Kerckhaert-Morress and the U.S. Internal Consistency Test Presentation for the University of Heidelberg 6.16.22.pptx

An Internal Consistency Test For
Europe:
A Comparative Analysis To U.S. Case Law
Charlie Lincoln

TABLE OF CONTENTS
• Research Questions
• Kerckhaert-Morres (2004) Simplified facts
• Simplified facts of Maryland v. Wynne
• Simplified US rule
• US Test applied to Kerckhaert
• Replicate this test for other cases
• Why these cases?
• Research Methodology
• Contribution to Field

Research Question
• Why does the European Union allow state protectionist measures – often leading
to double taxation to exist?
EU: Kerckhaert-Morres (2004)
case and its implications
allowing double taxation
US: Wynne v. Maryland (2015)
case not allowing double
taxation
What would happen if the EU
Kerckhaert-Morress case (and
other cases) used the Wynne
rule? Would the result differ?

KERCKHAERT-MORRES (2004) SIMPLIFIED FACTS
DIVIDENDS OF 100 €
100€
subject to
withholding
tax 15%
leaving
France
without
regard to
where the
money goes
Belgium
levies tax at
25% of 100€
without
regard to
where the
money
came from
Commercially
friendly result
would be Belgium
forgiving French
taxes – or maybe
France relieving
Belgian taxes
Actual result is the
100€ being taxed
at 15% and 25%
total 40% -
double taxation

SIMPLIFIED FACTS OF MARYLAND V. WYNNE
DIVIDENDS OF $100
Withholding
tax of 15%
on $100
leaving Utah
without
regard to
where the
money goes
Maryland
levies tax at
25% of $100
without
regard to
where the
money
comes from
Commercially
friendly result
would be
Maryland forgiving
Utah taxes
Actual result is the
100 Dollars being
taxed at 15% and
25% total 40% -
again double
taxation

SIMPLIFIED US RULE
• First Prong: Substantial nexus requirement
• The commercial activity being subject to tax must have a substantial nexus to the
jurisdiction taxing
• Second Prong: Fair appointment requirement
• The tax must be fairly apportioned and meet internal consistency test
• Third Prong: Nondiscrimination requirement
• The tax must not discriminate on interstate commerce
• Fourth Prong: Fair relation to services provided by the state requirement
• There must exist an reasonable relationship between the tax imposed by the state on
the taxpayer and the services provided by the taxing jurisdiction

US TEST APPLIED TO KERCKHAERT
• First Prong: Substantial Nexus Analysis
• Here, it is likely that a court applying the substantial nexus requirement would meet the requirement of
having met a substantial nexus because the dividends subject to tax originated in France and are sent to a
Belgian resident.
• Second Prong: Fair Apportionment Requirement
• Here, it is likely that a court applying the fair apportionment requirement would likely find that the tax is
fairly apportioned.
• However, the analysis does not stop here. The key question in fair apportionment is the question of the
internal consistency test. The internal consistency test hypothecates a situation where every state in the
Union adopts a similar tax regime
• If such was the case, then no country in the European Union would provide for double tax relief because the
domestic provision referred to in the tax treaty no longer existed.
• Thus no need to go to other tests – it already failed.

REPLICATE THIS TEST FOR OTHER CASES
• Case C-513/04, Kerckhaert & Morres v. Belgium, 2006 E.C.R. I-10967
• Case C-128/08, Jacques Damseaux v. Belgian State, 2009 E.C.R. I-06823
• Case C-67/08, Margarete Block v Finanzamt Kaufbeuren, 2009 E.C.R. I-883
• Case C-336/96, Gilly v. Directeur des Services Fiscaux du Bas-Rhin, 1998 E.C.R. I-2793
• C-403/03, Egon Schempp v Finanzamt München, 2005 E.C.R. 1.6421

WHY THESE CASES?
Effectively now, the ECJ operates as a common-law court. Thus, the quantitative value of
citation plays a key role. The thinking to decide these cases in the following syllogism:
1. The common law system of stare decisis depends on how important a cited term is. This
frequently depends on the number of citations.
2. The ECJ is a common-law court.
3. Thus, given that the ECJ is a common law court, a practitioner before the court and
academic must look to the number of citations both in tax literature and more importantly
within the court itself to decide which cases are most important.

EMPIRICALLY – THESE ARE THE CASES
• Additionally these reasons:
(1) because they use a specific phrase “parallel exercise of taxing power” (get the exact phrase.)
– more specifically Gilly is the first representation of this rule and Kerckhaert has similar facts to
Wynne.
(2) these cases only work with individuals and personal income (not other items of income) –
thereby limiting the scope of this dissertation.
(3) They represent the disparities causing double taxation within the context of individuals and
personal income tax.
(4) Went on Westlaw, used the phrase “double taxation” and “parallel exercise of taxing power”,
and found these cases to be cited the most.

