J.L.M. Gribnau and C. Peters
'Taxation is a subject not usually associated with the lighter or more cheerful thoughts of men.'l However, taxation affects the life of almost every person in a state. In a democratic state under the rale of law, legislation must respect the fundamental right of people to equal treatment. Because it is in the nature of laws to classify or discriminate, the principle of equality demands 'treating likes alike'. This is also the case for tax legislation which, like all legislation, must conform to the demands of the principle of equality.
The principles of equality and taxation are historically connected: what is more, the concepts of taxation, equality, democracy and the rule of law have a common history. The current meaning of the principle of equality is co-determined by the history of the relationship between taxation, democracy and the rale of law. Taxation needs democratic legitimacy, i.e., the consent of Parliament, which represents the citizens (no taxation without representation). Democracy is the political expression of the belief that citizens are free and equal, and must therefore be self-governing on terms which respect that free and equal status. In Western democratic societies the citizens, whose liberty is guaranteed by the rale of law, must consent to taxes. The representative institutions are thus a check on arbitrary taxation. With the emergence of legislative bodies, law-making became the shared business of a ruler and a Parliament representative of its subjects, and the law they made was favourable to the interests of all individuals equally: it provided the details of the freedom of every subject, not the privileges of a single class; 'they were the property of every subject alike'.2
The ideal of equality is also an important part of the ideal of the rale of law. The rule of law's objective of restraining political power has led to the aspiration to make power impersonal. Government is to exercise power via general legislation. To law, conceived as a general and abstract norm, is attributed the intrinsic virtue of promoting equality (and security and liberty). General and abstract laws must be applied equally and impersonally to all; thus equality under the general rale of law is secured. Everyone receives the same rights and all receive the protection of the law under the same conditions. In its turn, equality before the law leads to the demand that all men should also have the same share in making the law. The rale of law, however, is not
1 R. Jones, The Nature and First Principle of Taxation (P.S. King & Son, London, 1914), p. 1.
2 M. Oakeshott, 'The Masses in Representative Democracy', in M. Oakeshott, Rationalism in Politics
and Other Essays (LibertyPress, Indianapolis, 1991), p. 369.
J.L.M, Gribnau (ed.), Legal Protection Against Discriminatory Tax Legislation, 1—5. © 2003 Kluwer Law International. Printed in Great Britain.
a self-operating system; it has to be effectuated by government. Government, necessary to enforce rights, has to be paid for by taxes in its turn.
Therefore, the principle of equality resists arbitrary taxation. The tax authorities, interference with an individual's rights and liberties needs democratic consent. The democratic process does not always guarantee compliance with the principle of equality, however: as a result, tax legislation sometimes violates it. On the one hand, municipal law may violate the principle of equality: this may be the principle of equality enshrined in a national constitution or in an international treaty (for example, the European Convention on Human Rights) which is applicable in municipal statute law. On the other hand, the principle of equality may also be binding between states, e.g., those who are members of the European Community. In EC law, non-discrimination is recognized as a general principle and therefore binding on the Community and the Member States within the scope of application of EC law.
The non-discrimination principle, although a general one, is also expressly mentioned in a number of distinct areas in the EC Treaty, e.g., in the context of non-discrimination on grounds of nationality as expressed in Article 12, and in the field of free movement as expressed in Articles 39, 43 and 49-50.
Taxpayers will challenge fiscal legislation which violates the principle of equality. The judiciary is entrusted with the legal protection of the taxpayer, which also includes the testing of the law against the principle of equality.
By so testing the law, the judiciary operates in the tension between democracy and the rule of law, for in democratic constitutions, on the one hand a political dimension can be identified, by virtue of which democracy is the power of the (legislative) majority. On the other hand, the judicial dimension of the rule of law accounts for the fact that even the power of the majority is subject to legal regulations and limits established to guarantee the fundamental rights of all individuals. Democracy and rule of law must be balanced. The legitimacy of the judiciary cannot be assessed without taking into account the performance of the legislature.
