The EU Principle of Tax Legality and Its Application in France

The principle of fiscal legality is part of the European Union’s legal order. Also called the principle of legality of taxation, it’s considered a general principle of law. There are two different situations it was then ruled as such by the Court of Justice of the European Union (CJEU).

The first time the CJEU laid down this particle law was in Poland. An association of its municipalities said they could deduct all the VAT paid. This is for economic and non-economic ventures. They argued Poland’s tax legislation didn’t have specific rulings. Especially about the standards of apportionment. Their law also didn’t have clear methods for dealing with the issue.

The CJEU looked at the situation based on the principle of the legality of taxation. This is one granted by Poland’s constitutional law. Because of that, the CJEU declared the principle of fiscal legality is part of the EU legal order. It’s a general principle of the law.

The Court then ruled against the lack of rules in applicable tax legislation. It said that doesn’t give the country the right to deduct in full the input VAT.

The importance of the principle of legality of taxation was later confirmed. A case involving Fiat Chrysler saw the Commission ruling it as State Aid. It was also ruled by the Luxemburg tax authorities. It revolved around the transfer pricing analysis of a company. Said company’s involved in intra-group financing actions. But the CJEU ruled the Commission didn’t identify the proper reference framework. It’s to show there is a selective advantage. It’s necessary since the Commission didn’t consider the transfer pricing rules.

The CJEU said national provisions are only appropriate for analysis. They have to assess if transactions stray from the arm’s length principle. The rules and parameters outside the national tax system can’t become considered. The CJEU’s view on the principle of fiscal legality remains.

How to Define the Principle of Legality of Taxation

The decisions made by the CJEU gave rise to many questions. The main one is about the meaning of the principle of legality of taxation.

The principle of legality of taxation is part of EU primary law. It’s relevant to all situations governed by the laws of the EU. It’s because this principle comes from constitutional traditions common among its members. This means members’ reliance on the principle goes beyond State aid and VAT issues. They can turn to it when national tax laws might limit freedom of movement.

This principle must have a distinct interpretation. It’s because it’s part of the EU’s legal order. To that end, the concept of tax might have a different meaning from what’s written in national law. Tax or duty under EU law is set by the Court. It depends on the characteristics. This disregards the classification provided in national law.

How to Use the Legality of Taxation in a French Context

It is not possible to foresee every development that could happen due to the principle. But sectors can consider several probable applications.

This aspect of the principle can result in many engaging applications. Especially if there are doubts caused by the law’s complexity. These are factors judges must think about when evaluating the effectiveness of penalties.

It is good to look into how countries can apply the principle of legality of taxation. Especially when it comes to the work of the OECD. Reassessing taxes based on this can be challenging. This is due to its ideas made on economic reasoning rather than legal. This stirring concept is unknown to French regulations. The question now is whether they can use the principle of legality to respond to a reassessment.

The works of the OECD don’t have normative value. This is despite their value when it comes to interpreting international tax treaties. They also don’t come from Parliament. This means they can’t be a legal basis for taxation. The principle of legality of taxation should then prevent reassessment.

It’s a possible argument to give when there’s a wide-ranging statutory provision. And it’s used as a legal reason for reassessment. It could prove challenging to discern the crucial factors and the technical aspects. This means the result of the argument becomes more in doubt.

There is also the question of how broad the NPS decision is in the principle of the legality of taxation. Especially as it redefined the results of tax discrimination. It conflicts with EU law.

The Conseil d’Etat already ruled it shouldn’t mean a complete tax cancellation. Especially when the law discriminates and is against EU laws. Partial cancellation is enough. But to the extent needed to remove the discrimination.

It’s interesting to look at the NPS decision against the ruling the CJEU issued a few months after the fact. The CJEU stated the principle means the national provisions are then disregarded. But to the extent needed to allow the levying of appropriate penalties. The natural provisions must be opposite to the scale of penalty requirements.

The CJEU says this type of solution isn’t against the principle of legality of penalties. It’s also not contrary to the principle of legal certainty. But only in the sense the applied penalty is less severe than what’s given in the applicable law. Then the latter will become the legal basis for the sanctions.