Should the European Union adopt an internal consistency test? Revised edition

1. COMMERCE CLAUSE
FOR EUROPE?
• DOUBLE TAX IN
EUROPE
• HOW TO SOLVE
NEGATIVE EFFECTS ON
COMMERCE

2. DISCUSSION
EU: Kerckhaert-Morres
(2004) case and its
implications allowing
double taxation
US: Wynne v. Maryland
(2015) case not allowing
double taxation
Should Europe adopt a
similar restriction based
in the US Commerce
Clause?

3. 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

4. PROCEDURAL
POSTURE
• Question to the court:
• Does this type of double taxation violate the
European foundational treaties?

5. ECJ OPINION
• EU Treaty Freedoms do not stop Member States
from “parallel exercise of taxing jurisdiction,” even
if it leads to double taxation
• not a restriction of the free movement of capital

6. POLICY BEHIND CASE
• Court maybe got it right because the court
did not want to legislate from the bench.

7. COMPTROLLER OF TREASURY OF
MARYLAND V. WYNNE (2015).
MARYLAND’S TAX SCHEME AS A WHOLE ENDED UP WITH DOUBLE
TAXATION

8. 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

9. COMMERCE
CLAUSE IN THE
UNITED STATES
CONSTITUTION
• [The Congress shall have Power] To regulate
Commerce with foreign Nations, and among the
several States, and with the Indian Tribes
• — Article I, Section 8, clause 3

10. COMMERCE
CLAUSE
ANALYSIS –
SPECIFICALLY
INTERNAL
CONSISTENCY
TEST
• History of US tax going back to the 1780s
• Test asks whether interstate and intrastate
commerce would be taxed equally if every state
were to adopt the precise tax scheme at issue
• Maryland’s tax failed the test

11. FAILURE OF THE
”INTERNAL
CONSISTENCY”
TEST
• The Court reasoned the unfavorable treatment of
interstate commerce was “not simply the result of
[the Maryland tax scheme’s] interaction with the
taxing schemes of other states” but inherent in
the tax system.
• As such, Maryland’s scheme effectively “operate[d]
as a tariff.”
• And “[t]his identity between Maryland’s tax and a
tariff is fatal because tariffs are ‘the paradigmatic
example of a law discriminating against
interstate commerce.’” i.e., the internal market of
the US.

12. SOLUTIONS
• EU Commission’s encouraging use of treaties to
determine which state must relieve double taxation
• This is not working yet
• EC legislator creates a European framework for the
division of taxing rights
• Writing a commerce clause
• EU tax authority
• Multilateral treaty instrument
• Everyone/majority signs
• ECJ could try to place the “blame” on a state to
relieve double taxation (without the former solutions)
• This is not working yet

13. NEW DEAL FOR EUROPE?