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Part I. The Concept of Tax in EU Member States Draft 06 05 2005

− General Introduction and Comparative Analysis

by1: Bruno Peeters

2, U. of Antwerp (Belgium)

Marco Barassi, U of Bergamo (Italy); William B. Barker, Penn State Dickinson School of Law USA Marc Bourgeois, U. of Liège (Belgium) Lorenzo del Federico, U. degli Studi G.D. Annunzio (Italy) Gisela Ruth Suchy, U of Paris (France); Henk Vording, U. of Leiden (Netherlands) The paper also includes materials, ideas and comments (some of them literally quoted or listed in an Annex) provided by: Pilar Alguacil U of Valencia (Spain); Pierre Beltrame U of Aix en Provence (France); Mattias Dahlberg U of Uppsala (Sweden); Guglielmo Fransoni, U of Foggia (Italy); Marco Aurélio Greco, Fundação Getúlio Vargas(Brazil); Sigrid Hemels U of Leiden (Netherlands); Claudio Sacchetto U of Torino (Italy); Alain Steichen, U. of Luxemburg (Luxemburg); Victor T. Thurony (International Monetary Fund).

1 The author of each section is indicated in the text after the title. 2 Coordinator of the sub-group.

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Table of contents

Introduction (B. Peeters) 1. 0. The relevance of a concept of tax

1.0.a. Normative considerations (W. Barker and H. Vording)

Considerations of W. Barker Considerations of H. Vording I. Outline of this section

II. Liberatarian views on taxation III. Utilitarian views on taxation IV. Should property rights limit taxing power? V. Structural problems in tax legislation

VI. Why would special limitation of the state’s taxing power be required? VII. Restraining the taxing power of the state VIII. The scope of a concept of tax

1.0.b. Some propositions on tax as a legal concept (G. Suchy) I. Tax is a complex relationship 1. Tax is a right of the public power to require a payment 2. Tax is a right to obtain compliance II. Taxation as a concept of public law 1. Taxation is the setting of rules 2. Taxation implies the power to act III. Individal rights and public prerogatives

1. Taxation is a matter of individual rights 2. Taxation is a matter of equality

IV. Conclusion 1.1. Overview of the different sources of funds obtained by the government to finance its expenditure

(G. Suchy) 1.1.a. Budgetary means I. Overtly financial means 1. Levies 2. Prices and fees 3. Voluntary contributions 4. Temporary means II. Means that are effectively financial 1.1.b. Non budgetary means I. Personal services II. Inducement of private activity 1. Nonfiscal inducement 2. Fiscal inducement

1.2. The notion of tax and the different types of taxes 1.2.a. General approach (L. Del Federico) 1.2.b. Comparative approach (M. Barassi) I. Introduction II. The different types of taxes III. Tax

1. Germany 2. United Kingdom 3. France 4. Belgium 5. Luxembourg 6. Spain 7. Switzerland

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8. Italy 9. Remarks

IV. Fees and other types of levies 1. United Kingdom 2. Germany 3. France 4. Luxembourg 5. Spain 6. Belgium 7. Italy

V. Conclusions 1.3. Constitutional (see: general) framework of the different types of income (M. Bourgeois)

1.3.a. Constitutional (see: general) guidelines concerning the different modi of financing government action I. Liberal vs. social background of the national constitutional framework II. A constitutional principle of solidarity? III. Equality and ability to pay 1. General vs. specific tax principle of equality 2. Availability of constitional review of tax legislation 3. The principle of equality and the different types of income financing government activities 4. Generality of taxation 5. Ability to pay 6. Equality, ability to pay and benefit-principle 7. Soft equality text with respect to taxation 8. General conclusion and ultimate remarks with respect to equality and ability to pay IV. Specific fundamental rights 1. Classical rights 2. Economic, social and cultural rights 3. Conclusion V. Non retroactivity VI. Puntual illustration: financing of motorways 1.3.b. Distinction between taxation and the expropriation of goods (and services) vs. the constitutional protection of property I. The right to own property and taxation: a paradoxical relationship II. Expropriation vs. taxation: two distinct concepts III. Prohibition on confiscatory taxes 1.3.c. Tax competence (power of setting taxes) at a central or decentralised level I. Centralized vs. decentralized countries (from a tax viewpoint)

II. Is there a different concept of tax between the central and the decentralized levels of government? III. Tax powers, fees powers, regulatory powers and spending powers: plurality of approaches to the division of powers within a federal or decentralized state

1. Taxation and regulation of conducts 2. Does the power to levy fees (with or without a fiscal nature) necessarily follow the matter

to which it relates IV. Economic and monetary union within the whole state 1.3.d. Specific constitutional principles of taxation

I. The principle of legality in tax matters – other tax principles related to formal justice with respect to taxation II. Ability-to-Pay and other tax principles related to material justice with respect to taxation 1. Ability-to-pay principle 2. Progressivity of taxation 3. Equality in tax matters 4. Non-retroactivity 5. Principles of a programmatic nature 6. Other specific tax principles: illustrations

1.3.e. Specific constitutional principles concerning the other types of financing of government action.

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1.4. Secondary consequences of the distinction between taxes and the other modi of financing government expenditure (M. Bourgeois) 1.5. General conclusion (B. Peeters) List of Annexes

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Introduction Bruno Peeters The following text concerning the concept of tax in EU Member States is the result of a joint effort of different authors. From the start the working group preparing part I3, opted for an integrated approach instead of stand-alone national reports. Starting from a general outline, topic reporters were appointed. When they needed specific information on the national law of the EATLP countries, such information was collected through questionnaires sent to the working group members4. Unfortunately, we did not always receive answers about all the EATLP countries. If information about certain Member States was not available, the topic reporters needed to rely on their own research on comparative law. This report contains four sections. The first section (1.0) constitutes a general introduction to the concept of tax. In subsection 1.0.a., William Barker and Henk Vording give a predominantly normative approach to the aforementioned concept. According to William Barker the concept of tax should be viewed at least in part from the perspective of the aims and purposes of a world that is increasingly aspiring to capitalist, democratic values. In this setting, tax is one of the primary tools for obtaining social equity. Barker concludes that the normative approach indicates that the concept of tax is not static and that it should develop in response to change. A definition of tax law that will be good for all times and places cannot be found because as societies change, so too do their aims and purposes. Vording tackles the question of what normative role could be served by defining a concept of tax. This approach enables him to explore some philosophical and economical thoughts about the role of the state in taxation. Especially libertarian and utilitarian thinking on property rights and taxation are briefly reviewed. This review enables him to address the issue of why one would want to limit the state’s taxing power rather than its general regulatory power. Are there special reasons to be normative about tax legislation that do not apply to legislation in general? Finally, assuming that tax legislation needs special, either procedural, or outcome-oriented, limitations, Vording tries to answer the question how a concept of tax should be defined. In subsection 1.0.b. of the first chapter entitled ‘the concept of tax as a legal concept’, Gisela Suchy states that tax is not only an economic concept but a legal concept as well. She describes several definitions of tax. According to this author, taxing is a right rather than a power of the State. To assert this right properly the State has to respect the fundamental freedom of individuals and to act within the framework of public law governing public action. The second section (1.1.) written by Gisela Suchy offers a general overview of the different sources of funds (loans, donations, fines, fees, social security contributions…) obtained by the government to finance its expenditure. This overview should enable the notion of tax (and the several types of taxes) as explained later on, to be distinguished from other categories of government funds. The notion of tax and the different types of taxes constitutes the subject of the third section (1.2.) The general part is written by Lorenzo Del Federico, the comparative part is of the hand of Marco Barassi. A distinction can be made between firstly a structural analysis of the notion of tax whereby the characteristics of taxes are a central issue, e.g. compulsory payment levied in cash, in kind or exceptional in rendering services (e.g. military service) or the compulsory abstention of rendering services (e.g. milk quotas) and secondly a functional analysis that enlightens the several functions of taxes (e.g. redistributional taxes, regulating taxes…). The fourth section (1.3) of the report is the most extensive one. In this chapter - written by Marc Bourgeois - different legal rules which explicitly or implicitly refer to a legal concept of tax are identified. Since these rules refer to the concept of tax, the latter is from one point of view an element of the former. Consequently, the notion of tax must be defined in order to apply those rules properly. From another point of view, the way in which those rules are interpreted in the different EU Member States, can help to define the concept of tax. 3 Coordinator: Bruno Peeters, U. of Antwerp (Belgium); Members: Pilar Alguacil U of Valencia (Spain); Marco Barassi, U of Bergamo (Italy); William B. Barker, Penn State Dickinson School of Law USA; Marc Bourgeois, U. of Liège (Belgium); Pierre Beltrame U of Aix en Provence (France); Mattias Dahlberg U of Uppsala; Lorenzo del Federico U. degli Studi G.D. Annunzio (Italy); Guglielmo Fransoni, U of Foggia (Italy); Marco Aurélio Greco, Fundação Getúlio Vargas(Brazil); Sigrid Hemels U of Leiden (Netherlands); Claudio Sacchetto U of Torino (Italy); Alain Steichen, U. of Luxemburg; Gisela Ruth Suchy U of Paris (France); Henk Vording, U. of Leiden (Netherlands); interested but not active as a member: Victor T. Thurony (International Monetary Fund). 4 The questionnaires and the received answers are included in the annex.

