Professor of English Law at St John’s College, Oxford
GRÁINNE DE BÚRCA
Professor of Law at New York University School of Law
Enhanced Cooperation and European Tax Law
OXFORD STUDIES IN EUROPEAN LAW
Series Editors
Paul Craig, Professor of English Law at St John’s College, Oxford and Gráinne de Búrca, Professor of Law at New York University School of Law
The aim of this series is to publish important and original research on EU law. The focus is on scholarly monographs, with a particular emphasis on those which are interdisciplinary in nature. Edited collections of essays will also be included where they are appropriate. The series is wide in scope and aims to cover studies of particular areas of substantive and of institutional law, historical works, theoretical studies, and analyses of current debates, as well as questions of perennial interest such as the relationship between national and EU law and the novel forms of governance emerging in and beyond Europe. The fact that many of the works are interdisciplinary will make the series of interest to all those concerned with the governance and operation of the EU.
other titles in this series
Legal Pluralism in European Contract Law
Vanessa Mak
Europe’s Passive Virtues
Deference to National Authorities in EU Free Movement Law
Jan Zglinski
Accountability in EU Security and Defence
The Law and Practice of Peacebuilding
Carolyn Moser
Accountability in the Economic and Monetary Union
Foundations, Policy, and Governance
Menelaos Markakis
Official Secrets and Oversight in the EU
Law and Practices of Classified Information
Vigjilenca Abazi
Risk Regulation in the Internal Market
Lessons from Agricultural Biotechnology
Maria Weimer
EU Health Law & Policy
The Expansion of EU Power in Public Health and Health Care
Anniek de Ruijter
The Horizontal Effect of Fundamental Rights in the European Union
A Constitutional Analysis
Eleni Frantziou
EU Powers Under External Pressure
How the EU’s External Actions Alter its Internal Structures
Christina Eckes
Frontex and Human Rights
Responsibility in ‘Multi-Actor Situations’ under the ECHR and EU
Public Liability Law
Melanie Fink
EU Equality Law
The First Fundamental Rights Policy of the EU
Elise Muir
Subnational Authorities in EU Law
Michèle Finck
Accessing Asylum in Europe
Violeta Moreno-Lax
National Parliaments after the Lisbon Treaty & the Euro Crisis
Davor Janĉiĉ
Environmental Integration in Competition and FreeMovement Laws
Julian Nowag
EU Agencies
Legal and Political Limits to the Transformation of the EU Administration
Merijn Chamon
Enhanced Cooperation and European Tax Law
CAROLINE HEBER
Senior Research Fellow at the Max Planck Institute for Tax Law and Public Finance, Munich
3
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To Dominik
Series Editors’ Preface
Despite the commitment of the EU in recent decades to providing a form of differentiated integration—‘closer cooperation’ which would permit groups of member states who are willing to move ahead together on legislative initiatives which other member states prefer not to join, the Treaty provisions on closer cooperation have been little used in practice. This is not because there have not been policy areas or specific issues on which groups of states would have liked to move forward, but rather because the conditions which must be satisfied in order to use the Treaty provisions on closer cooperation appear both onerous and vague. Further, on some of the few occasions on which the provisions on closer cooperation have been invoked and used, they have been challenged before the Court of Justice by the nonparticipating member states.
In this interesting and informative book, Caroline Heber brings together two important subjects in EU law: that of enhanced cooperation on the one hand, and EU tax law on the other hand. In a clear and cogent way, the book explores the history, the varieties and the purpose of mechanisms of differentiation within EU law, examining in particular detail the current Treaty mechanism of closer cooperation. She outlines the uses and attempted uses that have so far been made of this enhanced cooperation procedure, as well as the potential tensions the mechanism creates for competition and non-protectionism in the EU’s internal market. More specifically, she explores the attempts that have been made to use the provisions on closer cooperation in the field of taxation law, and the reasons why these have so far failed.
Drawing on her understanding of the tensions and difficulties created by closer cooperation attempts, Heber then provides a very detailed and thorough account of what would be required in order for closer cooperation in taxation to be successfully pursued in compliance with all of the principles and requirements of the Treaty and without damaging the interests of the non-participating states or undermining the interests of the participating states. In a series of substantial chapters, she outlines the procedural and substantive conditions which would have to be fulfilled to this end, and concludes that despite the rather thin and vague provisions of the Treaty on enhanced cooperation, they do and can—properly understood— allow for effective closer cooperation in taxation which includes the necessary safeguards to protect both participating and non-participating states.
