision contrary to the directive is not provided in itself. In the course of legal training, however, the ECJ developed this. The precondition is that the directive is unconditional and sufficiently clear. Direct application of the Directive can only be envisaged in relation to the Member State of the private legal entity. Priority must also be given to checking whether an interpretation compliant with the Directive is possible.

If national law falls short of Directive law due to lack of timely or proper legal implementation, the Directive requirements in the specific individual case in favour of the taxpayer must be observed under these conditions. However, the directive does not provide the tax administration with a basis for taxation that is more stringent than the actual legal situation. Therefore, contrary to directives, tax law norms are inapplicable only to the detriment of the Treasury. Nevertheless, according to BFH, if the taxpayer wants to invoke a more favorable directive, he has to accept systematically linked for him unfavorable regulations. For example, the taxable person who invokes the VAT exemption under the Directive must, in return, apply the exclusion of the VAT deduction, so that an adjustment of the VAT deduction may be necessary. Nevertheless, the immediate application of the directive presupposes that the related effects of relief and relief are more favourable to taxable persons than they would be without the application of the directive.

In the area of comprehensively harmonised tax law, there is the possibility of enacting so-called tertiary law through secondary law transfer of substantive legislative powers to the Commission and the Council. The Commission may be empowered to supplement or amend non-essential elements of a secondary act by means of delegated acts (Article 290 TFEU). In addition, the Commission or the Council may be empowered to adopt implementing provisions on secondary acts (Article 291 II TFEU). As an example of the latter territorial law, the VAT Implementing Regulation 282/2011 can be cited. By contrast, delegated acts within the meaning of Article 290 TFEU have not yet had any meaning in the field of tax law.

According to the conception of the founding Treaties of the European Community, the institutions of the Community were not substantively bound by the principles of the rule of law in the exercise of their powers. This was rather only made clear in the context of a German referral procedure before the ECJ. This highlighted the relevance of Community harmonisation acts to fundamental rights. This led the ECJ to develop a catalogue of fundamental rights by way of legal training. The primary legal status of this catalogue of fundamental rights was then confirmed by Article 6 III TEU. Consequently, infringements of secondary law provisions which cannot be justified and for which an interpretation of secondary law in accordance with primary law is not possible lead to nullity of the secondary law provision. The harmonisation of the current national law by this standard is also not possible.

The Commission and the Council regularly express their views in official declarations aimed at promoting certain tax standards. These are recommendations and opinions (Art. 288 V TFEU). However, these declarations are not legally binding. Rather, the institutions set out their understanding of certain provisions of primary or secondary law. These are therefore acts interpreting standards. In addition, there are so-called discretionary guidelines, in which the Commission is guided by the criteria by which it exercises discretion conferred on it by primary or secondary law. Documents interpreting standards can be used by the ECJ to interpret provisions of EU law. They may also serve as a basis for legitimate expectations. In the latter case, the taxable person may also invoke that legitimate expectation and assume that his case will be treated as such.

The courts of the EU decide on the interpretation of taxation-relevant primary and secondary law. They have a monopoly on the rejection of Union acts contrary to primary law. The decisions of the ECJ have fundamental significance in the context of negative integration. This means assessing national law with regard to fundamental freedoms.

Despite the mentioned harmonization possibilities, the harmonization competence in tax law is only limited. The reason for this is again the principle of limited individual authorisation. Article 113 TFEU grants the EU only the competence to harmonise indirect taxes.

For direct taxes (e.g. income tax, corporate tax, business tax) such competence is expressly not provided. In order to achieve harmonisation, general powers must be used. Article 115 TFEU provides for such competence only under very limited conditions. Competence can only be exercised unanimously. This means that all Member States must agree. In the context of direct taxes, however, the Member States want to decide for themselves. Furthermore, only directives can be adopted within this framework. These must also have a direct impact on the establishment or functioning of the internal market. To sum up, the competence to harmonise direct taxes is very limited and scarcely perceived. The same applies to indirect taxes. Sales tax law in particular is actually fully harmonised.