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A first subsection (1.3.a) deals with the general constitutional principles that can have an influence on the way government activities are or should be financed. For instance, does the constitutional right to a fair trial imply free access to the court making collective financing of court action by taxes compulsory, or is it possible to let those citizens going to court, pay for the court action? The same question arises mutatis mutandis concerning the constitutional right (in some countries) to free – sometimes compulsory - education. Furthermore, the question arises if the equality, non-discrimination and ability-to-pay rules also affect the notion of tax. Is tax essentially a redistributive or solidarity instrument? In this subsection no attention is in principle paid to the constitutional rules that specifically govern taxation. These principles are the subject of part. 1.3.d. The distinction between general constitutional principles and specific constitutional tax principles did not always seem appropriate. For instance regarding the way the equality rule is applied in the EU Member States it appears that the equality issue has nothing to do with the way the rule is formally drawn up in the Constitution (general non-tax principle vs. specific tax rule). Subsection 1.3.a ends with a punctual illustration concerning several methods of financing motorways. Subsection 1.3.b deals with the relationship between taxation and the expropriation of goods (and services). Questions such as how the constitutional protection of property relates to the constitutional right of the government to setting taxes and to what degree taxes can have an ‘expropriative’ character, are the subject of this subsection. In subsection 1.3.c. the issue is whether, and if so, why there is a relationship between the interest of defining the concept of tax and the way the power to tax is divided within the countries under review. It is not the purpose to deal in this subsection extensively with the division of taxing powers in the several EATLP countries. However, especially in federal (or rather decentralized) countries the question arises what the relation is between the competence to levy tax and so-called substantial (regulatory) competences at the federal and decentralized levels. Is the power to tax considered as autonomous or is it substantially connected to other kinds of government responsibilities (social policy, economic policy…)? Is there a different concept of tax between the central and the decentralised level of government? As mentioned above, subsection 1.3.d. deals with the specific constitutional principles of taxation (e.g. the legality principle (‘no taxation without representation’), the ‘annuality’ principle; the equality principle, the principle of solidarity, other principles and the justification of those principles. Finally, the specific constitutional principles underlying other types of financing government action are the subject of subsection 1.3.e. (e.g. the principles concerning retributions; social security contributions, etc. and the justification of those principles). Some countries have specific constitutional provisions concerning ‘retributions, Gebühren’ and social security contributions (parafiscalité). The question is what the justification is of those principles and what their impact is on the notion of tax. In the fifth subsection (1.4.) also written by Marc Bourgeois an illustrative – not exhaustive - list with examples will be given of the so-called secondary consequences of the distinction between taxes and the other types of financing government action in the different EATLP-countries. For instance, what is the impact of qualifying government income as tax on the scope of national tax-evasion measures, on judicial control measures, on the application of penal provisions, on the possibility to obtain rulings? Specific attention is given to the justification of these secondary consequences. Finally, the report ends with some general conclusions.

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1.0. The relevance of a concept of tax 1. 0.a. Normative considerations William Barker and Henk Vording Considerations of William Barker The unfolding of the concept of tax is a search for those principles or standards that identify taxation as a critical element of human legal experience. This study must be a truly comparative one that removes tax law from the confines of one nation’s practice and places it in the wider context of mankind’s struggle for justice.5 One can begin to get a sense of how broad the idea of tax law is when one considers the way in which different nations classify tax law, which includes the categories of public finance, budget, administration, and social welfare law. The idea of tax law starts with the recognition that tax law is public law that deals with the duties and relationship of individuals to government and society. Tax law shares public law’s purposes to influence, modify, or control individual conduct for the public good. Therefore, the essence of the concept of tax cannot be found solely in its obvious role as one method to provide government funding. The object is to arrive at the idea of the thing called tax. Thus, this is a study in legal theory that begins with an analytical approach. This analytical approach helps flesh out those shared or common elements of the concept of tax that are not limited by time, place, or political system. This is also a study in comparative law. Functionality is the central methodological approach to uncovering the essences of legal doctrines found in different legal systems. Moreover, similarly to the analytical approach, the functional approach is intended to illuminate those shared or common elements of the concept of tax that are not limited by time, place, or political system. The study of the concept of tax should not end with theory based strictly on an analytical and functional approach. It should be situated within a general theory of law that should develop an understanding of the law-in-action, that is, the dynamic of the legislative act, its purpose, and its implementation by law’s actors, the administrators, the lawyers and judges, and the taxpayers. The explication of the concept of tax should thus be explicitly normative. As comparative law, it must be an historical study of the motivating forces and teleology of taxation in different countries and how stated and implicit goals are realized. Unlike the analytical, we not only ask what and how, but we ask why; we not only explicate the law, we critique it. The value of a normative approach is that we can begin to understand tax law’s role in promoting human development. A useful starting definition is that tax is a compulsory exaction from a taxpayer paid in cash or in kind to the government to provide for the public services of common interest without particular regard to the particular benefits received by the taxpayer. The word tax has been used broadly at times, however, to describe all sorts of government charges so that it might be properly noted that the distinction between many charges called taxes is to be found by placing these charges on a sliding scale, which varies inversely with the degree of the private benefit and the significance of the public good. Examples of this problem in classification are social security systems that provide retirement programs that require beneficiaries to have paid taxes on their wages in order to receive benefits. In some cases, one’s pension benefit increases as one’s contributions increase. There is usually, however, a substantial redistributive function from high wage earners to low wage earners, which suggests a system properly described as a general tax to promote the public good.

5 Many of the points made herein can be found in greater detail in William B. Barker, Expanding the Study of Comparative Tax Law to Promote Democratic Policy: The Example of the Move to Capital Gains Taxation in Post-Apartheid South Africa, 109 Penn. St. L. Rev. 101 (2005), http://ssrn.com/abstract=698402.

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In some cases, a state taxes in order to remedy failures in private markets to provide important or necessary goods and services to the populace. Functionally, taxes represent a nation’s decision as to what benefits should be paid for collectively and what should be paid for individually. Normatively, it can be said that decisions about taxation involve decisions as to how much economic inequality a society is willing to tolerate.

