The Impact of European Law on the Relations with Third Countries in the Field of Direct Taxes

The research project focuses on the relations with third countries in the field of direct taxes, an area in which international tax law is in a striking conflict with European law. This domain is at present largely unexplored because Member States are reluctant to surrender their taxing prerogatives and immediate control over revenues. Member States question that their taxing powers in this field may have been shifted to the Community level. However, the European Court of Justice has already ascertained a number of tax obstacles that hinder cross-border economic activities within the European Union. By contrast, the same issues have never received attention in the relations with third countries, even if the recent conclusion of agreements with Switzerland has proved their decisive importance for European integration. The research project shall analyse such issues and also focus on their impact on the existing tax treaties between EU- and non-EU Member States.

The project focused on how the law of taxation affects international relations in the era of worldwide globalization, with a view to determining the actual legal impact of European law on the different levels of government of international taxation in Europe and the world. International tax law is a highly dynamic and technical field with structural peculiarities in the European Union, which represent a potential obstacle to achieve legal certainty in the relations with third countries and are only partly linked to the existence of legal pluralism within the European Union. The lack of an effective systematic coordination in the exercise of taxing powers between different levels of government within the EU, including the form and substance of such powers, combined with a legal rigidity in establishing a common approach to tax policy problems of the European Union and its Member States, have shifted the integration of European direct tax law entirely into a process of legal interpretation of the European Court of Justice, activated from time to time by national Courts and the European Commission in respect of specific issues of compatibility and therefore highly casuistic. The research concluded that for how satisfactory the removal of barriers in direct taxation within the internal market may be, it fails to meet the challenges of the European Union in the era of worldwide globalization. It should instead represent the starting point for aggregating an EU coordinated tax policy approach to be then implemented into an EU coordinated set of legal rules, which is what the research project defined as European international tax law. Such bulk of accepted legal and tax values could then spread to the whole world as the expression of best legal standards and practices that catalyse supranational tax integration. The research identified and analysed the soft and hard law carriers of European international tax law according to their different binding and non-binding effects and the need to achieve not only a general consensus on the relevant criteria, but also as to their homogeneous legal interpretation and application. The research also operated such analysis in specific areas of the world - such as Latin America, Russia and Switzerland - in order to evaluate to what extent the application of the European principles may enhance the legal framework of international taxation in the relations with the European Union, the legal standards of taxation and the rule of law. Legal tax systems of most Latin American countries have a common origin and at present pursue very different tax treaty policy goals by virtue of their different degree of economic development. In co-operation with the Latin American Institute for Tax Law (ILADT) the research project worked on legal transplantation and drafted a model tax convention inspired to the legal values of European law. In Russia the research project evaluated (in co-operation with a mixed Russian-EU team) the specific tax problems and implications of the EU international agreements and their homogeneous interpretation and application in a legal context where they have a different ranking in the hierarchy of legal sources of public international law. This was also a critical issue for Switzerland, where also problems of global fiscal transparency, exchange of tax information and the rule of precedent of ECJ tax decisions in the presence of agreements with the European Union were analysed.