In principle, nationals of other Member States (or companies) should not be treated worse than their own nationals. If, however, nationals of other Member States are in a worse position than their own nationals, there is discrimination. Discriminatory discrimination constitutes discrimination and thus violates the prohibition of discrimination and restriction. A distinction must then be made between open discrimination, hidden discrimination and restrictions. How the prohibitions in conjunction with freedoms affect tax law is examined in this article.

According to Articles 49 and 63 TFEU, open discrimination, hidden discrimination and restrictions on the free establishment and free movement of capital are prohibited in principle.

Open discrimination occurs when the actual link to nationality results in unequal treatment of nationals of other Member States which is unequal. National standards must therefore not, in principle, discriminate against nationals of other Member States. In the case of companies, nationality is replaced by membership of the legal system of another Member State and thus, as a rule, by the registered office of the company.441 If, on the other hand, a norm does not adhere to nationality, but only or predominantly impedes foreigners, there is hidden discrimination.[442]

In addition to open and hidden discrimination, restrictions on fundamental freedoms are inadmissible. The restriction of a fundamental freedom does not require an explicit legal prohibition. Restrictions are, according to the case-law, already those measures which “prevent, hinder or render less attractive” the exercise of free establishment or the free movement of capital. Since the requirement in such cases is not directly linked to nationality, a cross-border and a domestic situation are compared with each other (couple of comparisons).[444]

2. Restriction of fundamental freedoms by taxation

First of all, it should be noted that there is no clear dividing line between hidden discrimination and restriction.[445] In practice, such a strict distinction is also not necessary, since fundamental freedoms equally prohibit hidden discrimination and restrictions and measure them by a uniform standard of justification.[446] Therefore, the ECJ in its recent decisions on national de-integrating standards primarily only examines the restriction of fundamental freedoms, because such a restriction inevitably leads to covert discrimination, while (concealed) discrimination does not yet constitute a restriction.

If the transfer of assets, the departure or the cross-border conversion triggers a de-integrating tax, while such taxation is omitted in the case of purely domestic material conduct, there is a disadvantage in cross-border situations. The associated liquidity disadvantage is likely to deter the Union citizen or the Union company from the intended action and, according to settled case-law, constitutes a restriction of fundamental freedoms.[447]