An idea of the concept of tax informed by the normative exposes us to the conclusion that, though there can be some commonality to the objects and purposes of tax law, we cannot hope to derive a definition of tax law that will be good for all time and places because as our societies change, so to will our aims and purposes. The normative view of law captures the essence of the times. The normative approach requires examination, development, and expansion of the concept of tax in terms of societies’ aspirations. Thus, to speak normatively, the concept of tax should be viewed at least in part from the perspective of the aims and purposes of a world that is more and more aspiring to capitalist, democratic values. In this setting, tax is one of the primary tools for obtaining social equity Tax law, or more particularly the income tax law, performs a significant redistributional function in our society. Before the birth of the welfare state, the income tax’s progressive foundation based on a broad principle of ability to pay was the first and foremost tool of governments for achieving changes in the distribution of wealth in democratic societies.6 The definition of societal equity in the allocation of wealth and the role of taxes in ameliorating economic hardship by redistributing the burden of taxes from those with less to those with more has been at the forefront of the political discourse for at least the last one hundred years. Consequently, an important object of tax may not be to collect revenue, but instead be to reward or punish without regard to its revenue raising effect. The tax structure serves as an apparatus, indeed a complex, infinitely patterned mosaic, to reconfigure the burdens of taxpayers on the basis of political decisions and social values. The aims and purposes of taxation include the purposeful use of the forms of taxation to promote economic and social results that are deemed to be politically desirable. Within the appearance of progressive tax form based on egalitarian principles of ability to pay through the manipulation of the concepts of income, capital, deductions, depreciation and credits, et cetera, the obligations of taxpayers are metamorphosed according to new politically established principles of social merit. Thus, tax transfer payments are made through the taxing process that reallocates the burdens of society among its citizens. To make this system of tax expenditure as transparent as public spending, some nations require their legislatures to publicly classify special tax preferences as tax expenditures. By approaching the concept of tax from a normative prospective, it is apparent that it may be difficult to “restrain the possible outcomes of the legislative process by any enforceable requirement that the distribution of the tax burden be equitable.” Indeed, the normative teaches that the use of the powerful tool of tax law to accomplish a broad range of social goals is mainly about the political struggle over the values of each society.7 This broad understanding of tax is important in strictly legal discourse when laws actors are required to interpret tax law and to apply those legally constituted social values (like protection of individual human rights) to challenges to taxation’s specifics. A comparative approach utilizing a normative understanding of the concept of tax supports the conclusion that since societies’ values can change so to can the values and teleology of tax. The values of a tax system and their perception by the taxpaying public are particularly important when the large number of developing and transitional economies that are in the process of moving toward more capitalist-based, democratic societies are considered. An example is post-apartheid South Africa, a nation that is using tax reform to redefine itself as a democratic nation. The centrality of values to the role of taxation cannot be overstated. As reported in recent South African legislative history, “Historically, generations of people in this country see tax as a tool that funded their own oppression. It is a major attitude adaptation to see that the funds from taxation are for maintaining a broader democracy.” Thus, the normative approach indicates that the concept of tax is not static and that it should develop in response to change.

Considerations of Henk Vording

6 See generally, William B. Barker, Statutory Interpretation, Comparative Law, and Economic Theory: Discovering the Grund of Income Taxation, 40 San Diego L. Rev. 821, 860 (2003), http://ssrn.com/abstract=489697. 7 See Id., at 880.

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I. Outline of this section

What normative role could be served by defining a concept of tax? Of course, like any other word, the descriptive meaning of the word 'tax' must be sufficiently clear in normal communication. But what consequences would we want to attach to the case when we apply the label of 'taxation' onto things - rules, actions, payments? To get beyond a merely lexicological discussion, it is required that the use of the label 'tax' call upon normative ideas, for example concerning fairness and justice, that do not equally apply to other rules, actions, or payments. In this section, the possible approaches to this normative problem will be explored by a juxtaposition of two philosophical traditions concerning the role of the state in society and the economy: libertarianism and utilitarianism. It is not intended to provide an adequate general discussion of these traditions8; the only purpose is to show how two radically different points of view on the role of the state generate alternative perspectives on the concept of taxation. Subsection II provides a brief review of libertarian thinking on property rights and taxation. Following John Locke, libertarians adhere to the concept of individual 'self-ownership' and often take this to include that private property is the cornerstone of society. A well-defined concept of tax may be needed to draw our attention to the ways in which the state encroaches on private property rights. Libertarianism can come close to anarchism in rejecting the legitimacy of the state. In that case, it is futile to define a concept of tax, as all taxation can be considered equal to robbery. Even in more moderate versions of libertarianism, taxation is basically expropriation. The basic problem in the libertarian tradition is: why should an individual subject himself to a process of collective decision-making without ever having been asked to agree with that process? Subsection III provides an equally short overview of utilitarian thought on taxation. Following Jeremy Bentham, the utilitarian tradition holds that the goal of society should be to achieve the greatest possible happiness for the greatest number of people. While individual happiness as such is not a feasible goal of state action, economic welfare is.9 Modern welfare theory, building on Pareto's work, argues that - apart from specific situations of market failure - the free exchange of goods and services and of capital and labour ensures that economic welfare is maximised. A competitive market generates Pareto-optimality: no one can improve his welfare by further voluntary exchange. But whenever the market fails to meet society's preferences, the state should come in to provide social goods and services. On the assumption that the state measures social preferences adequately, taxation is simply a contribution to a commonly agreed upon goal of the citizens which is nothing basically different from a voluntary exchange. Subsection IV reflects on the relevance of property rights to tax law. Libertarians and utilitarians have clearly opposite views on the normative status of private property rights. The libertarian tradition is deontological: individual freedom is the leading principle for the design of social institutions, whatever the consequences. Utilitarianism is consequentialist: what matters is the greatest happiness for all, whatever the social institutions needed to achieve that goal. For an extreme libertarian, private property may be all that matters, for an extreme utilitarian, it might mean nothing at all. The obvious middle ground is that private property rights are fundamental to a democratic society, but that these rights are 'weak' in relation to the state's tax law. Subsection V elaborates on the problems of tax legislation based on majority rule. The libertarian tradition tends to be sceptical about majority voting as a basis for limiting individual freedoms and rights. How can it be justified that a majority uses taxation to its own advantage, at the expense of the minority? A utilitarian, in principle, would no see no problem, if, as a result, total welfare is increased. That is to say, the gain in welfare of the majority has to exceed to loss in welfare of the minority. However, the assumption that the state is perfectly able and willing to maximise social welfare is not very plausible. In fact, there are reasons to believe that the process of legislation is especially prone to imbalances and mistakes where tax rules are concerned.

8 An introduction to both libertarianism and utilitarianism, with a discussion of different lines of development in both traditions, can be found in W. Kymlicka, Contemporary Political Philosophy, 2nd ed., Oxford University Press 2002. 9 Modern economic analysis of taxation usually replaces 'utility' by 'welfare', thus avoiding problems of utility measurement. But the argument remains the same: if a new tax rule increases social welfare, it should be adopted on economic grounds. In that case, winners can by definition compensate losers. Whether or not losers are indeed compensated is a non-economic issue, to be decided upon by politicians rather than economists.

