Cross-Border Juridical VAT Double Taxation in the Framework of European Law

Preface 1
List of Abbreviations 3

Chapter 1: Introduction 5
1.1. Setting the scene 5
1.2. The economic impact of VAT disputes 7
1.3. EU Commission action on VAT double taxation 8
1.4. VAT double taxation in ECJ jurisprudence 10
1.5. Aim of the book 13
1.6. Structure of the book 14

Chapter 2: The Concept of VAT Double Taxation 17
2.1. Outline 17
2.2. Definition of VAT double taxation 18
2.2.1. Definition of double taxation in the direct tax sphere 18
2.2.2. Juridical and economic double taxation in VAT 20
2.2.3. The term “double taxation” in the VAT Directive 25
2.2.4. VAT double non-taxation 26
2.3. Constellations in which VAT double taxation can arise 28
2.4. Causes of juridical VAT double taxation 29
2.4.1. Underlying concepts causing double taxation in direct tax and VAT 29
2.4.2. Intra-EU constellations 31
2.4.2.1. Two categories of causes for VAT double taxation 31
2.4.2.2. Double taxation due to divergent rules 32
2.4.2.2.1. Diverging domestic implementation of VAT rules 32
2.4.2.2.2. Limits to harmonization 34
2.4.2.3. Double taxation despite identical rules 37
2.4.2.3.1. Diverging interpretation of identical rules 37
2.4.2.3.2. Differing assessments of the facts of a case 38
2.4.3. Mixed constellations 40
2.4.3.1. Double taxation due to divergent rules 40
2.4.3.2. Double taxation despite identical rules 41
2.4.4. Interim conclusion 42

Chapter 3: Existing VAT Dispute Resolution Mechanisms 45
3.1. Outline 45
3.2. Dispute prevention and dispute resolution 45
3.3. Mechanisms in domestic law 47
3.3.1. Unilateral waiver of taxing rights 47
3.3.2. Domestic court proceedings 48
3.3.3. Domestic arbitration 49
3.4. Mechanisms in EU law 50
3.4.1. Preliminary ruling procedure 50
3.4.2. Infringement procedure 55
3.4.3. Regulation (EU) No 904/2010 on administrative cooperation and combating fraud in the field of VAT 56
3.4.4. SOLVIT 56
3.5. Mechanisms based in EU and international law inapplicable in VAT 57
3.6. Interim conclusion 59

Chapter 4: Prohibition of VAT Double Taxation under Article 110 of the TFEU and the EU Fundamental Freedoms 61
4.1. Outline 61
4.2. Putting VAT double taxation into boxes 63
4.2.1. Category 1: Provisions in the VAT Directive 64
4.2.2. Category 2: Diverging domestic implementation of provisions of the VAT Directive through an incorrect domestic implementation of the Directive 64
4.2.3. Category 3: Differing interpretations of the same provision, relevant concepts or differing assessments of factual circumstances 64
4.2.4. Category 4: Limits to harmonization – differing use of options granted by the Directive 65
4.2.5. Category 5: VAT double taxation in mixed constellations 66
4.3. Prohibition of juridical VAT double taxation under the fundamental freedoms and article 110 of the TFEU 67
4.3.1. Article 110 of the TFEU 67
4.3.1.1. Aim and scope 67
4.3.1.2. Article 110(1) of the TFEU: Discrimination of similar products 69
4.3.1.3. Article 110(2) of the TFEU: Protectionism in favour of domestic products 71
4.3.2. The free movement of goods and the freedom to provide services 72
4.3.2.1. Free movement of goods: Articles 30, 34 and 35 of the TFEU 72
4.3.2.2. Freedom to provide services: Article 56 of the TFEU 74
4.3.3. Relationship between article 110 of the TFEU and the free movement of goods and the freedom to provide services 75
4.3.4. VAT double taxation as an infringement of article 110 of the TFEU? 76
4.3.4.1. ECJ Schul I 76
4.3.4.2. ECJ Schul II 79
4.3.4.3. Schul jurisprudence in later case law 80
4.3.4.4. Can a prohibition of juridical VAT double taxation be derived from ECJ case law on article 110 of the TFEU? 82
4.3.4.5. Practical application of Schul principles to juridical VAT double taxation 85
4.3.5. VAT double taxation as an infringement of the free movement of goods and the freedom to provide services? 86
4.3.5.1. Infringements of articles 34, 35 and 56 of the TFEU 86
4.3.5.1.1. Infringements of the fundamental freedoms in the tax sphere: Non-restriction or non-discrimination? 90
4.3.5.2. Double taxation as an infringement of the fundamental freedoms 94
4.3.5.3. Justification 96
4.3.5.3.1. Rule of reason (Cassis de Dijon rule) 96
4.3.5.3.2. Rule of reason in the direct tax area 98
4.3.5.3.3. Rule of reason in the indirect tax area 101
4.3.5.4. Proportionality 104
4.4. The hierarchy of EU legal norms 105
4.4.1. The shielding effect of secondary law 105
4.4.2. The method of consistent interpretation 110
4.5. Consequences for juridical VAT double taxation 114
4.5.1. Category 1: Provisions in the VAT Directive 114
4.5.2. Category 2: Diverging or incorrect domestic implementation of provisions of the VAT Directive 115
4.5.3. Category 3: Differing interpretations of the same provision, relevant concepts or differing assessments of factual circumstances 117
4.5.4. Category 4: Limits to harmonization – differing use of options granted by the Directive 118
4.5.5. Category 5: VAT double taxation in mixed constellations 119
4.6. Interim conclusion 119