BY THE NUMBERS
• At the time of writing this dissertation:
• The Court of Justice cited the Kerckhaert case 35 times; by the General Court 1 time; by the EFTA 2
times. This means EU courts have cited Kerckhaert 38 times.
• The Court of Justice cited the Damseaux case 16 times; and by the General Court 1 time. This does not
include the original case itself. This means EU courts have cited Damseaux 17 times.
• The Court of Justice cited the Gilly 85 times; the EFTA Court cited Gilly 6 times, and the General Court
cited it once. This does not include the original case itself. This means EU courts have cited Gilly
• The Court of Justice cited Margarete Block 17 times; by the General Court 12 times; by the Civil
Service Tribunal 2 times; and by the EFTA Court 1 time. This means EU courts have cited Schempp 32
times.
• The Court of Justice has cited Schempp 48 times; by the General Court 1 time; by the Civil Service
Tribunal 1 time; by the EFTA Court 1 time. This means EU courts have cited Schempp 51 times.

Research Methodology
• This dissertation takes specific cases from the ECJ. The cases are picked based on
citations within the court and within citations in the tax literature.
• Those case facts will remain unchanged but this dissertation will test those cases
with the rule outlined in the Wynne v. Maryland (2015) US Supreme Court case.
• The results will determine whether the ECJ cases would turn out different results.
• If the result is positive, then this test provides evidence the rule could benefit the
EU.
• If the result is negative, then this test provides evidence the rule may not benefit
the EU.

DISCLAIMER OF A MISSING CASE
• There could be a singular case that applies the internal consistency test without
using that phrase.
• “A rose would smell as sweet by any other name” – Shakespeare.

Contribution to Field
• Comparative law tradition
• Similar to how European polities adopted the Byzantine Code of Justinian (Corpus
Juris Civilis - Ιουστινιάνειος Κώδικας) and applied it to the facts occurring in their
“courts”, what would happen if the ECJ adopted the US internal consistency test?
• Only three publication discuss the ECJ adopting internal consistency in depth:
• De Vijver - International Double Taxation in the European Union: Comparative Guidelines
from Switzerland and the United States (2017).
• Jasper Korving – Internal Market Neutrality (2019)
• Ruth Mason, Made in America for European Tax: The Internal Consistency Test, 49 B.C. L.
Rev. 1277 (2008)

DE VIJVER - INTERNATIONAL DOUBLE TAXATION IN THE EUROPEAN
UNION: COMPARATIVE GUIDELINES FROM SWITZERLAND AND THE
UNITED STATES (2017).
• My summary of De Vijver’s article barebones:
1. That US Supreme Court has XYZ powers/competences.
2. ECJ has XYZ powers/competences.
3. US Supreme court also has ABC powers/competences.
4. Therefore, because (1) and (2) are similar, (3) should prove that ECJ also has ABC powers/competences.
• For me, just because (1) and (2) are similar does not prove (3)’s ABC powers/competences should also
apply to the ECJ for step (4).
• I think De Vijver’s (4) step does not logically follow – or at least is a big stretch. I think it is a false
equivalence. The US Supreme court does not have a par all lack of competence like the ECJ does.
• Such a conclusion is likely a false equivalence; having similarities of some competences does not lead
to similarities of other competences.
• However if one takes the conclusion of De Vijver’s argument as true – or at least desirable - then the
internal consistency test could potentially lead to a potential way to resolve double taxation brought
up by disparities.

RUTH MASON, MADE IN AMERICA FOR EUROPEAN TAX:
THE INTERNAL CONSISTENCY TEST, 49 B.C. L. REV. 1277
(2008)
• Mason proposes a similar central question that this dissertation proposes:
• What would happen if “the ECJ adopt the “internal consistency test” in tax cases. Under this
approach, developed by the U.S. Supreme Court to analyze state tax discrimination claims
under the Dormant Commerce Clause, the ECJ would ask: If all twenty-seven member states
enacted the challenged rule, would intra-Community commerce bear a burden that purely
domestic commerce would not also bear?”
• Differences between this Ph.D. dissertation and Mason’s article:
1. The presence of Wynne as a key case to distinguish Kerckhaert, and
2. This Ph.D. dissertation engages in an extensive comparative law analysis testing each of
the ECJ cases chosen for this analysis and applying the internal consistency test to the
facts of the ECJ cases.

JASPER KORVING - INTERNAL MARKET NEUTRALITY
(2019)
• Korving applies the internal consistency test in relation to market neutrality in his
dissertation.
• Key contention with the US internal consistency test: Korving is not confident such
changes would lead to differing results. It may change the result of the Kerckhaert
case. But there would still be issues with the overall tax framework because certain
“disparities” may still exist.
• Differences with this Ph.D. dissertation’s goals:
• Limited in scope: Korving does not go into detail about how the internal consistency
test is tested in relation to the dormant Commerce Clause in the US.
• Less testing: Korving does not test it extensively. Korving’s is valuable because he
recognizes the need for testing the internal consistency test. Thus, his dissertation’s
portion discussing the US rule acts as a staging point.

Kerckhaert-Morress and the U.S. Internal Consistency Test Presentation for the University of Heidelberg 6.16.22.pptx

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Kerckhaert-Morress and the U.S. Internal Consistency Test Presentation for the University of Heidelberg 6.16.22.pptx