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In subsection VI, the question will be why one would want to limit the state's taxing power rather than its general regulatory power. Are there special reasons to be normative about tax legislation that do not apply to legislation in general? Subsection VII, assuming that some limitation of the state's taxing power is desirable, makes a distinction between two types of limitations. The first approach is to look at the legislative process, and use special provisions or rules to improve the quality of that process. The second approach is to restrain the possible outcomes of this legislative process by requiring that the distribution of the tax burden be equitable. The final subsection VIII reflects on the boundaries of a concept of tax. Without making an attempt at a formal definition, it is underscored that a broad concept of tax is needed to clarify all cases where the state uses its legislative power to overrule citizens' voluntary exchange decisions. II. Libertarian views on taxation John Locke departed from the idea of original collective property to develop a principled defence of private property. Postulating that every man owns himself, he infers that every man is entitled to the fruits of his own labour. The original common property is made private by the person who adds his labour to develop that property into something more useful. There is only one proviso: the original acquirement should be legitimate, i.e. not infringe upon rights of others. Assuming that this proviso is met, it seems not an easy task to defend the legitimacy of taxation.10 Locke, however, easily assumes that his condition that taxation requires the personal consent of the governed can be met by democratic representation.11 In modern social philosophy, a more outspoken position is defended by Robert Nozick, and other authors in the libertarian tradition. Nozick compares taxation of labour income with forced labour.12 He argues in favour of a minimal state that protects liberty and private property without engaging in redistribution of income. People should be encouraged but not forced to support their materially deprived co-citizens. Probably, Murray Rothbard qualifies as the most outspoken critic of taxation at large.13 Rothbard's challenge 'to try to frame a definition of taxation which does not also include theft' is of course an ancient one.14 A more moderate libertarian view on taxation has been developed by James Buchanan. While his work concentrates on 'fair' procedural rules, taxation remains essentially confiscatory. For example in his influential 'The Power to Tax' (1980, co-authored by Brennan) he stated: ‘For the ordinary citizen, the power

10 ‘the supreme power cannot take from any man any part of his property without his own consent. For the preservation of property being the end of government, and that for which men enter into society, it necessarily supposes and requires that the people should have property, without which they must be supposed to lose that by entering into society which was the end for which they entered into it; too gross an absurdity for any man to own.’ John Locke, An Essay Concerning the True Original, Extent and End of Government (the second of the Two Treatises on Government), ch. XI., par.138. 11 ‘It is true governments cannot be supported without great charge, and it is fit every one who enjoys his share of the protection should pay out of his estate his proportion for the maintenance of it. But still it must be with his own consent- i.e., the consent of the majority, giving it either by themselves or their representatives chosen by them; for if any one shall claim a power to lay and levy taxes on the people by his own authority, and without such consent of the people, he thereby invades the fundamental law of property, and subverts the end of government.’ Locke, Second Treatise on Government, ch. XI, par. 140. 12 ‘Taxation of earnings is on a par with forced labor. Some persons find this claim obviously true: taking the earnings of n hours labor is like taking n hours from the person; it is like forcing the person to work n hours for another's purpose. Others find the claim absurd. But even these, if they object to forced labor, would oppose forcing unemployed hippies to work for the benefit of the needy. And they would also object to forcing each person to work five extra hours of work each week for the benefit of the needy. But a system that takes five hours' wages in taxes does not seem to them like one that forces someone to work five hours…’ Robert Nozick, Anarchy, State and Utopia, Blackwell, reprint 2003, p. 169. 13 ‘Taxation is theft, purely and simply, even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match. It is a compulsory seizure of the property of the State's inhabitants, or subjects. It would be an instructive exercise for the skeptical reader to try to frame a definition of taxation which does not also include theft. Like the robber, the State demands money at the equivalent of gunpoint; if the taxpayer refuses to pay his assets are seized by force, and if he should resist such depredation, he will be arrested or shot if he should continue to resist. M. Rothbard, The Ethics of Liberty, reprinted by New York University Press, 1998, p. 162. 14 Saint Augustine already argued that justice makes the only difference between states and large gangs, De Civitate Dei Liber IV, iv. His further discussion of this analogy (gangs function like state organizations, they have their own idea of distributive justice when dividing the spoils) shows that 'justice' must mean more than distributive justice. And indeed, criminal 'protection fees' may well be based on a measure of available resources (‘ability to pay’) of their victims.

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to tax is the most familiar manifestation of the government's power to coerce. This power to tax involves the power to impose, on individuals and private institutions more generally, charges that can be met only by a transfer to government of economic resources, or financial claims to such resources—charges that carry with them effective powers of enforcement under the very definition of the taxing power. To be sure, governments may use tax revenues for financing public goods or transfers that citizens-taxpayers desire. But we must distinguish sharply here between a rationalization for the government's possession of the power to tax and an understanding of that power in and of itself. The power to tax, per se, does not carry with it any obligation to use the tax revenue raised in any particular way. The power to tax does not logically imply the nature of spending. Seen in this way, the power to ‘tax’ is simply the power to ‘take.’’15 In its everyday appearance, libertarianism adds a flavour of its own to tax debates, especially in the US. It emphasises the idea that individuals should be left to make their own decisions, leading to a sceptical attitude towards collective action in general and taxation in particular. When free market choices are accepted as the justification for the distribution of welfare over people, taxation is essentially taking what belongs to the people. III. Utilitarian views on taxation An important alternative tradition in social philosophy is utilitarianism. Following Jeremy Bentham, utilitarianism is based on the idea that the state must aim at maximising the total utility of its citizens.16 Therefore, Bentham squarely rejected the idea of 'natural rights', as for example in his critique of the Declaration of Human Rights of the French National Assembly (1791).17 His rejection logically includes the existence of any natural right to property. Modern utilitarians may be more moderate, in that they accept some rights as constraints on maximisation of social welfare. But they tend to consider the right to hold property as one among a set of institutional rules that society chooses to serve its collective ends. The recent critique by Liam Murphy and Thomas Nagel on the libertarian anti-tax attitude in the USA, under the provocative title ‘The Myth of Ownership’ carries the central message that ownership is not a right that can exist prior to the social and political order that creates and protects it.18 The mainstream economic analysis of taxation, being based on welfare theory, has strong roots in utilitarianism. It holds that voluntary exchange in free markets is the best way to measure people's preferences, and, therefore, is best suited to achieve maximum satisfaction of those preferences. Ignoring, for the moment, the problem that political decision-making is less capable of measuring preferences than the

15 G. Brennan, J.M. Buchanan, The Power to Tax. Analytical Foundations of a Fiscal Constitution, Cambridge (Mass.) 1980, Ch. 9.1.25. 16 ‘By the principle of utility is meant that principle which approves or disapproves of every action whatsoever, according to the tendency it appears to have to augment or diminish the happiness of the party whose interest is in question: or, what is the same thing in other words to promote or to oppose that happiness. I say of every action whatsoever, and therefore not only of every action of a private individual, but of every measure of government. (...) The interest of the community is one of the most general expressions that can occur in the phraseology of morals: no wonder that the meaning of it is often lost. When it has a meaning, it is this. The community is a fictitious body, composed of the individual persons who are considered as constituting as it were its members. The interest of the community then is, what is it?—the sum of the interests of the several members who compose it. (...) The business of government is to promote the happiness of the society...’ Jeremy Bentham, An Introduction to the Principles of Morals and Legislation, Ch. I, Ch. VII 17 The Declaration specifically mentioned rights to liberty, property, security, and resistance to oppression. Bentham comments: ‘How stands the truth of things? That there are no such things as natural rights - no such things as rights anterior to the establishment of government (...) that when used, in the moment you attempt to give it a literal meaning it leads to error, and to that sort of error that leads to mischief -- to the extremity of mischief. (...) So that the moment it is acknowledged in relation to any article, that such article is my property, no matter how or when it became so, that moment it is acknowledged that it can never be taken away from me: therefore, for example, all laws and all judgments, whereby anything is taken away from me without my free consent -- all taxes, for example, and all fines -- are void, and, as such call for resistance and insurrection, and so forth, as before.’ Jeremy Bentham, Critique of the Doctrine of Inalienable, Natural Rights, Anarchical Fallacies, vol. 2 of Bowring (ed.), Works, 1843. 18 More extensively: ‘We have to evaluate the legitimacy of after-tax income by reference to the legitimacy of the political and economic system that generates it, including the taxes which are an essential part of that system. The logical order of priority between taxes and property rights is the reverse of that assumed by libertarians.’(p. 33) ‘It is illegitimate to appeal to a baseline of property rights in, say, 'pretax income', for the purpose of evaluating tax policies, when all such figures are the product of a system of which taxes are an inextricable part. One can neither justify nor criticize an economic regime by taking as an independent norm something that is, in fact, one of its consequences.’(p.9), Liam Murphy and Thomas Nagel, The Myth of Ownership, Taxes and Justice, Oxford University Press 2002.