The book thus contains a meticulous, detailed and insightful depiction of the history and use of the EU’s closer cooperation procedure, drawing on the experience of attempts in the area of tax law, as well as a comprehensive and thorough
account of the ways in which and the conditions under which this little-used procedure could effectively and usefully be operationalized in this field in compliance with the Treaty’s requirements.
It should be of considerable interest to legal scholars, practitioners and institutional actors who are concerned with flexibility and differentiated integration in the EU, as well as to EU tax scholars and all those who are interested in the harmonization of taxation law in the EU.
Paul Craig Gráinne de Búrca
Preface
The idea of dedicating my habilitation thesis to enhanced cooperation and European tax law came to me during a conference in February 2014 in Madrid. The conference dealt with widely diverse aspects of a European financial transaction tax. But whenever questions concerning enhanced cooperation were raised, the room fell silent. Nobody quite knew how to deal with the mechanism and character of enhanced cooperation law, including the most pressing question of whether and to what extent enhanced cooperation law must comply in the same way as purely national rules with primary EU law (in particular the fundamental freedoms and competition law) or competing secondary law. This issue was, in my opinion, only answered reflexively according to gut feeling. I found the responses inadequate, because they failed to take sufficient account of the institutional framework of the European treaties and the objective of partially deepened integration via enhanced cooperation. This became my motivation to examine more closely whether enhanced cooperation law does after all have a privileged role within the framework of the European treaties, that is whether it lies hierarchically above Member State legislation but below generally binding directives and regulations.
Searching for the possibilities and the limits of enhanced cooperation lawmaking has not been easy, and I am therefore all the more grateful for the unconditional support I have received during this period. First and foremost, I would like to thank my academic mentors Michael Lang and Wolfgang Schön, who never ceased to encourage me and believe in me, and who were always eager to discuss my new propositions with me. I am extremely grateful to them for all their support. I would also like to thank Erich Vranes for his valuable suggestions and for providing a second expert opinion on my text. While writing a large part of this book during my Emile Noël fellowship at the Jean Monnet Center of NYU Law School, Joseph HH Weiler put my propositions to the test and always challenged me to go one step further. Gráinne de Burca’s exacting questions have always provided me with new food for thought, and it is also thanks to her that I decided to submit my book to this collection.
While writing my book, I met many impressive people and was able to learn from them all. I would like to mention three people in particular because their friendship and their tireless spirit have been a great help to me over the past few years. Thank you Vasiliki Kosta, Christian Sternberg, and Kasper Dziurdź.
x Preface
I would also like to thank my current and former colleagues at the Max Planck Institute for Tax Law and Public Finance for the wonderful and inspiring time I have enjoyed here. My special thanks go to Birke Häcker, Christine OsterlohKonrad, Erik Röder, and Johanna Stark.
Caroline Heber Munich, November 2020
III.
IV. Identifying the ‘Right’ Competence for
V. Secondary EU Law Facilitating the
1.
2.
7.
D.
III. Third Step: Rule of
1. Overriding
2. Balancing Act
IV. Findings on the Impact of Member States’ Non-market Values on the Fundamental Freedoms
V. Limits of Member States’ Value
1. CJEU Case Law and its Underlying Value Choice on the Level of Comparability
2.
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.
2.
IV. ‘Correction
E.
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.
III.
1.
2.
3.
5. Findings
IV. Ways of
1.
2. A Question of Comparison
V. Different Categories of
VI. Value-based Harmonisation: Restrictions and Justification
1. Enhanced Cooperation Law: A Specific Obstacle to Intra-EU Trade?
IV.
V.
2.
3.
1.
2.
3.
4.
5.
6.
7.
H. Automatic Notification within the Enhanced Cooperation Procedure: A Possible Way to Go?
I.
II. The Baseline for Embedding a Notification Procedure into the
III. Findings on Linking the
B.
I.
C. Conflict between Secondary EU Law and National
II.
D.
I.
II.
6. The Rights and Obligations of
I.
