Enhanced Cooperation and European Tax Law (Oxford Studies in European Law)

The enhanced cooperation mechanism allows at least nine Member States to introduce secondary EU law which is only binding among these Member States. From an internal market perspective, enhanced cooperation laws are unique as they lie somewhere between unilateral Member State laws and uniform European Union law. The law creates harmonisation and coordination between the participating Member States, but may introduce trade obstacles in relation to non-participating Member States. This book reveals that the enhanced cooperation mechanism allows Member States to protect their harmonised values and coordination endeavours against market efficiency. Values which may not be able to justify single Member State's trade obstacles may outweigh pure internal market needs if an entire group of Member States finds these value worthy of protection. However, protection of the harmonised values can never go as far as shielding participating Member States from the negative effects of enhanced cooperation laws. The hybrid nature of enhanced cooperation laws - their nexus between the law of a single Member State and secondary EU law - also demands that these laws comply with state aid law. This book shows how the European state aid law provisions should be applied to enhanced cooperation laws. Furthermore, the book also develops a sophisticated approach to the limits non-participating Member States face in ensuring that their actions do not impede the implementation of enhanced cooperation between the participating Member States. cover Series Enhanced Cooperation and European Tax Law Dedication Copyright Table of Contents List of Abbreviations 1. Introduction A. The Enhanced Cooperation Procedure—​A Way Forward B. Political versus Legal Issues C. Methodology and Problem Set D. Course of Investigation 2. Various Forms of Differentiation and Majority Voting as an Alternative A. Different Forms of Flexibility I. International Agreements between Member States 1. Partial International Agreements within the European Union 2. Partial Treaties beyond the European Union II. Primary EU Law 1. The Economic and Monetary Union 2. Area of Freedom, Security and Justice III. Secondary EU Law IV. Flexibility through Post-​differentiation V. Differences and Advantages between Compromise-​based Differentiation in Primary and Secondary EU Law, Differentiation through International Treaties, and Enhanced Cooperation B. Majority Voting as an Alternative I. Unanimity Voting: A Relic in some Policy Areas—​Including Taxation II. New Initiative to Achieve Majority Voting in Taxation III. Is the European Union Ready for Majority Voting in Taxation? 1. Principles and Justifications for Majority Voting 2. Limits of Majority Decision Making 3. Consocionationalism and European Taxation 3. Experience with Enhanced Cooperation—​Success and Failure A. Experience of Success I. Divorce Law and Related Issues 1. Historical Developments in Divorce Law 2. Property Regimes for International Couples in Europe II. The European Unitary Patent 1. Historical Developments 2. Resistance of Non-​participating Member States III. European Public Prosecutor B. Experience of Failure I. The European Foundation II. Passenger Car-​related Taxes III. Procedural Rights in Criminal Proceedings IV. The Common Consolidated Corporate Tax Base C. The European Financial Transaction Tax—​Success or Failure? I. Historical Developments II. The UK’s Fight against the European Financial Transaction Tax D. Sleeping Beauty or Non-​starter? 4. The Law-​making Procedure A. Overview of the Procedural Framework for Establishing Enhanced Cooperation B. The Role of the European Commission within the Enhanced Cooperation Procedure I. The Right of Initiative Lies with the ‘Willing’ Member States II. Political Requirements 1. Historical Intent for Implementing Differentiated Integration within the European Treaties 2. CJEU Case Law on the Requirement of a Unified Political Belief 3. Findings and Appraisal 4. The European Commission’s Role after Blessing Enhanced Cooperation C. The Council’s Authorisation D. Mechanism of Last Resort I. The Passerelle Clause: A Preferred Alternative? II. Who has to Decide on the Ultima Ratio Issue? III. The Council’s Decision in Authorising Enhanced Cooperation IV. Aim and Purpose V. Reasonability of Integration at a Lower Level E. Going in and Going out: Joining and Leaving Enhanced Cooperation I. Non-​participating Member States Joining Enhanced Cooperation II. Participating Member States Leaving Enhanced Cooperation 1. ‘Leaving’ after Indicating One’s Interest 2. Leaving after Addressing a Request to the European Commission 3. Leaving after the Council’s Authorisation 4. Leaving after Adopting the Law 5. Withdrawal from Enhanced Cooperation De Lege Ferenda F. Competence Clauses I. Overview of the Competence Framework within the European Treaties II. The Framework of the Competence Clauses III. Conflict of Competence Clauses G. Fostering the European Internal Market by Harmonising National Laws at the European Level I. The European Internal Market Concept II. Market Regulation