7 principles in the tax__constitution relationship.pdf

7 principles in the tax//constitution relationship 1. Legality → whether the constitution allows that regulation or law, cannot be imposed by administration. Related to principle of annuality as tax laws have to be renewed annually. In some countries legality means one of these:...

7 principles in the tax//constitution relationship 1. Legality → whether the constitution allows that regulation or law, cannot be imposed by administration. Related to principle of annuality as tax laws have to be renewed annually. In some countries legality means one of these: a. Tax authorities don’t have the power to enter agreements with individual taxpayers because it implies application of tax outside general rules b. Limits to Administrative discretion to determine whether to grant a tax priviledge (e.g. France) c. Tax law to be constructed strictly since otherwise the judge would be making the law and not the legislator (e.g. Mexico, Japan, Belgium) 2. General Limits to taxing power → limited legislative power v. broad legislative power in federal countries, constitutionally imposed procedural rules on taxation a. US → tax laws originate in House of Representatives. Congress not to disguise a regulatory measure as a tax hence extending its regulatory reach beyond what is constitutionally approved b. France → organic budget law imposes procedures to be followed during tax legislation 3. Explicit Limits to types of taxes → often in federal states (e.g. US hasd to dermine whether various levels on exports constituted taxes since the constitution prohibits such taxes, whether specific taxes were considered direct since there is a constitutional limit on how many direct taxes can be imposed) 4. Federalisation/Federalism → allocation of tax power between state and regional authorities a. Legislative authority (can be subdivided) b. Administrative authority (who collects) c. Right to receive revenues In Germany these different elemets are split with respect to particular taxes. In a few OECD countries do different VAT rates and corporate income tax apply in different subnational jurisdictions (US, Canada, Switzerland). Autonomous tax authority 1. US → constitution Commerce Clause; permits state taxation only where it (a) applies to an activity having nexus with the taxing state (b) is fairly apportioned (c) doesn’t discriminate against interstate commerce (d) is fairly related to services provided by the state. 2. Canada → tax rates vary across provinces both for income and VAT. A corporation's taxable income earned in a province is determined as: ½ of the taxable income allocated to the province on the basis of the permanent establishment revenue of the corporation in the province and ½ allocated to the province on the basis of wages paid to permanent establishment employees. (special rules for insurance companies) 3. Switzerland → independence of provinces. intercantona l double taxation avoided by federal court rulings with constitutional Art. 127, federal tax harminisation law and intercantonal concordats. 4. Sweden → municipalities have some tax raising authority 5. Nonretroactivty → true retroactivity and de facto retroactivity (no tax consequences). Technical mistakes in tax legislation passed to be fixed retroactively, or when reversing a judicial decision with which the legislature disagrees. No constitutional protection against retroactivity. A law passed befare the conclusion of a taxable year could apply as of the beginning of that year, because the taxable event (determination of taxable income) does not legally occur until the books are closed at the end oí the year.  a. France → Con.C. ruled laws are allowed to be retroactive as long as they don’t disturb specific cases b. EU → ECHR compatible with retroactive legislation as long as it serves a legitimate purpose and is not disproportionate (Huitson?) c. US → discretion to Congress as retroactivity is not a violation of substantive due process if it is rationally related to a legitimate legislative purpose d. Germany → extensive jurisprudence to protect taxpayer’s ability to rely onexisting tax legislation, retroactive tax legislation allowed only under specific circumstances where there is compelling public interest. Prohibition of retroactivity based on rule of law and it is only justified where: i. De minimis retroactive consequences ii. Unclear or contradictory law befor enactment iii. Required retroactive application in order to correct a constitutionally defective legal rule (e.g. violation of equality principle) iv. Required retroactive application due to public interest e. Spanish & Italian → intermediate position 6. Equality → US (low level scrutiny), France (Mid), Germany (High) a. Germany i. Interest income - unconstitutional tax scheme (equality violation). Too much tax evasion on nondeclaration that the decorators were taxed unfairly. However the scheme was not invalid and remained for transitional period and the defect could be remedied by legislation (Effective provision of info by banks to tax authorities or flat-rate) ii. Net wealth tax - unconstitutional as its valuation rules resulted in value disparities for different properties compared to market value iii. Constitutional protection of liberty prohibits confiscatory taxation (no more than 50% of a property when combined with other taxes) iv. Protection of family relevant to wealth tax, requirement of respect for continuity of property of the marriage and family v. Stricter scrutiny → cases of constitutionally protected rights, not reserved for fundamental rights only. Discrimination of tax treatment of political parties to be justified under “special, urgent reason” vi. Statutory interpretation → narrow interpretation of the law by lower courts violates equality principle when it calls for broader interpretation. The principle influences interpretation under the theory that a statute should be interpreted so as to be constitutional when possible b. France → struck down tax laws especially when they were found to violate equality as in procedural equality before the law/procedural due process. Occasionally CC struck down legislation on the right to equality when found arbitrary. In general CC is reluctant to find tax distinctions to violate equality. Nevertheless, the legislation is free to provide concessions which are in the public interest. Support for the family to be provided through means other than the tax system c. US → reluctant to find discrimination in tax law to violate equality. Nordinger v. Hahn involves equal protection clause challenge to the manner in which real property is assessed under the California constitution. 