List of Abbreviations
AG Advocate General
Art Article
ATAD Anti-Tax Avoidance Directive
BEPS Base Erosion and Profit Shifting
CCCTB Common Consolidated Corporate Tax Base
CFC Controlled Foreign Corporation
CJEU Court of Justice of the European Union
CUP Cambridge University Press
DST Digital Service Tax
EC European Community
EEA European Economic Area
EEC European Economic Community
eg exempli gratia (for example)
EPO European Patent Office et al et alii (and others) et seq et sequens (and the following)
EU European Union
EuroHPC European High Performance Computing Joint Undertaking fn. Footnote
FTT Financial Transaction Tax
GAAR General Anti-Abuse Rule
GATT General Agreement on Tariffs and Trade
GSM Global System for Mobile Communications
ibid ibidem (in the same place)
ie id est (that is)
IFRS International Financial Reporting Standards
km kilometres
MFN Most-Favoured-Nation
OECD Organisation for Economic Co-operation and Development
OEEC Organisation for European Economic Co-operation
OJ Official Journal of the European Union
OUP Oxford University Press
para/paras paragraph(s)
s/ss section(s)
TEU Treaty on European Union
TFEU Treaty on the Functioning of the European Union
ToA Treaty of Amsterdam
UK United Kingdom of Great Britain and Northern Ireland
US United States of America
v versus VAT Value-Added Tax
VCLT Vienna Convention on the Law of Treaties
WTO World Trade Organization
1 Introduction
A. The Enhanced Cooperation Procedure—A Way Forward
A European Union (EU) of almost thirty Member States, in which all should be allowed to keep their national identities and peculiarities, is a project that can encounter severe difficulties. The most notable issue lies in the European legislative procedure. On the one hand, sensitive legislative matters such as European tax measures should be based on the consent of all Member States, ensuring that no Member State is outvoted or forced to implement policy objectives which are contrary to the Member State’s aims; on the other hand, a unanimous vote in the Council may easily provoke a lengthy process, which may even lead to a legislative deadlock. The Member States may disagree on both the question of whether an action is necessary and the content of a possible action. Despite the onerous requirement of unanimity within the Council, it is the only way of ensuring that the fundamental interests of each Member State are recognised at a European level and that Member States do not fear that Brussels dictates the legislative framework with which the Member States have to comply. Increasingly ‘dictated’ uniformity may even destroy the identities of the Member States and, subsequently, the idea of a European Union consisting of united yet diverse Member States.1
To cope with the various challenges posed by a Union made up of united but diverse Member States,2 the Member States decided to introduce a mechanism of flexibility within the European Union: the enhanced cooperation procedure.3 The
1 Art 4 Subsection 2 of the TEU; Jukka Snell, ‘Still United despite Diversity?’ (2018) 43 European Law Review 801 revealing the concept of united in diversity based on the current happenings and arguing that in cases in which there is a clash between national European values the function of European law is to ‘transform naked clashes to processes governed by procedures and rules’.
2 Leonard FM Besselink, ‘Does EU Law Recognise Legal Limits to Integration? Accommodating Diversity and Its Limits’ in Thomas Giegerich, Oskar Josef Gstrein, and Sebastian Zeitzmann (eds), The EU between ‘An Ever Closer Union’ and Inalienable Policy Domains of Member States, vol 80 (Nomos 2014) 60 et seq explaining the ‘recalibration of the relation between unity and diversity’; Christine Kaddous, ‘The European Union’s Common Values and National Identities: Convergence or Contradiction?’ in Thomas Giegerich, Oskar Josef Gstrein, and Sebastian Zeitzmann (eds), The EU between ‘An Ever Closer Union’ and Inalienable Policy Domains of Member States, vol 80 (Nomos 2014) 91 et seq.
3 Bruno S Frey, ‘European Unification Based on Flexibility and Diversity’ (2019) 75 FinanzArchiv 93 arguing that the European Union is capable of achieving its core goals through flexibility; Adrienne Héritier, Policy-Making and Diversity in Europe: Escape from Deadlock (CUP 1999) 8 arguing that ‘[t]he very extent of heterogeneity, characteristic of the fifteen-member Union makes diversity, and the concomitant need for reconciliation, overwhelmingly important principles in European policy-making’.
procedure enables a minimum of nine Member States to make use of European institutions to introduce secondary EU law which is only binding amongst these Member States. Initially, the flexibility mechanism was incorporated into the European legal framework by the Amsterdam Treaty as the ‘closer cooperation’ procedure,4 which aimed to bring together the various partial international agreements established between some, but not all of the Member States into the European legal framework. In other words, the Member States of the European Union achieved differentiated integration among themselves long before the enhanced (or closer) cooperation procedure was implemented into the European treaties.5 They simply used international agreements, a tool outside the purely European framework, to establish differentiation. To grant Member States the desired flexibility under the protective hand of EU law which guards deeper integration between some Member States, the European flexibility mechanism has been introduced.
Accordingly, Member States have always found ways to constitute differentiation, and enhanced cooperation has therefore not introduced an entirely new concept into the EU’s legal framework. However, enhanced cooperation has changed European integration as it allows the establishment of blocs within the European Union and it is a clear political statement by the Member States to enable differentiated integration within the European Union by embedding flexibility within the European legal framework.
