date | theme

04. June 2020 | The Merger Directive and the EU’s Freedom of Establishment & Capital Movement

18. April 2021 | Parent-Subsidiary Directive: provisions and implementation according to § 43b EStG

23. August 2021 | Harmonization competence: influence of the European Union on national tax legislation

23. September 2021 | EU directive DAC 6: reporting obligation against international tax arrangements

01. November 2021 | Tax deduction obligation according to § 50a EStG: Changes bring procedural tightening!

09. December 2021 | Rights of the EU: What competences must Member States hand over? (this contribution)

EU law precedes national law. However, as so often, there are exceptions. Because in part, the ECJ or the EU Commission only issues hints or recommendations to the members. In addition, member states can conclude double taxation agreements with other states within the framework of European regulations, through which they can restrict taxation rights.

At the beginning, it is important to consider the legal conditions in the EU. In particular, the different legal sources are central to understanding the hierarchy of different foundations within the EU. In addition, so-called EU law lies like a cloak around national legal laws.

First of all, EU law can now be classified into three levels or three levels of law. Primary law lies at the highest level, which is tantamount to the hierarchy and thus also the importance for the Member States. This is divided into international treaties concluded since the beginning of the European Union, including the Treaty on European Union (TEU) and its functioning (TFEU). In addition, the Charter of Fundamental Rights (GrCh) under Article 6(1) TEU and the general legal principles under Article 6(3) TEU apply thereto. General legal principles are the European Convention on Human Rights (ECHR) and national laws and constitutions.

The tax-relevant principles of the EU include, among other things, the fundamental freedoms regulated under primary law. In particular, the free movement of capital, the free movement of goods, the free movement of workers, the freedom of establishment and the freedom to provide services. In addition, state aid law and the fundamental rights of the European Union also count as tax-relevant regulations.

Primary law is one of the rules that must be directly applied by the Member States and which each Member State agrees upon entering the EU.

Primary law of the European Union obliges secondary law. This is often referred to as secondary law under Article 288(1) TFEU. The legal bodies of the European Union can exercise significant influence on the individual Member States and their legislation through directives, regulations, decisions and individual measures. You may also issue recommendations and opinions under Article 288(5) TFEU. These two measures, also through their membership of the so-called soft law, only give guidelines, i.e. represent non-binding means.

However, the individual measures must still be categorized according to their binding nature. Because the regulations are, for example, directly valid for the states of the EU. Whereas directives set only one objective as attainment, leaving the national legislature with power over the measures taken to achieve the objective. Moreover, decisions are not valid for the whole Community, but rather for individual states or groups.

Finally, it is still necessary to consider territorial law at the level of the EU legal order. This right lies with the European Commission under Article 290 TFEU, but it is of secondary importance for tax matters. It is therefore also clear that tertiary law plays a very minor role in tax law, but also in the general legal structure of the European Union.

Now the EU as a supranational framework has not only internal treaties and rights, but also with other states from Europe. This is because the EEA Treaty, which applies between the EU and the EFTA states, i.e. Norway, Iceland and Liechtenstein, is often addressed. Here, the fundamental freedoms are extended by decision of the European Court of Justice (ECJ) to these countries and are also valid there.

In addition, there is the so-called Free Movement Agreement with Switzerland, which is currently not extended and the talks for a new agreement have not yet been successfully concluded.

Now it is necessary to classify EU rights, in particular regulations and directives. The relationship with national laws is of particular importance in the application of the law. A clear priority of European law over national constitutions must be observed. Thus, laws that violate EU law would not apply to taxpayers, but would not be null and void. This results from the transfer of the sovereignty of the Member States. Without this harmonisation, uniform treaty objectives would not be possible.

It is also important to know that, if a regulation within the Union takes precedence, national law will remain in force. However, this only happens provisionally if the European law regulation is eliminated or amended and thus no vacuum arises.

It should be noted that national law always requires an interpretation in accordance with EU law. Primary law and regulations in particular are directly applicable, as already mentioned above. With regard to secondary legislation, the Member States have a duty to transpose it up to a certain deadline. One can cite, for example, the parent-subsidiary directive according to § 43b EStG or the interest and license fees directive according to § 50g EStG as well as the ATAD directive or the ATAD implementation law.