Chapter 5: Prohibition of VAT Double Taxation under the Charter of Fundamental Rights of the European
Union 123
5.1. Outline 123
5.2. Applicability of the CFR in VAT 123
5.3. Article 20 of the CFR: Equality before the law 124
5.4. Article 16 of the CFR: Freedom to conduct a business 125
5.5. Article 17 of the CFR: Right to property 126
5.5.1. Personal scope 128
5.5.2. Substantive scope 128
5.5.2.1. The concept of property 128
5.5.2.2. Is taxation covered by the scope of article 17 of the CFR? 130
5.5.3. Infringement 132
5.5.4. Justification 136
5.5.4.1. Testing scheme 136
5.5.4.2. Lawfulness 137
5.5.4.3. Public or general interest 139
5.5.4.4. Fair compensation 140
5.5.4.5. Proportionality 141
5.5.5. VAT double taxation as a violation of the right to property? 143
5.5.5.1. Infringement 143
5.5.5.1.1. Expropriation 143
5.5.5.1.2. Restriction of the exercise of property rights 145
5.5.5.2. Lawfulness 146
5.5.5.2.1. Lawful and unlawful double taxation 146
5.5.5.2.2. Lawful and unlawful double taxation in VAT 147
5.5.5.3. A multitude of actors and actions leading to a single infringement 151
5.5.5.4. Public or general interest 153
5.5.5.5. Proportionality 155
5.6. Interim conclusion 158

Chapter 6: Potential New VAT Dispute Resolution
Mechanisms and the Competence for their Adoption 161
6.1. Outline 161
6.2. Overview: Proposals 162
6.2.1. Insertion of a MAP/arbitration clause into the VAT Directive 162
6.2.2. Introduction of an individual right to refer cases to the ECJ 164
6.2.3. Conclusion of VAT treaties 164
6.3. Rules for the use of competences under articles 4 and 5 of the TEU 166
6.3.1. Articles 4(1) and 5(2) of the TEU: Conferral of competences 166
6.3.2. Article 5(3) of the TEU: Subsidiarity principle 167
6.3.3. Article 5(4) of the TEU: Proportionality principle 167
6.4. Internal EU competences 168
6.4.1. Internal and external aspects of EU competence 168
6.4.2. Types of internal competences 169
6.4.2.1. Exclusive competences pursuant to article 3(1) of the TFEU 169
6.4.2.2. Shared competences pursuant to article 4 of the TFEU 169
6.4.2.3. Supporting competences pursuant to article 6 of the TFEU 170
6.4.3. Article 113 of the TFEU: Harmonization of indirect taxation 170
6.5. Internal competence to implement VAT dispute resolution mechanisms 173
6.5.1. Proposal: Insertion of a MAP/arbitration clause into the VAT Directive 173
6.5.1.1. Competence to insert a MAP/arbitration clause into the VAT Directive 173
6.5.1.1.1. Applicability of article 113 of the TFEU 173
6.5.1.1.2. Subsidiarity principle 174
6.5.1.1.3. Proportionality principle 175
6.5.1.2. Evaluation 175
6.5.2. Proposal: Introduction of an individual right to refer cases to the ECJ 176
6.5.2.1. Treaty amendment procedure 176
6.5.2.2. Evaluation 177
6.6. External EU competences 178
6.6.1. External competences pre-Lisbon: The implied powers doctrine 178
6.6.1.1. Origins of the implied powers doctrine 179
6.6.1.2. Existence of implied external competences 180
6.6.1.2.1. AETR-type competence 181
6.6.1.2.2. Opinion 1/76-type competence 184
6.6.1.3. Nature of implied external competences 187
6.6.1.3.1. AETR exclusivity 188
6.6.1.3.2. Exclusivity based on the necessity ratio of Opinion 1/76 192
6.6.2. Codification of external competences in articles 3(2) and 216 of the TFEU 194
6.6.2.1. Relevance of pre-Lisbon case law 194
6.6.2.2. Article 216(1) of the TFEU 195
6.6.2.3. Article 3(2) of the TFEU 197
6.6.3. Shared external competences 198
6.6.4. Types of international agreements 199
6.7. External competences to implement VAT dispute resolution mechanisms 201
6.7.1. Existence of external EU competence for the conclusion of VAT treaties 201
6.7.2. Nature of the external EU competence 203
6.7.3. Evaluation 208
6.8. Interim conclusion 209

Chapter 7: The Competence to Decide VAT Cases: Distribution of Competences between the ECJ and VAT Arbitration Panels 211
7.1. Outline 211
7.2. VAT arbitration in intra-EU constellations 211
7.2.1. The ECJ’s exclusive jurisdiction 211
7.2.2. Balancing exclusive ECJ jurisdiction and VAT arbitration 214
7.3. VAT arbitration in mixed constellations 218
7.3.1. Opinion 1/17 and its effects on the ECJ’s exclusive jurisdiction 218
7.3.2. Arbitration under the VAT treaty compatible with the ECJ’s exclusive jurisdiction in VAT? 220
7.4. Interim conclusion 223

Chapter 8: Conclusions 225
8.1. Summary of the findings 225
8.2. Future research 228
8.3. The way forward 229

References 231