Under the enhanced cooperation procedure, a group of at least nine Member States is allowed to introduce secondary EU law. The only difference between enhanced cooperation law and ordinary secondary EU law is the scope of application.6 Enhanced cooperation law only binds the participating Member States and does not form part of the acquis communautaire, allowing acceding Member States to decide whether to join enhanced cooperation. For all participating Member States, enhanced cooperation law has both direct effects (meaning that individuals and companies can rely on enhanced cooperation law before national courts and public bodies) and absolute supremacy over all national laws.7 There is also
4 Stefan Griller and others, The Treaty of Amsterdam: Facts, Analysis, Prospects (Springer 2000) 206 et seq. Wolfgang Wessels, ‘Verstärkte Zusammenarbeit: Eine neue Variante flexibler Integration’ in Mathias Jopp, Andreas Maurer, and Otto Schmuck (eds), Die Europäische Union nach Amsterdam. Analysen und Stellungnahmen zum neuen EU-Vertrag (Europa Union Verlag 1998) 197 et seq.
5 ‘[T]he EC/EU constitution has always acknowledged flexibility . . ever since the adoption of the Treaties of Rome’: Jacques Ziller, ‘Flexibility in the Geographical Scope of EU Law: Diversity and Differentiation in the Application of Substantive Law on Member States’ Territories’ in Gráinne de Búrca and Joanne Scott (eds), Constitutional Change in the EU: From Uniformity to Flexibility? (Hart Publishing 2000) 113.
6 Ulrich Becker, ‘Differenzierungen der Rechtseinheit durch “abgestufte Integration” ’ in Jürgen Schwarze and Peter-Christian Müller-Graff (eds), Europäische Rechtseinheit durch einheitliche Rechtsdurchsetzung (Nomos 1998) 54 arguing that the nature of the law cannot change because the law is not enacted by all Member States and is not binding on all Member States.
7 For the concept of direct effects and supremacy of EU law see Alan Dashwood and others (eds), Wyatt and Dashwood’s European Union Law (6th edn, Hart Publishing 2011) 235 et seq. For the impact of the doctrine of direct effect and supremacy on the European integration process see Erich Vranes,
no doubt that the law enacted under the enhanced cooperation procedure falls within the scope of Art 267 of the Treaty on the Functioning of the European Union (TFEU), and thus is subject to interpretation by the Court of Justice of the European Union (CJEU).
Any permission for group formation within the European Union has an intrinsic impact on competition between Member States because it allows them to build blocs of like-minded Member States, and thus competition between single Member States changes to competition between different blocs of Member States. At the same time, competition between Member States within a bloc may be eliminated through unification or harmonisation of the law. To prevent any harmful effects of rival groups, the European treaties brought several safeguarding measures into effect. The constitutional framework of enhanced cooperation protects the European Union in particular by prohibiting any harm to the European internal market, harm which may result from enhanced cooperation creating barriers to trade between Member States or distortion of competition between them.8 The framework also protects non-participating and participating Member States. The former are protected from any disproportionate burdens resulting from enhanced cooperation law, and the latter are sheltered from potential disloyal behaviour of non-participating Member States impeding the implementation of enhanced cooperation.
The wording used to describe the requirements for the establishment of enhanced cooperation is familiar to any lawyer specialised in EU law. Like any national law, enhanced cooperation law has to comply with European nondiscrimination and free competition rules. Therefore, one may wonder whether a group of Member States is only allowed to do what a single Member State is able to implement on a stand-alone basis in line with fundamental freedoms and state aid law. In other words, it is far from clear whether a group of Member States is allowed to introduce European laws under the enhanced cooperation procedure, which they would typically not be allowed to implement on their own, because these rules either contradict the fundamental freedoms or contradict state aid law.
With regard to the protection of non-participating Member States, the fundamental question points in the same direction: do non-participating Member States need more protection from a joint legislative agenda of Member States, in contrast to the legislative priorities of a single Member State? More protection may be required because the non-participating Member States may be exposed to stronger negative effects if the legislative measure is pursued by a group of at least nine Member States, rather than an individual Member State.
‘The Dynamics of European Economic Integration: A Legal Perspective’ in Harald Badinger and Volker Nitsch (eds), Routledge Handbook of the Economics of European Integration (Routledge 2016) 479 et seq.