7. Marriage → different tax standards and types applied based on the jurisdiction, some countries protect marriage and family constitutionally. Courts in these countries have generally found that special protection is violated by joint taxation of married couples that  results in a higher tax than the combined tax for single persons. Sorne courts see such joint taxation as a violation of equality. a. Joint taxation unconstitutional in Germany as the aggregation oí a married couple could not be justified on the basis that the couple formed a household unit, because unmarried couples could also form such a unit, and the law did not reach such units (also Cyprus, Ireland, Italy, Korea and Spain). Austria → retroactivity permitted only under special circumstances; scrutiny of laws for violation of equality as good reason must be adduced to justify legislative classification (also Belgium) Italy → constitution has struck down few tax provisions on equality Spain → constitutional clause guaranteeingequality in taxation matters. Applies generality, equality, progressivity, nonconfiscation and economic capacity to taxation through constitution. European Tax law “The validity of a community instrument cannot be affected by allegations that it runs counter to fundamental rights as formunated by the constitution of an MS” except insofar as these fundamental rights are recognised at an EU level based on common constitutional traditions of the member countries. EU doesn’t really resemble a federal state as it has no power to tax on its own it has its own source of revenue → customs duties, industry based levies on coal, steel, sugar and insoglucose, income tax on it staff and revenue sharing linked to VAT Debate on the extent of EU tax harmonisation; interpretation of domestic legislation often relies on directives and EU law to be minded for domestic tax law understanding. Positive & negative integration to be used for minimising common market distortions. Positive being harmonisation of actions taken by the Council in the form of directives and regulations, negative being policeing of distortive tax measures by MS carried out by the Commission and CJEU. when the Council adopts tax harmonisation provisions it must act unanimously which slows down tax harmonisation in the EU EU achieved unification of customs duties through Customs Code that applies to all MS replacing internal customs duties. VAT harmonised as internal VAT laws apply but in conformity with EU directive. Limited excise tax harmonisation. Little harmonisation in income tax - key harmonisation measures with direct effect (taxpayers can rely onthem when domestic law is inconsistent) - Parent-Subsidiary Directive → relieves from taxes dividends paid by subsidiaries of EU companies to parent companies - Merger Directive → harmonised tax rules for cross-border reorganisaitons - Arbitration Directive → binding arbitration in the event that competent authorities cannot agree European Finance Ministers signed Code of Conduct pledging to address harmful tax comeptition - not binding it is instrumental against tax erosion Social security → coordinated on the bsis that employees pay S.S. contributions in the state they are employed in. SS and income tax differs within the EU = coordination issues Limitations on taxation by MSs → absence of internal custom duties and prohibition of MS to tax as in to impede free movement of goods, services, workers, establishment and capital. Prohibition of discrimination on nationality. Prohibition against tate aid although tax rulings are not illegal state aid but need to be examined whether it departs from general taxation rules and confers to selective advantage. EU law shows common development of statutory construction 1. Due to many possible interpretations of a law in different languages CJEU favors teleological interpretation 2. EU law affects domestic legislation interpretation in areas harmonised by directives. Possible to use directive as evidence of legislative intent 3. Interpetation of EU law raises issues on tax law-civil law relationship as they share concepts 4. Purposive approach of EU statutory interpretation may inference jurisdictions whin the EU which had not been so enthusiastic about the purposive approach before. Bilateral tax treaties usually have a dispute resolution clause that helps the tax authorities to agree on the solution EU HR Convention Protection of property, prohibition of discrimination, requirement of due process. CJEU and National courts can apply it; fair trial provisions do not apply in tax matters but criminal trial procedural protections do. Significant for countries e.g. UK (Human Rights Act 1998) & Netherlands that lack constitutional review courts Lisbon treaty innovations in HR recognition 1. Recognition of Fundamental Rights charter thus giving the charter binding legal force 2. Requires EU to become a formal party to the Convention rather than treating it as substantive rules/source of rights