The testing of the law is generally regarded as a delicate matter. However, it should be borne in mind that the legislature and the judiciary are partners in law-making. A system of law, civil as well as common law, must be created and developed in the interaction between legislature and judiciary. It must be a product both of statute law and judge-made law (case law). The life of statute law depends on its judicial interpretation. In this way, the rule of law can be understood as an obligation on the judiciary to systematize the law and to keep it up to date. Judges thus are legitimized to assist and co-operate with the legislature (and the administration). The judges further elaborate the law - being an expression of normative principles -and bring it up to date in the light of unforeseen practical developments. They do this within the framework of a coherent interpretation of the law: however, we should not overemphasize this ideal of coherence, because we may risk making the legal system immune to change. Thus, on one hand, the law is in need of consistency, coherence and rationality; on the other, it needs sources of controversy, ambiguity and openness to be able to keep pace with the developments in society. Consequently, judicial review is part of the co-operative effort of law-making. However, the democratically legitimized legislature has priority in law-making, therefore the
judiciary should leave a margin of appreciation to the legislature, and it should certainly be very cautious in reviewing Acts of Parliament. In this way, the creation of law is based on a balance between the legislature and the judiciary. The actual balance will differ in different countries depending on their constitutional structures, their constitutional rights and liberties and, more generally, their democratic and legal culture. Other relevant factors which determine the balance, and therefore the form of judicial review, will be, e.g., tradition, political culture, social arrangements and the economic well-being of the country in question.
This point may be illustrated by comparing judicial review in Germany and in the United Kingdom. The Bundesverfassungsgericht in Germany is a constitutional court which, in a European context, applies the principle of equality in the most far-reaching way. This can be derived from rulings of the court on issues such as the (family) minimum standard of living, the basic tax-free allowance, and taxation according to the assessed value in net-wealth tax.3 In the United Kingdom the government must act within the law, but Parliament seems to have an unfettered power to enact the law. As such, the rale of law appears not to place any substantive constraint (for example, equal treatment) on statute laws, 'provided the government can secure their passage in Parliament' .4
These general observations may serve as introductory remarks for a book which deals with equality in tax law.5 Here several selected topics are presented and, in respect of Germany and the Netherlands, an analysis of some recent case law is given. The contributions by Jaap van den Berge, Dietes Birk and Sophie Boyron are based on papers presented at a seminar dedicated to the principle of equality in relation to the tax law of some European countries. The contribution of Hans Gribnau and Jaouad Saddiki is partly an elaboration of a thesis by Jaouad Saddiki, completion of which was part of the Wintercourse project which is organized annually by EUCOTAX.6 The contribution by Cees Peters is an elaboration of his undergraduate EUCOTAX thesis at Tilburg University in the year 2000 finalizing the study of tax law.
To provide a conceptual and methodological background, Hans Gribnau has written the chapter with which the book opens. The focus of this opening chapter is the relationship between increasingly complex tax legislation and the principle of equality. Gribnau begins with a conceptual analysis of equality; then the focus shifts to the character of the formal principle of equality. He argues that it is not as empty as is sometimes maintained, because it guides the legislature by providing standards with respect to legitimate discriminations. Turning to tax law, the prevailing
3 Cf. ghapter 4 by Birk in this volume.
4 M. Gammie, 'Tax Avoidance and the Rule of Law: The Experience of the UK', in G. Cooper (ed.),
Tax Avoidance and the Rule of Law (IBFD Publications, Amsterdam, 1997), p. 185. Compare chapter 3
by Boyron in this volume.
5 As to the content, this book is in a way complementary to G.T.K. Meussen (ed.), The Principle of
Equality in European Taxation (Kluwer Law International, The Hague, etc., 1999).
6 EUCOTAX (European Universities Co-operating on Taxes) is a joint venture of the Universidad de
Barcelona, the Catholic University Leuven, Queen Mary and Westfield College, London University,
Universitat Osnabriick, Universite de Paris I-Pantheon-Sorbonne, Luiss University, Rome,
Handelshogskolan I Stockholm, Tilburg University and the University of Economics, Vienna.
instrumentalism appears to make it vulnerable to unjustified classifications. Instrumentalist tax expenditures especially may be a response solely to pressures of interest groups without respect for the principle of equality. Gribnau argues that, while recognizing the margin of appreciation of the legislature, the courts should more strictly scrutinize the proportionality of the discriminations involved in these (exceptional) cases of arbitrary tax legislation.
In 1998, the European Convention on Human Rights was incorporated into British law. However, in her chapter Boyron doubts whether this document will go far enough in providing the required constitutional environment for the development of a fully operational principle of equality; more radical changes in constitutional law might be necessary. She argues that the adoption of a written document might be welcome to settle the political differences as regards the content of the principle of equality and many other constitutional principles, since constitutional rules ought to be debated and decided upon by the electorate in order to help facilitate a consensus. This is particularly relevant to the principle of equality in order to define the many choices which this difficult concept entails.