and European Law Harmonisation III. The European Internal Market and the Harmonisation of the Member States’ Laws 1. The European Legislature’s True Regulatory Power 2. No Pitching to Optimal Economic Efficiency 3. Smuggling of Non-​market Policies into the European Harmonisation Framework IV. Identifying the ‘Right’ Competence for Steering Taxes V. Secondary EU Law Facilitating the Establishment and Functioning of the European Internal Market 1. Economic and Legal Trade Obstacles 2. Framing the Member States’ Obligations for the Establishment and Functioning of the European Internal Market VI. Subsidiarity Concerns 1. The Genesis of the Principle of Subsidiarity 2. Degree and Scope of the Harmonisation Framework 3. Subsidiarity in the Field of Enhanced Cooperation VII. The Principle of Proportionality VIII. Alternatives to European Law Unification IX. Findings 5. Enhanced Cooperation and its Impact on the European Internal Market—​Art 326 of the TFEU A. Setting the Scene B. A Hybrid between the Law of the Member States and Secondary EU Law Part I: FUNDAMENTAL FREEDOMS A. The Fundamental Freedoms as a Limit to the Legislative Power B. Different Integration Levels of Legal Rules and their Impact on the European Internal Market C. The Fundamental Freedoms and National Tax Laws I. First Step: Market Access Restriction 1. Double Burden: Accumulation of Two National Regulatory Regimes of the Same Kind 2. Double Burden: Accumulation of Two National Rules of a Different Kind 3. Hindering the Exercise of the Market Freedoms by Burdening or Restricting the Act of Moving 4. Prohibiting Market Access through a Total Ban on Services, Goods, or Establishments 5. Rendering Intra-​EU Trade Less Attractive—​Far-​reaching Liberalisation of National Markets 6. Conclusions on the Impact of Non-​market Values on Market Access Restrictions 7. Findings on Market Access Restrictions in the Field of National Tax Laws II. Second Step: Comparability 1. Comparability in the CJEU Case Law 2. Comparability—​Alternatives Routes 3. Comparability—​Which Way to Go? 4. Scope of the Comparability Test 5. Findings III. Third Step: Rule of Reason 1. Overriding Reasons of Public Interest 2. Balancing Act IV. Findings on the Impact of Member States’ Non-​market Values on the Fundamental Freedoms V. Limits of Member States’ Value Setting 1. CJEU Case Law and its Underlying Value Choice on the Level of Comparability 2. CJEU Case Law and External Value Choice on the Level of Justification VI. Conclusions D. The Fundamental Freedoms and Secondary European Union Law I. CJEU Case Law on the Relationship between Secondary EU Law and Free Movement Rights II. No Doctrine of ‘Economic Due Process’ in the European Union III. Harmonised Public Interest and the Need for General or Specific Secondary EU Law Restrictions 1. Harmonised Interests as Overriding Reasons of Public Interest 2. Light-​touch Proportionality Test IV. ‘Correction Function’ of Secondary Law V. Findings E. The Fundamental Freedoms and Law Enacted under the Enhanced Cooperation Procedure I. Group-​based Approach: Intrinsic Differentiation between Participating and Non-​participating Member States 1. Free Movement of Capital: Differentiation between Member States and Third Countries 2. Enhanced Cooperation and Group-​based Differentiation II. Integration-​based Differentiation as the Optimal Yardstick III. Different Integration Levels of Secondary European Union Law 1. Conflict of Law Rules 2. Mutual Recognition 3. Coordination Rules 4. Unifying Substantive Law 5. Findings IV. Ways of Harmful Treatment 1. Obstacles to Trade: Restrictions and Discrimination 2. A Question of Comparison V. Different Categories of Enhanced Cooperation Law VI. Value-​based Harmonisation: Restrictions and Justification 1. Enhanced Cooperation Law: A Specific Obstacle to Intra-​EU Trade? 2. Obstacles to Cross-​Group Trade 3. Obstacles to Intra-​Group and Cross-​Group Trade VII. (Mere) Trade-​favouring Rules 1. Denying a Non-​Group-​Member the Group-​Benefit 2. Preferential Trade Agreements under WTO Law 3. Lesson Learned from Preferential Trade Agreements under WTO Law 4. The Principle of Reciprocity in EU Law 5. Reciprocity in Tax Treaties and EU Law 6. Reciprocity within WTO Law and EU Law 7. Findings for Denying a Non-​Group Member the Group Benefit 8. Limits of the Different Treatment VIII. Establishing Cross-​border (Tax) Coordination for More Flexibility 1. Starting Point: What is Cross-​border Tax Coordination? 2. Discrimination within the Group 3. Forms of Discrimination towards Non-​participating Member States IX. Findings Part II: STATE AID LAW A. State Aid: An Aid Granted by One Single Member State B. State Aid: An Aid Granted by a Group of Member States C. Granting of Selective Benefits through Enhanced Cooperation Law: Baseline of Art 107 of the TFEU D. The Advantage Test I. The Reference System 1. Basic Principles 2. The Reference System: A Domestic or an International System? 