National Courts’ Treatment of Tax Rules that Conflict with the EC Treaty

Abstract: How is a national court to proceed when it finds that a national tax rule conflicts with the EC Treaty provisions on free movement? The answer may seem obvious. Since the Treaty provisions on free movement have direct effect, they prevail over conflicting national legislation, and therefore the court must set aside the conflicting rule. But precisely what is meant by ‘setting aside’ a tax rule? Does the rule lose all force, and is taxation to take place as if the rule did not exist at all? If so, may one replace the rule with other tax rules or is there quite simply a ‘gap’in the rules? Or, when applying the law, is it permissible instead — at least in some cases — to modify the requirements and/or the fiscal consequences prescribed by the conflicting rule so that it may still be applied, but in a manner compatible with EC law? And, if so, how far may judges go without becoming legislators?

These are examples of questions that are raised and discussed in the article. The issues are illustrated by some judgments from, for the most part, Swedish courts in which national tax rules have been appraised in the light of the Treaty.

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