Article 116 TFEU – The Nuclear Option for Qualified Majority Tax Harmonization?

Abstract

Taxation is one of the few policy areas left after the Lisbon Treaty where in principle, decision-making still requires unanimity in Council, and where the EU Parliament is little more than a spectator. In a Union of twenty-seven Member States – Brexit won’t make much of a difference in this regard – this status quo frequently results in an impasse over tax reform proposals, and it tends to petrify existing EU tax legislation. Moreover, the special legislative procedure which sidelines Parliament diminishes the democratic legitimacy of legislation in an area where democratic accountability should be paramount. In an attempt to break legislative deadlocks, the Juncker Commission in January 2019 unveiled its ‘roadmap for a progressive and targeted transition to qualified majority voting (QMV)’ in EU taxation policy, and proposed using the ‘passerelle clause’ in Article 48 (7) Treaty on European Union (TEU) to this effect However, the adoption of a decision to amend the EU Treaty under this procedure requires, in itself, unanimity in the European Council, and it very quickly emerged that this would not be a realistic option in the foreseeable future. Against this background, the new Commission President von der Leyen has now pledged to ‘make full use of the clauses in the Treaties that allow proposals on taxation to be adopted by co-decision and qualified majority voting’ to deliver on her ambitious tax policy agenda. As the Commission itself had previously acknowledged, the (almost) only existing Treaty provision that might lend itself to this kind of revolutionary approach is Article 116 Treaty on the Functioning of the European Union (TFEU). But is Article 116 TFEU really the nuclear option for QMV in EU taxation law, occasionally invoked already in the past but never exercised so far? And if so, would it be wise for the EU Commission to draw this option now? Art. 116 TFEU addresses situations where a difference between normative provisions in Member States is distorting the conditions of competition in the internal market and where the ensuing distortion ‘needs to be eliminated’. Beyond the necessary internal market dimension, this competence clause is not limited in substantive scope and it therefore potentially also covers tax legislation. This notwithstanding, the criteria for legislation stipulated in Article 116 TFEU are stricter than those laid down in Article 113–115 TFEU in several regards. Unlike the latter provisions, Article 116 TFEU cannot be relied on to tackle distortions that do not stem from the pursuit of different regulatory approaches or taxation concepts by several Member States, but merely arise from the parallel application of essentially identical but uncoordinated national tax regimes. Moreover, the diverging national provisions must already be in force. The mere risk of a possible distortion due to projected legislation is dealt with separately in Article 117 TFEU, which does not provide a legal basis