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market mechanism, a balance between individual market-based entitlements ('incentives') and collective claims ('redistribution') can be found by comparing the marginal cost and benefit of state intervention to society. People pay taxes but also receive benefits, and as long as the net welfare effect for society is positive, state activity should be expanded. By definition, when some people lose, there is no Pareto improvement. Welfare theory evades the ensuing moral problem (how can it be justified that A is forced to pay in favour of B and C?) by the Kaldor-Hicks test. If it is possible to compensate losers (because the sum of B’s and C’s welfare gains exceed A’s losses), actual compensation would indeed make for a Pareto improvement. Whether or not actual compensation takes place, is then considered a normative and non-economic type of problem. For the economist, it is sufficient that a scheme of taxation and public spending passes the Kaldor-Hicks test. As a consequence, taxation represents no welfare cost to society, except to the extent that it distorts economic choices and creates administrative and compliance costs. The tax payment itself is a welfare loss to the taxpayer, but not to society. The state uses it to provide public goods and services that are - at least - as valuable to society.19 In welfare-economic analysis, taxation has nothing to do with 'legalised robbery'; it is a payment that has to be collected with some force only because of the looming free-rider problem. Imagine that the state would try to cover the cost of whatever goods and services it provides by asking its citizens for voluntary payments. Many citizens might in principle be inclined to pay something, provided that they perceive their personal contributions as fair (compared to others, and/or with respect to public services enjoyed). Their problem is, however, that they have no guarantee that their co-citizens will pay their fair shares. In fact, many of them will not pay at all. The state must now either reduce the provision of public services, to both those who pay and those who refuse to pay, or it must ask higher contributions from those who are prepared to pay. In the end, we can reasonably assume, there will be no voluntary contributions and no public services. The only way out of this free-rider problem is to allow the state to enforce contributions. By doing that, the state mimics the free market: it gives people what they want to have and makes them pay the price they are willing to pay. There is of course the special case when taxation is used to correct market failures. The market mechanism is unable to absorb external (or 'third party') effects into equilibrium prices. Corrective taxes, such as 'green taxes' may be used to take care that market prices do reflect social costs, rather than just private costs. But again, this type of taxation can be seen as the best answer to a free-rider problem. If people were asked but not forced to take the environmental damage of their consumption habits into account, the result would probably be unsatisfactory. In principle, there need not be a conflict between taxation and consumer sovereignty - the idea that general welfare is best served by allowing people to make their own choices. People can choose to ask for a certain level and mix of public services and, accepting that voluntary payment will not work, agree with paying taxes. IV. Should property rights limit taxing power? For those who do not share the libertarian belief that individual property is the foundation of a free society, there are still the problems inherent in majority decision-making that may warrant limitations on the state's power to tax. On the other hand, private property rights cannot be defined 'away' as utilitarians are sometimes inclined to do. Murphy and Nagel have been accused of doing exactly that in 'The Myth of Ownership'. Their claim is that without the development of states, people would still live in Hobbes' state of nature, and that citizens owe practically all their welfare to the existence of the state. The problem is, of course, not whether this claim is true - Nozick and Rothbard would deny it - since the issue can hardly be decided on empirical grounds. The real problem is that modern prosperity is founded upon a multitude of past efforts and inventions that cannot be rewarded retrospectively – nor can the state claim exclusive credits for that heritage. It is not the theoretical 'no state' option, but practical 'less state' and 'more state' choices that would deserve normative analysis. The proper place of private property rights in relation to taxation can neither be found by defining property rights away, nor by denying the legitimacy of taxation. Ronald Dworkin’s distinction between ‘strong’ and

19 Government expenditures also cause distortions and transaction costs, reducing the net gain to society. These costs have to be taken into account when determining the optimal size of the public sector - that is the size where the marginal cost of taxation equals the marginal benefit of public goods.

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‘weak’ rights may be helpful to strike a balance. In 'Taking rights seriously' he accepts utilitarianism under the proviso that some rights must be protected even at the expense of lower social welfare. He then distinguishes between strong and weak rights. When someone has a strong right 'it is wrong for the government to deny it to him even though it would be in the general interest to do so'.20 Therefore, strong rights must be enforceable in court against the state. Weak rights, on the other hand, are morally plausible, but cannot be upheld in court. ‘Suppose a man believes that welfare payments to the poor are profoundly wrong, because they sap enterprise, and so declares his full income-tax each year but declines to pay half of it. We might say that he has a right to refuse to pay, if he wishes, but that the Government has a right to proceed against him for the full tax (...) We do not take this line in most cases (...) We say that a man has the right to break the law, even though the State has a right to punish him, only when we think that, because of his convictions, he does no wrong in doing so.’21 Following Dworkin’s example, the first question to be answered must then be whether this man does no harm in denying to pay tax. And if the answer is confirmative, the man would still have a weak right only. This distinction seems in line with the text of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms.

Article 1 – Protection of property Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms.

Here, the individual right to hold and enjoy property is recognised in principle, but overruled by the state's right to tax. V. Structural problems in tax legislation In section III, it was argued that taxes are the price that citizens pay to obtain the public goods and services that they prefer. Evidently, the validity of this analysis critically depends on the quality of the political process as a system of measurement of people's preferences. The failure of the market to provide some types of goods and services (or to make them accessible to all) must then be balanced against failures of the political system in measuring citizens' preferences22. The broader issue concerning political decision-making - why and how majority-voting may misrepresent the average voter's preferences - will not be discussed here at length. Three types of problems can be pointed at. (1). Preference formation. It is rational for voters/citizens to be underinformed23 about relevant political (including fiscal) choices. Collecting such information is costly, while the individual has a statistically trivial chance to exert any influence by casting his vote. The problem of underinformation can be considerably increased by fiscal illusion. Modern tax collection techniques, like withholding at source, may lead citizens to underestimate the level of taxation and the 'price' of public goods and services.24 (2). Preference measurement. The outcomes of majority voting will be unstable under fairly plausible assumptions, giving rise to changing redistributive policies even when preferences do not change at all.25 Take for example a constituency consisting of three groups: H, M and L (high, middle and low-income

20 R. Dworkin, Taking Rights Seriously, London 1977, p. 269. 21 Dworkin p. 189. 22 The libertarian, however, may deny the possibility of striking a balance, as people should not be forced to participate in collective actions. As Nozick puts it: 'if each day a different person on your street sweeps the entire street, must you do so when your time comes? (...) Must you mow your front lane as often as your neighbors mow theirs?' (p. 94). 23 'Underinformed' here means that voters have not collected sufficient information to make the choice that maximises social welfare. 24 It must however be added that citizens may also underestimate their benefits from government. 25 This is an illustration of the Arrow-paradox.

