Legitimacy of the EU Standard of Good Governance and Fair Competition and of the Harmonization of Direct Taxation

In a Union in crisis (i.e. refugee crisis, BREXIT), there is a clear necessity to reinforce the issue of legitimacy of the EU to grapple with legislative measures and actions in the field of direct taxation (companies and individuals). Now more than ever the Union is at a crossroads: on the one hand, institutional reforms made operative in the Treaty of Lisbon to strengthen democratic decision making in the Union and European citizenship, and on the other hand the lack of political will to drive the European project towards achieving the goals of solidarity and equality laid down in article 3 TEU. Taking into account the Member States’ sensibility towards direct taxation, paper aims to critically assess the legitimacy of the EU to drive the subtle process of creeping competences in direct taxation. The concept of legitimacy can be used with different interpretations and connotations but as rightly stated by Van Staden, the main question to be answered in legitimacy is: what gives them the right to do that? Van Staden has correctly argued that legitimacy deals with the decisions that bind members of the community and the acceptance by these members of those rules (Van Staden 2003). The concept of legitimacy has been used to address the role of the European Union as a supranational institution (Kohler and Ritterber 2007), as a principle of international economic law (Krajewski 2008), and as a principle of administrative law (Esty 2006) among many other topics. The concept of legitimacy as developed by Scharpf (input and output legitimacy) has been used in models of EU governance (Scharpf 1999 and 2012). In this context, this paper aims to assess the legitimacy of global tax governance by the EU in respect of EU and third (non-EU) countries and to provide recommendations for the conditions under which the model of global tax governance can exist? To accomplish the legitimacy test of the EU measures at stake, this research uses Scharpf’s distinction between input legitimacy (i.e. government by the people) and output legitimacy (i.e. government for the people) (Scharpf 1999) The theory suggested by Scharpf may contribute to assess whether the EU measures are legitimate not only with respect to the EU Member States and their taxpayers, but also with respect to third (non-EU) countries. Regarding EU countries, this objective takes into account the tax sovereignty principle and the unanimity rule of measures dealing with direct taxation which conflict with the need of EU countries to find common solutions to tackle artificial profit shifting and to ensure a level EU playing field. In regard to third (non-EU) countries, this research will investigate the legitimacy of the state aid investigations and the conditionality for these countries to include a good governance and fair competition provision in their agreements concluded with the EU or with EU countries (COM (2016) 24).