Since EU law is subject to application priority or the preferred consideration is used, the following national laws and regulations must also be considered.

Because at the national level first of all the Basic Law applies, i.e. the constitution valid in Germany. Subsequently, formal federal laws are to be applied and lastly, statutory ordinances and statutes of the Federation apply. Among them are the state laws. The same application rank applies here as at federal level.

Due to the court decisions on Solange I, II, Maastricht, Lisbon as well as ESM, ECB and Right to Forget I and II, the area of competence was negotiated between the ECJ and the BVerfG at various stages.

First of all, Solange I decided that the German Basic Law (GG) is relevant for secondary law. This was with the proviso that an equivalent protection measure introduced at EU level will change this. In addition, Solange II has been assured by the ECJ that the decisions at European level are also in line with the GG. As a result, however, the decision-making power was withdrawn from the BVerfG and raised at EU level.

In the third phase for the development of the relationship between the ECJ and the BVerfG, a so-called cooperation relationship between the two institutions was established. However, the BVerfG has special rights that restrict the application priority of the ECJ. If it exceeds its competences (ultra-vires control) or undermines Article 23 GG, the BVerfG can intervene.

The final phase now holds special changes, because the EU Charter of Fundamental Rights (GrCh) is now the sole control measure for EU law regulations. However, citizens can also sue them before the BVerfG, as the way to the ECJ is denied natural persons. Insofar as states within the EU are allowed to make arrangements, the Basic Law applies primarily before the EU fundamental rights, insofar as these do not offer higher protection.

As a general rule, the principle of limited powers under Article 5(1) TEU applies to tax legislative powers. The EU can only exercise these rights if they are guaranteed by the Treaties. Competences are limited by the principle of subsidiarity and proportionality.

However, the Union has also been granted exclusive legislative powers in one area. This is about the Customs Union, which exists in the EU on the basis of the closed code and the Member States have agreed to abolish all customs duties.

Now the shared competence between the Union and the Member States applies to tax law. Because they can only act if the Union has not regulated anything. In addition, the idea of harmonising indirect taxes under Article 4, in conjunction with Article 113 TFEU, applies, of course, to VAT, insofar as this significantly affects the functioning of the internal market.

In addition, Article 115 gives the directive competence, also to strengthen the internal market. In doing so, the Union influences the direct taxes of the Member States, which can only ever decide unanimously. As a result, the influenceability is significantly limited, but it is questionable how this will look in the future. Article 116(2) TFEU could promote qualified majority voting and the ordinary legislative process under Article 294 TFEU in direct tax decisions.

Procedures of European jurisdiction under EU law include the preliminary ruling procedure under Article 267 TFEU. In doing so, the ECJ must carry out the interpretation of the Treaties of the European Union and assess the validity and interpretation of the actions of the EU institutions. The tax courts (FGs) are considered to be entitled to submit and the Bundesfinanzhof (BFH) to submit, since this is the last national decision-making body. The special feature of this particularly important procedure is the national overarching direction of the decision of the ECJ, since it applies to all institutions of any Member State under Article 4(3) TFEU.

In addition, there are exceptions in the present procedure, according to which already decided matters do not have to be decided again by the ECJ after the acte éclairé. Moreover, there could be no question as to the validity and interpretation of the acte clair.

In infringement proceedings under Article 258 ff. The TFEU concerns an objective legal review procedure for breaches by Member States of the Treaties TFEU and TEU concluded under international law. The EU Commission and a Member State can initiate this procedure.

Under EU law, the same rules apply within the EU for important intra-European regulations. Nevertheless, there are still territorial differences that are not easy to harmonise. The Union priority applies exclusively to law-adjusting measures, which do not impose a restriction on national tax lawmakers. Except, of course, for pre-existing laws that treat citizens or societies unequally in relation to those same people from other countries.

Nevertheless, a welcome development has emerged through the harmonisation of the individual tax regimes. Only the partially confusing decisions of the ECJ, which do not necessarily mean additional legal certainty for the future, are undesirable or a flaw of the supranational institutions.