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earners, respectively). A proposal to shift the tax burden to H will find a political majority, but subsequent proposals to shift the burden to M and L will also find sufficient support. Without any change in underlying voter preferences, the direction of tax policy may frequently take radically different directions. (3). Preference articulation. At first sight, majority voting implies that weak preferences of 51% of the constituency will prevail over strong preferences of 49%. Social welfare will then decrease through democratic decision-making. However, strong interests of small groups are easier to organise into effective lobbies than weak interests of large groups. In one way or the other, politicians may receive biased information about voter preferences. The question that needs attention here is whether the tax legislation process is particularly prone to decision-making problems. Many authors believe that it is. David Surrey has suggested that many special tax incentives (or tax expenditures) would never have been enacted when restated as explicit expenditure programs.26 And Daniel Shaviro argues that legislation in the tax area suffers from considerably larger problems than in other fields of law.27

This suggests that one problem of tax legislation is its complexity and opaque socio-economic impact compared to expenditure rules. A more fundamental problem is that people may prefer a tax incentive over a government transfer or subsidy of equal net value. The explanation would be the 'endowment effect'.28 This effect is found where people rate their possessions at more than the market value, implying that they are not willing to sell their property at normal market prices. They will then also tend to rate a reduction of their tax burden (which increases their perceived 'self-earned' money income) higher than an equal subsidy from the government. Whatever the empirical foundation for this analysis, the concern is widespread that tax legislation faces a particular problem of striking a balance between general and specific interests. VI. Why would special limitation of the state's taxing power be required? Why would one want to limit the power to tax, rather than the state's power to force and regulate in general? Buchanan's approach of 'constitutional economics' may broaden the perspective. Buchanan makes the constitution the subject of a social contract, as a way of finding norms to evaluate the constitutions that in fact exist. His definition of constitutional rules as ‘a set of rules which constrain the activities of persons and agents in the pursuits of their own ends and objectives’ shows his libertarian background. The problem that individual liberty is constrained by collective rules is much broader than the problem of taxation. It would include every form of state intervention in individual choices, including regulations (and indeed, regulations devised by other social institutions than the state). From the viewpoint of individual freedom, taxation is not obviously a greater threat than e.g. tort and penal law or environmental protection rules. In each of these cases, the limitation of individual freedom may ask for justification. Yet, in Buchanan's work the justification of taxation is clearly a special case. But he seems to use a very broad concept of taxation - when designing the constitution, citizens choose the rules that allow development of 'institutions for cost-sharing, that is, tax institutions'.29 Such institutions should reduce the risk of fiscal exploitation of minorities. The problem here is that regulations can impose costs quite comparable to taxes. As Nozick's comparison of taxation with forced labour shows, regulations can be used as near-substitutes of taxes. Progressive taxation of millionaires can be replaced by a legal obligation to host a number of poor

26 Consider, for example, a Senator desiring to assist elderly people faced with medical expenses. His office drafts an amendment to the tax law to remove for persons over the age of 65 years the 3 percent floor under the medical expense deduction that now applies to all persons... The proposal has its obvious appeal - a minor tax change to assist the elderly who are ill, ‘a matter of equity for millions of Americans’. But let us translate the tax relief into direct expenditure terms (....) It seems clear that no HEW Secretary would ever propose a medical assistance program for the aged that would have these results. And yet the tax language looks so appealing and effective - indeed it has several times passed the Senate for just those reasons! Surrey, Pathways to Tax Reform, p. 39-40. 27 For decades, there has been a widespread consensus among those who closely follow tax policy that the legislative process in this area is seriously flawed, even by the standards of collective political choice generally. More specifically, it is among the especially flawed areas, although not necessarily uniquely flawed (...) It has long been widely recognized that tax politics tends to be dominated by interest groups that seek favors for themselves and that, through a norm of logrolling, almost never oppose favors for each other. D. Shaviro, When Rules Change, An Economic and Political Analysis of Transition Relief and Retroactivity, Chicago/London 2000, pp.86-87. 28 As suggested by Shaviro, p. 87-88. 29 Buchanan, The Limits of Liberty: Between Anarchy and Leviathan, University of Chicago Press 1975, p. 48.

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families. Tax-funded free education can be replaced by a set of rules that (a) requires schools to accept all applicants and (b) requires all parents, or their employers, to pay school fees according to e.g. a standard of ability-to-pay. Even the public funding of social goods, like defence and road maintenance, can, to some extent at least, be substituted by rules like conscription. And green taxes can be replaced by rationing of energy consumption. As in the case of Nozick's forced labour, citizens may prefer taxation to regulation, because it leaves them more freedom of choice. Taxation can also be more efficient than regulation, for example because it saves on transaction costs.30 The question then is, why one would try to restrict the use of taxation, as the more efficient way of cost-sharing, thus giving rise to, less efficient, regulation. The obvious alternative is to include costs imposed by regulations in the concept of taxation. Forced labour does in fact remind of medieval taxation techniques. Compliance and administrative costs associated with fulfilling tax obligations are another case where the distinction between taxation and regulation may be arbitrary. This approach, however, would make the concept of tax so broad as to become meaningless. The remaining case for specific limitation of the power to tax - and not the general power to regulate - may be twofold. 1. Taxation may be the more obscure and devious way to impose costs, due to the existence of fiscal illusion and the endowment effect, as discussed before. 2. Tax law may be considered particularly discriminatory (in a non-normative sense), compared to other areas of legislation and state intervention. Most of the detailed state interference with individual decisions like work effort, retirement age, marriage, and consumption decisions runs through the tax system. Non-discrimination clauses do not 'work' with respect to tax treatment of individual differences in wealth, income, and spending patterns. Tax legislation may well be the main platform for social judgement of a wide range of specific interests; judgements that may often be misguided for the reasons mentioned before. As Murphy and Nagel argue, ‘In a capitalist economy, taxes are not just a method of payment for government and public services: They are also the most important instrument by which the political system puts into practice a conception of economic or distributive justice. That is why they arouse such strong passions, fuelled not only by conflicts of economic self-interest but also by conflicting ideas of justice or fairness’. If tax law is perceived as the most important instrument of the state to interfere with private decisions at a detailed level, and if the tax legislation process is perceived as - at least potentially - flawed, then the case for limiting the state's taxing power should be sufficiently clear. VII. Restraining the taxing powers of the state After this discussion of why it might be desirable to limit the state's taxing power, we will now turn to the question how this power can be restrained. Basically, one can imagine - and indeed observe - two approaches.31 One is to make special requirements to the process of tax legislation; the second, to demand that this process generate results that can pass a test of 'equity' or 'justice'. Whether one looks at procedures or at results, in both cases an idea of 'fairness' seems to be involved. There is a very practical state interest involved in being - more or less - 'fair' in either sense. The pragmatic insight that the tax-collecting state needs a reputation of fairness in taxation goes back – not surprisingly - to Macchiavelli.32 The power to tax may be the power to destroy - but state revenues will usually do much

30 For example, forbidding pollution can be more costly than taxing it, due to higher transaction costs (inspection, administration etc.). More generally, pursuing redistribution of wealth through regulation instead of taxation will tend to increase distortive effects. The millionaire who pays a lot of tax may respond by reducing his work effort. If instead he is obliged to host poor families, he will also respond by working less, but in addition he may restructure his dwellings to protect his privacy. See L. Kaplow and S. Shavell, Why The Legal System is Less Efficient than the Income Tax in Redistributing Income, Journal of Legal Studies (23) 1994, pp. 667-681. 31 See e.g. Frans Vanistendael, Legal Framework for Taxation, in V. Thuronyi (ed.), Tax Law Design and Drafting, ch. 2, IMF 1996. He discusses a broader range of principles concerning tax legislation that can be found in constitutions. Some of these principles are procedural in nature (e.g. legality, fair play, nonretroactivity), others seem to aim primarily at substantive restrictions (ability to pay). 32 ‘A prince (...) should encourage his citizens to practise their callings peaceably, both in commerce and agriculture, and in every other following, so that the one should not be deterred from improving his possessions for fear lest they be taken away from him or another from opening up trade for fear of taxes; but the prince ought to offer rewards to whoever wishes to do these things and designs in any way to honour his city or state.’ N. Macchiavelli, The Prince, Ch. XXI ('How A Prince Should Conduct Himself So As To Gain Renown')

