Made in America for European Tax: The Internal Consistency Test

Abstract

The European Court of Justice ("ECJ") has come under increasing criticism for overstepping its institutional authority in tax cases by invalidating national tax regimes that are not discriminatory. This Article offers an explanation for the ECJ's difficulties in tax cases. "Overlapping taxation"—the simultaneous exercise of tax jurisdiction by two states in cross-border tax cases—tends to create real, but nondiscriminatory, cross-border tax disadvantages that the ECJ may mistake for discrimination. When the ECJ mistakenly invalidates nondiscriminatory tax legislation, it encroaches on the tax sovereignty of the European Union member states and undermines their tax policy goals. To address this problem, this Article proposes that 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? This Article shows how use of this test could reduce the risk of judicial error in tax cases, thereby deferring to member state tax autonomy while potentially fostering market integration.