Tax Discrimination: A Comparative Analysis of U.S. and E.U. Approaches

Earlier versions of this article were presented at the American Tax Policy Institute Roundtable,the 2004 Critical Tax Conference at Rutgers School of Law-Newark, Seton HallUniversity School of Law, the 2005 Critical Tax Conference at Seattle UniversitySchool of Law, the Tax Research Network Conference 2005 at Edinburgh Universityand the Comparative Fiscal Federalism Conference at the University of Michigan LawSchool.Both the United States of America and the European Union were founded in part because of the need for economic unity. The United States was formed in 1787 in hopes of a solution to “the mutual jealousies and aggressions of the States, taking form in customs barriers and other economic retaliation.” The U.S. Constitution, however, establishes the dual sovereignty of the states and the federal government and reserves to the states the power to define their own tax systems. More than one hundred and fifty years later, the founding countries of the European Economic Community strove to establish a common market in 1958. The Single European Act incorporated the objective of an internal market into the founding Treaty (known as the EEC Treaty). Thus, the European Union (EU) also has evolved into a project for economic union. To create such an economic union, the EEC Treaty contemplated the removal of obstacles to the free movement of goods, persons, services, and capital between the Member States. These Treaty provisions are known as the “four freedoms” and, together with the freedom of establishment, they constitute the fundamental rules of the European Community’s internal market.