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better when the tax legislator (and the tax collector!) allows citizens' taxable activities to develop and flourish. To that extent, it is in the interest of a revenue-maximising state to offer a reliable and predictable tax environment to its citizens. Equitable distribution of tax burdens: a restrictive norm for taxation? The 18th-century discovery that economic life could be studied -and managed - as a system, the Physiocratic cycle of economic life, also gave rise to the study of taxation as a problem of rational design. At a more practical level, this design was aimed at overcoming all kinds of local customs, prerogatives and privileges that did not fit into the modern state, and often hampered trade. But there was another aspect: the idea of a design, of a tax 'system' based on rational criteria also served to legitimise taxation as 'fair'. In the context of the time, this was not primarily a matter of equity. To be sure, Adam Smith's famous four maxims for taxation do start with the norm for equitable taxation: ‘The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.’33 However, his second maxim shows that Smith cares considerably more about certainty in taxation, that is, the state's reputation of reliability, as ‘a very considerable degree of inequality... is not near so great an evil as a very small degree of uncertainty.’34 And even in his fourth maxim, requiring minimal distortive effects, he seems to express a greater sense of urgency than in the first.35 Smith's maxims have become the benchmark for the normative evaluation of taxes, with special status for the criteria of equitable distribution and neutrality (or economic efficiency). Even if Smith himself apparently did not rate the importance of equitable distribution higher than other criteria, his successors have made it the most prominent requirement to be made to 'good' tax rules.36 The plausible explanation is from Henry Simons: 'So long as poverty and insecurity compel the sovereign to employ every available fiscal device in order to maintain sovereignty, questions of justice are naturally subordinate. Once stable government and a measure of economic freedom appear, however, considerations of equity are forced to the front. More revenue devices are available than are required. To what extent shall each kind of levy be employed? Questions of relative collection costs, of stability and flexibility of yield, are relevant of course. But, at the centre, is the question of how the tax burden should be allocated, of what is the most equitable system.'37 In the 19th century, tax theorists of the day made considerable efforts to defend progressive income taxation in terms of neutrality, as state intervention in the income distribution was still highly controversial. The paradox that progressive taxation reflects a neutral attitude of the state towards inequalities in income was solved by an elaboration of the idea of 'ability to pay' in terms of equal sacrifice. When, for example, John

33 Continuing: ‘The expence of government to the individuals of a great nation is like the expence of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation.’ Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book V, Ch. II, part II. 34 ‘The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. Where it is otherwise, every person subject to the tax is put more or less in the power of the tax-gathered, who can either aggravate the tax upon any obnoxious contributor, or extort, by the terror of such aggravation, some present or perquisite to himself. The uncertainty of taxation encourages the insolence and favours the corruption of an order of men who are naturally unpopular, even where they are neither insolent nor corrupt. The certainty of what each individual ought to pay is, in taxation, a matter of so great importance that a very considerable degree of inequality, it appears, I believe, from the experience of all nations, is not near so great an evil as a very small degree of uncertainty.’ Smith, Book V, Ch. II, part II. 35 ‘Discussing how 'taxes are frequently so much more burdensome to the people than they are beneficial to the sovereign', some of his considerations are: (...) [taxation] may obstruct the industry of the people, and discourage them from applying to certain branches of business which might give maintenance and unemployment to great multitudes. While it obliges the people to pay, it may thus diminish, or perhaps destroy, some of the funds which might enable them more easily to do so. (...) by subjecting the people to the frequent visits and the odious examination of the tax-gatherers, it may expose them to much unnecessary trouble, vexation, and oppression; and though vexation is not, strictly speaking, expence, it is certainly equivalent to the expence at which every man would be willing to redeem himself from it.’ Smith, Book V, Ch. II, part II. 36 Or perhaps one should say that Smith's maxims express an idea of fairness that is much broader than the requirement of equitable tax burden distribution. 37 H. C. Simons, Personal Income Taxation, University of Chicago Press 1938, selection reprinted in R.W. Houghton, Public Finance, Penguin Books 1970.

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Stuart Mill discusses Smith's first maxim on equitable taxation, he takes it to mean 'equality of taxation', which, he adds, is 'a thing often imperfectly understood, and on which many false notions have become to a certain degree accredited, through the absence of any definite principles of judgement in the popular mind.'38 There is no implication that those who are wealthier should face a higher tax burden. In fact, everyone should face an equal burden which, assuming declining utility of money, requires progressive taxation. Conceptually, ability-to-pay taxation has no relevance to a tax policy that aims at redistribution of wealth. For libertarians - with little or no inclination to support forced redistribution anyhow - this is no reason to discard the ability-to-pay standard for equity in taxation. Both for them, and for others who do want to redistribute wealth through taxation, the challenge is to define and support a concept of ‘ability-to-pay’ that is not practically meaningless. Henry Simons, discussing academic work on ability-to-pay theory in the 1930s, was particularly agnostic: 'The practice typically is that of admitting progression through the back door, under the cloak of Adam Smith's first maxim. Tons of paper have been employed on teaching the world that taxes should be levied according to ability - perhaps for the reason that this word utterly defies definition in terms of any base upon which taxes are or ever might be levied. Whereas the question is as to how taxes should be allocated with respect to income, consumption or net worth, the answer is that they should be proportional to ability or faculty, which cannot be conceived quantitatively or defined in terms of any procedure of measurement. Such an answer indicates that the writer prefers the kind of taxation which he prefers; that he is unwilling to reveal his tastes or examine them critically; and that he finds useful in his profession a basic 'principle' from which, as from a conjurer's hat, anything may be drawn at will.'39 In practice, personal income may be a reasonable measure of ability-to-pay (though earnings capacity would be better on theoretical grounds) but whether or not it should be taxed progressively cannot be decided.40 The underlying problem is, that it is difficult to argue about the ‘just’ distribution of tax burden in isolation, when market adjustments, distribution of government benefits etc. clearly matter to the overall social impact. Nevertheless, that is what often happens. Tax policy discussions often refer to 'ability to pay' as an idea of justice, and tend to ignore both more recent developments in political philosophy and the complex economic impact of tax rules.41 In the broader perspective of the modern welfare state it is not obviously meaningful to evaluate tax burden distribution in isolation. What matters is the effect of all state interventions, including expenditures, regulations etc., on things that citizens value - the distribution of welfare, employment etcetera. Even if one does not share this somewhat utilitarian view, the problem remains that a norm of substantive 'equitable taxation' can hardly be founded on anything but voter preferences - with all the problems mentioned. One possible way of finding more solid ground for a normative judgement of tax burden distribution could be to accept the results of the 'social contract' as developed by John Rawls. In 'A Theory of Justice', Rawls claims that a hypothetical meeting of any group of people would generate the same rules for society,

38 'To take a thousand a year from the possessor of ten thousand, would not deprive him of anything really conducive either to the support or to the comfort of existence; and if such would be the effect of taking five pounds from one whose income is fifty, the sacrifice required from the last is not only greater than, but entirely incommensurable with, that imposed upon the first.' John Stuart Mill, Principles of Political Economy, Ch. V.2.7. Mill advocated the moderate type of progression that results from a proportional tax with basic exemption: ' The mode of adjusting these inequalities of pressure, which seems to be the most equitable, is that recommended by Bentham, of leaving a certain minimum of income, sufficient to provide the necessaries of life, untaxed.' 39 Simons, p. 28. 40 For the highly ambiguous relation between ability-to-pay taxation and progressive taxation, see e.g. R.M. Musgrave and P.B. Musgrave, Public Finance in Theory and Practice, several editions. 41 'While there has been a great deal of debate over socioeconomic justice at the most abstract level in recent years, since John Rawls' A Theory of Justice returned the scholarly world's attention to the subject, those arguments about general theories of justice have made relatively little contact with the ideologically loaded battles over tax policy that are the bread and butter of politics. This is partly because fiscal policy involves large empirical uncertainties about the economic consequences of different choices, and it is hard to disentangle the disagreements about justice from the disagreements about what will happen. A theory of justice cannot by itself approve or condemn a tax cut, for example; it requires some estimate of the effects of such a change on investment, employment, government revenue, and the distribution of after-tax income.' L. Murphy, Th. Nagel, The Myth of Ownership, Taxes and Justice, New York, Oxford University Press 2002, p.3-4.