8 See Art 326 of the TFEU.
Aside from the demand to protect ‘outsiders’, the participating Member States may also need a shelter to be able to pursue enhanced cooperation. Only once it is ensured that non-participating Member States cannot impede the implementation of enhanced cooperation will the establishment of these safeguarding mechanisms be complete. A mechanism of flexibility only functions if the participating Member States are protected from the unwillingness and potential anger of the non-participating Member States, and if the non-participating Member States are sufficiently protected from any potential collusion of fellow Member States. Otherwise, the non-participating Member States may be exploited through the alliance of participating Member States.
The enhanced cooperation procedure does not establish an entirely new framework for incorporating secondary EU law within a group of Member States. The procedure uses the existing framework but sets rules for the authorisation to establish enhanced cooperation in the first place. In other words, if a group of Member States has passed the requirements of authorisation, they are entitled to use the European institutions, the European competences, and the ordinary legislative framework to establish secondary EU law which is only binding on the participating Member States. Of course, some amendments are necessary due to the fact that only participating Member States are allowed to vote in the Council, but leaving that aside, the procedure remains the same. Thus, authorised enhanced cooperation forms a mini-Union within the European Union which is entitled to enact laws under the same procedure as the whole European Union.
The procedural framework for enhanced cooperation involves the willing Member States, the European Commission, the Council, and the European Parliament. The right of initiative rests with the willing Member States; they have to issue a request to the Commission. The Commission then reveals whether the requirements set by the European treaties are satisfied. If this is the case, the Commission may entrust the Council with that matter. The Council can authorise enhanced cooperation with a qualified majority vote after the European Parliament has granted its consent.
Despite the political decision of the Member States to allow differentiated integration within the European Union, the requirements set for establishing enhanced cooperation by the European treaties grant a clear preference to unify European actions over enhanced cooperation. Enhanced cooperation can only be established if the legislative attempt cannot be attained within a reasonable period by the European Union as a whole.9 The requirement that any enhanced cooperation must be open to all Member States at any time is another indicator that a uniform European approach is still the favoured option, despite the existence of the enhanced cooperation procedure.
9 Art 20 Subsection 2 of the TEU.
The provisions enshrined in the European treaties on the enhanced cooperation procedure touch on the protection of the European internal market, the non-participating and participating Member States, and the priority of all-binding European measures. However, the provisions are drafted vaguely, and thus leave much room for interpretation as well as misinterpretation. The vague drafting of the constitutional framework for enhanced cooperation is particularly problematic, since the decision on whether or not to establish enhanced cooperation is purely political.10 Thus, the legal requirements may be misinterpreted and in turn prevent the establishment of enhanced cooperation.11 This already indicates the particular importance of clearly distinguishing between the political and legal dimension of enhanced cooperation. The latter is provided for by the provisions of the European treaties; the former is, however, a decision which has to be taken by the Member States on a case-by-case basis, and which may not be open to a clear ‘yes or no’ answer, as is the case with the legal requirements.
B. Political versus Legal Issues
The enhanced cooperation procedure has two important dimensions: a legal and a political one. The political aspect is enshrined in Art 20 Subsection 1 of the Treaty on European Union (TEU) and demands that any ‘[e]nhanced cooperation shall aim to further the objectives of the Union, protect its interests and reinforce its integration process’. Accordingly, enhanced cooperation must not undermine the integration process or harm the interests and objectives of the European Union. It is however questionable whether the need to foster European integration forms a legal requirement and, if so, how one should decide on whether enhanced cooperation does more harm than good. The question thus arises: should enhanced cooperation be allowed? The search for the turning point at which enhanced cooperation is more harmful than useful reminds us of the work of a doctor who constantly acts under the premise ‘first, do no harm’ (‘primum non nocere’).12 In that respect, one may argue that an additional piece of legislation only adds complexity, and if it does not even bind all the Member States, the complexity factor (in particular between the Member States inside enhanced cooperation—the insiders— and the Member State outside the enhanced cooperation—the outsiders) prevails, and thus, enhanced cooperation should only be an option for very small technical
10 Carole Lyons, ‘Flexibility and the European Court of Justice’ in Gráinne De Búrca and Joanne Scott (eds), Constitutional Change in the EU: From Uniformity to Flexibility? (Hart Publishing 2000) 106.
11 The CJEU has the power to interpret these requirements: Carole Lyons, ‘Flexibility and the European Court of Justice’ in Gráinne de Búrca and Joanne Scott (eds), Constitutional Change in the EU: From Uniformity to Flexibility? (Hart Publishing 2000) 97 et seq. Jo Shaw, ‘The Treaty of Amsterdam: Challenges of Flexibility and Legitimacy’ (1998) 4 European Law Journal 63, 79 et seq.
12 The comparison has been drawn by Adam Zalasinski during a private conversation with the author.
