The Economic Effects of Court of Justice Tax Jurisprudence

The aim of this paper is to establish whether jurisprudence of the Court of Justice of the European Union (CJ) on corporate tax leads to a more level playing field and increased tax neutrality within the European Internal Market. It uses two rulings as case studies to demonstrate how the jurisprudence of the Court does not necessarily lead to increased neutrality or a more level playing field. The first ruling in Lankhorst-Hohorst regards the compatibility of thin capitalisation with free movement provisions; the second in Marks & Spencer concerns the compatibility of rules on group consolidation with those same provisions. An economic analysis demonstrates that, depending on the reaction of Member States to the ruling, differences in capital costs faced by firms operating in the European Internal Market may increase, whilst GDP and welfare may decrease. Consideration of actual legislative amendments introduced to thin capitalisation rules by Member States following Lankhorst-Hohorst and to group consolidation rules following Marks & Spencer seem to indicate that it is this negative scenario which has prevailed. The paper considers the European constitutional implications of this conclusion.