3. Recognising the Autonomy of Local and Regional Authorities 4. The Impact of Enhanced Cooperation Law on ‘Normal’ Taxation II. The Advantage E. Selectivity I. Status Quo II. Efficient Allocation of Resources between Business Sectors as a Measure for General Availability III. Selectivity and Enhanced Cooperation Law 1. Applying the General Measure Approach 2. Applying the Non-​discrimination Approach F. Findings on the Interplay between the Enhanced Cooperation Law and State Aid Law G. Special Charges: A Form of State Aid? I. Special Charges and Their Impact on the Internal Market II. Special Charges: The Reverse of State Aid? III. Special Charges and other Provisions of the European Treaties IV. Applying Art 107 of the TFEU Analogous to Special Charges V. Example for Special Charges in the Area of Enhanced Cooperation H. Automatic Notification within the Enhanced Cooperation Procedure: A Possible Way to Go? I. The Notification Procedure under Art 108 of the TFEU II. The Baseline for Embedding a Notification Procedure into the Enhanced Cooperation Procedure III. Findings on Linking the Notification and the Enhanced Cooperation Procedure IV. Conclusions Part III: INTERNAL LEGAL COHERENCE A. Complying with Existing and Future Secondary EU Law B. Conflicts between Secondary EU Laws I. Conflict of Laws Balancing different Interests II. Conflict of Laws Balancing Identical Interests C. Conflict between Secondary EU Law and National Laws I. Pre-​emption Doctrine—​Exclusivity as a Limit on Legislative Action II. The Scope of the Existing Secondary EU Law as a Limit on Legislative Action III. Conclusions D. Conflicts between Secondary EU Law and Enhanced Cooperation Law I. The Impact of Existing Secondary EU Law on the Group’s Legislative Freedom II. The Impact of Existing Enhanced Cooperation Law on the European Legislature’s Freedom E. Enforcement of the Invalidity Claim I. Overview of the Enforcement Tools II. Annulment of Enhanced Cooperation Law F. Illustrative Cases I. Air Passenger Tax II. Financial Transaction Tax III. Financial Activity Tax Compensating for VAT Undertaxation Part IV: CONCLUSIONS 6. The Rights and Obligations of Non-​participating Member States: The Principle of Tolerance as a Fundament of Enhanced Cooperation A. Setting the Scene B. International Law—​Outer Boundaries I. Autonomy of the European Legal Order 1. Autonomy of the European Legal System to Regulate the Relationship between the Member States 2. Autonomy of the European Legal System to Define the Relationship with Third Countries 3. Conclusions for the Impact of International Law on Enhanced Cooperation Law-​ making II. Principle of Non-​intervention III. The Pacta Tertiis Principle IV. Inter se Agreements C. Closer Cooperation within Federally Structured States and the Protection of Non-​cooperating States I. The Swiss Constitutional Basis for Closer Cooperation between Cantons II. The US Compact Clause III. Lesson Learned from Other Constitutionally Enshrined Closer Cooperation Mechanisms D. The Principle of Tolerance: More Than Mere Lip Service E. Freedom to Abstain from Enhanced Cooperation I. Rights, Competences and Obligations—​A Collective or Three Separate Categories? II. The Duty of Non-​interference 1. Beggar-​Thy-​Neighbour and Beggar-​Thyself Policies as a Way to Identify Fields of Enhanced Cooperation 2. Enhanced Protection against Enhanced Cooperation Laws 3. The Burden on Outsiders as an Argument for (Dis-​)Proportionate Laws 4. Conclusions F. The Freedom to be Part of Enhanced Cooperation I. Overexploiting a Competitive Advantage 1. Competitive Advantage for the Non-​ participating Member States 2. Overexploitation of Advantages II. Conclusions G. Findings 7. Conclusions and Outlook A. Observations B. Safeguarding Measures—​Linchpin of Success C. Proposal for Improvement D. Final Remark Bibliography Index The enhanced cooperation mechanism allows at least nine Member States to introduce secondary EU law which is only binding among these Member States. From an internal market perspective, enhanced cooperation laws are unique as they lie somewhere between unilateral Member State laws and uniform EU law. The law creates harmonisation and coordination between the participating Member States, but it may introduce trade obstacles in relation to non-participating Member States. This book reveals that the enhanced cooperation mechanism allows Member States to protect their harmonised values and coordination endeavours against market efficiency. Values which may not be able to justify single Member State’s trade obstacles may outweigh pure internal market needs if an entire group of Member States finds these value worthy of protection. However, protection of the harmonised values can never go as far as shielding participating Member States from the negative effects of enhanced cooperation laws. The hybrid nature of enhanced cooperation laws—their nexus between the law of a single Member State and secondary EU law—also demands that these laws comply with state aid law. This book shows how the European state aid law provisions should be applied to enhanced cooperation laws. Furthermore, the book also develops a sophisticated approach to the limits non-participating Member States face in ensuring that their actions do not impede the implementation of enhanced cooperation between the participating Member States.