Presentation delivered during the Conference held in Birmingham (January 31st 2017), Tax Research Center of the University. The Author is arguing the possible application of the modern Limology (theory of the Borders) (Nail, 2016) to taxation and brings evidence to this.

1. Cuius Regio, Eius Tributum
[Whose Realm, His Tax]
Redesigning Borders and the Power to Tax in Europe
Birmingham, January 31st 2017

2. Towards a Limology in Taxation
• We live in an Age of Borders, which are increasing as mobility
intensifies (Nail, 2016);
• Legal phenomenon;
• Social phenomenon;
• Economical phenomenon (Kotler, 2015);
• (Modern) Europe is built on balance (Kissinger, 2014):
• Between powers within the State;
• Between States (or territorial Sovereign Entities) sharing borders;
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3. Finding the Roots of Modern Europe
• Peace of Westphalia (1648) – Augsburg (1555):
• Cuius Regio, Eius Religio;
• Non-interference between States / territories in religious issues;
• Territories are sovereign in a number of fields;
• No Primacy in the Old Continent;
• In Southern Europe:
• Roncaglia’s Diet (General Assembly) 1158 (German Emperor vs League of
Cities);
• The Emperor surrenders to the cities qualified iura regalia (royal privileges,
royalties) (1183);
• The power to tax is one of these.
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4. The Consequences in Taxation
• Borders / Sovereignty / Territory operate as limits:
• To the Power to tax of the State;
• To the legitimization of taxes and their application, limited to the land on
which the State exercise its prerogatives (Schmitt, 1950);
• In the Common law countries (Mallinak, 2006):
• Revenue Rule:
• UK (England): Attorney General v. Lutwydge (1729) 145 Eng. Rep. 674 (ex
Div.); (…)
• USA: Maryland v. Turner, 132 N.Y. 173, 174 (1911);
• “It is a principle universally recognized that the revenue laws of one Country have no
force in another”
• Canada: USA v. Harden (1963) 41 D.L.R. 2d 721.
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5. The strange Nature of Tax Borders
• Power to tax defies physical borders (Croxatto, 1989);
• Need to distinguish:
1. Enforcement of taxes (limited to the territory);
2. Possibility to assess taxable bases (virtually unlimited);
• Customary rules limiting (bordering) the power to tax ?
• International Tax as International Law (Avi-Yonah, 2004);
• Need for a Nexus (for the legitimate exercise of the power to tax) (P.
Musgrave, 1972):
1. Source;
2. Residence;
3. Citizenship.
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6. The Age of Convergence
• Organization for Economic Co-operation and Development (OECD):
• Model Tax convention(s) and Commentaries;
• Soft law facilitating a spontaneous Convergence
• BEPS Action Plan, and Action 15 in particular;
• Multilateral instrument envisaged to overwrite existing bilateral Treaties facilitating
the implementation of the other BEPS measures;
• Not a change in Customary Law, but a series of Exceptions to the
Revenue rule.
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7. The Age of Convergence Cont’d
• Indirect taxation:
• Customs law: from GATT to WTO
• Progressive removal of any barriers (of fiscal nature) to the circulation of
goods between States;
• Most favoured Nation clause;
• Progressive reduction of the revenue generated by Customs;
• In the EU the revenue generated belongs to the Union.
• VAT / GST / Consumption taxes:
• Progressive implementation of the multiple stage turnover tax around the
world (although significant differences occur);
• FSC case (US v. EC, WT/DS108/AB/RW decided on January 14 2002).
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8. Regional Convergence
• The European experience:
• Fundamental freedoms: a legal structure based on free movement /
circulation and establishment;
• Direct taxation:
• First period of Convergence (1990 – 2003):
• Directives aimed at facilitating cross border investments and drafted to protect the
taxpayer;
• Second period of Convergence (2003 – 2016):
• Directive aimed at fostering the power to tax of the state, including the exchange of
information, a better mutual assistance, and eventually the Anti Tax Avoidance Package.
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9. The other Driver of Convergence
• Human Rights Doctrine (1950);
• European Convention on Human Rights and the Case law of the Court
of Strasbourg:
• Human Rights have no borders and can be applied also to Tax Law (Baker,
2000);
1. Due process clause;
2. Due procedure clause;
3. Protection of Property;
4. Non-discrimination;
5. …
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10. The Pendulum swings
• Nail’s Paradox: More mobility brings eventually more borders;
• The Referendums in Europe:
• France and The Netherlands 2005, UK 2016.
• The new US Policy on Foreign trade:
• The legal response to an Over-intrusive CJEU:
• The “Counter-limits theory” by domestic (Supreme) Courts;
• See the Pizzarotti (res iudicata, C-213/03 Pizzarotti, decided on July 10th 2014)
Taricco (statute of limitations) case by the CJEU and the Response of the
Italian Constitutional Court on January 24th 2017 to Taricco (limitation to
criminal prosecutions against VAT frauds, C-105/14 Taricco decided on
September 8th 2015).
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11. The Borders Within
• Taricco and the aftermath of the Constitutional Court decree,
a Court-driven Italexit ?
• The Borders to the States (“Cuius Regio, Eius Tributum” no
longer ?):
• The State Aid doctrine and the duty to tax, the Apple case;
• C(2016) 5605 final, delivered on August 30° 2016
• The Double standard approach of the Commission, the Boeing –
Airbus case and the WTO:
• DS316 , decided on September 22nd 2016.
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12. Battling for new Bases: DPTs
• In search of new Nexuses:
• The EU-inspired Financial Transaction Tax:
• The place where financial instruments are issued (the issuance principle
2004/39/EC, article 4);
• The Diverted profit taxes:
• Granting a minimum level of taxation in the source state via:
1. A synthetic / artificial link;
2. Permanent establishment reinvented;
3. Anti avoidance provisions (GAAR) broadly interpreted;
4. …
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13. Double Standard in Anti Tax
Avoidance
• Anti Tax-Avoidance Directive, approved on June 20st 2016 and in force
from January 1st 2019, EU(2016)1164;
• CFC provisions with a double standard approach (article 7, § 2, lett. (a)):
• Within the EEA (relaxed);
• Outside the EEA (more aggressive);
• A different border in the application of anti-avoidance provisions (EEA
– Non-EEA cases) ?
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14. Concluding Remarks: some
Findings and Forecasts
• Borders and limes are taking over;
• Increase in complexity make tax borders to collimate with political
borders only on some occasions;
• Increase of (juridical) conflicts:
1. Between Taxpayers and States;
2. Between States;
• A new Middle Age in International Taxation ?
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15. Thanks
marco.greggi@unife.it
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