Birk begins his chapter with the observation that the principle of equality is not a very efficient one and does not have much effect on tax law as a whole. This applies equally to Germany and Europe. The establishment of equality of the tax burden in Germany is a task with which the legislature, the administration and the courts are equally faced. The fact that the German legislature is bound by the Constitution to tax equality leads to a constant testing of the legislative measures against the Constitution and, as a result, to a weakening of the legislature's position. In Germany, in Birk's opinion, experience has shown that the decision to bind the legislature to the basic rights guaranteed in the Constitution was a good one. It seems that the confidence in the accuracy of legislative decisions and in the respect for the constitutional principles is much stronger in the other Member States of the European Union than in Germany, in which the legislature is obliged over and over again to prove the claimed constitutionality before the Federal Constitutional Court.
Van den Berge deals with the application of the principle of non-discrimination as embodied in Article 14 of the European Convention on Human Rights and Article 26 of the International Covenant on Civil and Political Rights. He compares the case law of the German Federal Constitutional Court and the Dutch Supreme Court with respect to the ban on discrimination. He draws attention to the difference between the two courts as to the relationship between the non-discrimination principle, e.g., as embodied in the Constitution and in Article 14 of the Convention, and the principle of ability to pay as a general principle of taxation. He also addresses the obligation to provide redress. Here, a crucial question will be whether the court should grant redress to the complainant or leave this to the legislature. The relationship between the legislature and the judiciary is involved with the related question of judicial restraint. Van den Berge argues that the judiciary is not equipped to act as a substitute legislature. In addition, the questions which arise when formulating a new regulation should not be decided in a dispute between only one complaining party and a public body.
The first half of Gribnau and Saddiki's chapter is concerned with some methodological aspects of the 'Dutch' principle of equality. Here the point of departure is
constitutional prohibition on reviewing the legality of legislation against the constitutional principle of equality, except on the basis of incompatibility with an international treaty. As a result, a much greater reliance has been placed on Article 14 of the European Convention on Human Rights than on the constitutional principle of equality. In testing the law, the Dutch Supreme Court leaves the legislature a wide margin for manoeuvre.
In the second part, they compare the principle of equality with respect to taxation in Austria, Spain, France, the Netherlands, Italy, Germany, the United Kingdom and Belgium. The legal comparison concentrates on the different sources of the principle of equality in tax law, the enforcement of this principle, and some aspects of constitutional (or judicial) review in tax law. Thus, the enforcement of the principle of equality may differ according to whether the source of the principle is a domestic constitutional provision or (solely) Article 14 of the Convention. Often, however, the judiciary leaves the legislature a wide margin of appreciation in tax matters. Furthermore, the various constitutional and ordinary courts operate in different societies and legal and political cultures, which accounts for the different methods of application of the principle of equality. Here greater guidance is needed from the European Court of Human Rights.
Peters deals with the freedom of establishment in his chapter. He starts by describing the freedom of establishment as a principle of non-discrimination, focusing mainly on the evolution of this principle inspired by the case law of the European Court of Justice. Subsequently, the effect of the principle on the rules of (international) tax law is described. Three conflicting areas of tax law are dealt with: the treatment of resident and non-resident self-employed persons, the treatment of resident companies and non-resident companies with a permanent establishment, and exit taxes. Although every section begins with Dutch tax law, the main focus is on legal comparison.
Many people besides the authors have been helpful in the realization of this book. Peter Essers initiated it, Ineke Sijtsma checked and polished the use of the English language in most of the texts. In addition, Cees Peters would like to thank Peter Essers, Hans van den Hurk and Marc van Oers of the Fiscal Institute of Tilburg University, without whom writing the undergraduate thesis and the subsequent contribution to this volume would have been much more difficult. For obtaining the information to set up the comparative law study Cees Peters wishes to acknowledge fellow students from the participating universities, in particular, Markus Stefaner, Thor Leegaard, Aude Gross, Jens Gullfeldt, Georg Berka, Andreas Kruchen and Antonio Santoro. Finally, he wishes to thank Marloes Lammers for her assistance in checking the validity of the information in the comparitive study.
Hans Gribnau wishes to thank Pauline Westerman and Richard Happe for their encouragement and comment on a previous draft of his chapter.