Introduction to European Tax Law on Direct Taxation

I. S. 55The Fundamental Freedoms

A. General

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Direct taxation falls within the competence of the Member States. Because of their sovereignty they are free to determine the taxable base as well as the tax rate in the area of direct taxes. Only a few areas of direct taxation are harmonized by EU directives; these are dealt with in Chapters 5 et seq. (m.nos. 459 et seq.).

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Even though Member States are exclusively competent for direct taxation, the CJEU has held in its settled case law that the Member States must nonetheless exercise that competence consistently with EU law and avoid any discrimination on grounds of nationality.

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EU law comprises a general non-discrimination provision, Art. 18 TFEU (ex Art. 12 EC), the free movement and residence of EU citizens under Art. 21 TFEU (ex Art. 18 EC) and the five fundamental freedoms, the free movement of goods, the free movement of workers, the freedom of establishment, the freedom to provide services and the free movement of capital. It is the last four fundamental freedoms in particular that have an impact on direct taxation. The articles of the Treaty on the Functioning of the European Union (TFEU) were renumbered by the Treaty of Amsterdam and the...