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provided that these people operate behind a 'veil of ignorance'. That is to say: they do not know their own future position in society, and the pursuit of their own interest lacks a specific goal. According to Rawls, such a group of people will agree on three principles. First, they will allow each member of the society-to-be as much personal freedom as is compatible with other people's freedom. Secondly, they will make provisions for society to be open, with equal opportunities and without privileges or discrimination. And thirdly, they will agree with a sizeable mechanism for redistribution of resources, as an insurance against bad luck.42 The main point is that, by assuming a veil of ignorance, Rawls takes care that the drafters of the constitution devise general rules, taking points of view exceeding their narrow self-interest. Such a veil may not have much correspondence with real life, but it can be mimicked when people make their political (voting) choices, based not only on their own short-term personal interests, but also with an eye on the importance of a sustainable social order. The metaphor of the social contract allows us to understand under what conditions individuals, inspired by 'enlightened' self-interest, would be prepared to accept a system of welfare redistribution, and hence, taxation. A Rawlsian type of reasoning may produce norms for equitable taxation that depart from the 19th-century 'neutrality' ideal - tax rules that, given the norms of a liberal and democratic society, maximise the tax revenue to be redistributed to the needy. It should, however, be noted that Rawls himself did not conclude to 'top of the Laffer curve' revenue maximisation. The main comment that he did make about taxation was that a consumption tax should be favoured over an income tax, for exactly the same reason that Thomas Hobbes offered three centuries earlier (namely, that people should be taxed for what they claim for themselves, not for the efforts that they contribute to society43).44 Moreover, alternative outcomes of a social contract experiment are easily imaginable, as Rawls makes the strong assumption that the contract is dictated by extreme risk aversion. And indeed, Ronald Dworkin has developed an alternative outcome, in which people accept equality of resources (or opportunities) as a basic rule for their society; this equality can be established, at least in theory, by an auction of all available resources.45 If equality of resources is indeed achieved, it is not justified to redistribute welfare from winners to losers, as winning and losing are a matter of personal choice and preference. In that case, specific tax norms can be derived: no redistribution of income, except for unearned income (gifts and bequests) which, ignoring disincentive effects, should perhaps be taxed at a 100% rate. As with Hobbes and Rawls, the gap between political philosophy and practical tax design is large. Acknowledging that society is not able to reach equal opportunities, Dworkin accepts income taxation as the most practical way of taxing those with better starting positions.46 Therefore, it seems that Murphy and Nagel have indeed touched upon a fundamental problem regarding substantive justice in taxation when they note that ‘arguments about general theories of justice have made

42 This is Rawls' difference principle, holding that differences in welfare are allowable as long as they contribute to improve the position of the worst-off in society.

43 ‘For what reason is there that he which laboureth much and, sparing the fruits of his labour, consumeth little should be more charged than he that, living idly, getteth little and spendeth all he gets; seeing the one hath no more protection from the Commonwealth than the other? But when the impositions are laid upon those things which men consume, every man payeth equally for what he useth; nor is the Commonwealth defrauded by the luxurious waste of private men.’ Thomas Hobbes, Leviathan, Ch. XXII.

44 John Rawls, A Theory of Justice, Cambridge (Mass.) par. 43 pp. 246-7 in the 1999 revised edition. In Justice as Fairness, a Restatement, Cambridge (Mass.) 2001, Rawls again, and with reference to Hobbes, shows his preference for a flat-rate expenditure tax, while leaving room for progressive income and inheritance taxation ‘solely to prevent accumulations of wealth that are judged to be inimical to background justice..’ p. 161.

45 ‘Suppose a number of shipwreck survivors are washed up on a desert island that has abundant resources and no native population, and any likely rescue is many years away. These immigrants accept the principle that no one is antecedently entitled to any of these resources, but that they shall instead be divided equally among them (…) They also accept (at least provisionally) the following test of an equal division of resources, which I shall call the envy test. No division of resource is an equal division if, once the division is complete, any immigrant would prefer someone else’s bundle of resources to his own bundle’ Ronald Dworkin, Equality of Resources, reprinted in Sovereign Virtue, the Theory and Practice of Equality, Harvard University Press 2000, pp. 66-67. 46 Dworkin p. 91. Kymlicka argues that ‘Dworkin’s policy suggestions are surprisingly modest’ and discusses some possible stronger implications of ‘equality of opportunity’. Kymlicka, Contemporary Political Philosophy, pp. 82-84.

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relatively little contact with the ideologically loaded battles over tax policy that are the bread and butter of politics.’ Legislative norms as restraints A more 'realistic' form of libertarianism, as represented by J.M. Buchanan, accepts private property rights as well as taxes as social institutions, and underlines the importance of 'fair' political decision-making. The idea that the state's taxing power can be restrained by choosing the proper legislative rules can already be found with Locke.47 Buchanan's 'constitutional economics' draws a line between a constitutional level of decision-making, and the working of the normal political process. While he draws on John Rawls for a 'veil of ignorance' constitutional setting, Buchanan's problem is that people face individual incentives to change the constitution once the veil is removed. At the constitutional level, people choose the basic rules of their society - they agree on a social contract. These basic rules will guarantee individual freedoms and rights, they may provide for systems of redistribution of welfare and resources (such as education), and they will define the role of the public institutions - the state - needed to make the constitution effective. Buchanan emphasises that citizens at the constitutional level will need to limit the role of the state. As all people strive to maximise their own economic welfare, politicians and civil servants will be tempted to abuse the state's force for their own private ends. The constitution should, therefore, protect the people from excessive taxation. Decision-making at the constitutional level is to be distinguished sharply from everyday politics. The 'enlightened self-interest' of the constitutional stage, Buchanan argues, is not usually to be found in normal - post-constitutional - political decision-making and legislation. The constitution is needed, not just to found and limit state power, but also to protect citizens from exploitation by a political majority of their co-citizens. As a result, students of tax policy and legislation are required to make the distinction between reasonable 'constitutional' taxation serving the general interest, and forms of taxation and exemption that only serve specific interests. The implication may be that the tax legislation process must have special institutional characteristics or limitations to increase the relative weight of 'general interest' considerations. Therefore, rules must be designed in a way that offers the citizen-taxpayer protection from fiscal exploitation. One way to do that, is to allow the state only to use inefficient types of tax.48 Simple tax rules may also help - the simpler the tax system, the more difficult it will be to introduce special provisions for well-organised interest groups.49 Alternatively, the quality of the tax legislation process might be improved by adopting special constitutional rules, like qualified majority voting or a special Senate for tax legislation.50 VIII. The scope of a concept of tax Summing up the preceding sections, three reasons to restrain the state's power can be mentioned: 1. the fact that the tax instrument allows a political majority to overrule individual preferences; 2. the problem that preference measurement through the voting process seems to be particularly difficult in tax legislation, due to fiscal illusion and a voter bias towards tax expenditures rather than explicit government expenditures; 3. the additional observation that tax legislation is subject to particularly high distributive and steering ambitions, articulated by interest groups with conflicting aims and unequal organisational power.

47 ‘This is not much to be feared in governments where the legislative consists wholly or in part in assemblies which are variable, whose members upon the dissolution of the assembly are subjects under the common laws of their country, equally with the rest. But in governments where the legislative is in one lasting assembly, always in being, or in one man as in absolute monarchies, there is danger still, that they will think themselves to have a distinct interest from the rest of the community, and so will be apt to increase their own riches and power by taking what they think fit from the people. For a man′s property is not at all secure, though there be good and equitable laws to set the bounds of it between him and his fellow-subjects, if he who commands those subjects have power to take from any private man what part he pleases of his property, and use and dispose of it as he thinks good.’ Locke, Second Treatise, par. 138. 48 This is the basic message of Brennan’s and Buchanan’s The Power to Tax. 49 J.M. Buchanan, The Political Efficiency of General Taxation, National Tax Journal Dec. 1993, pp. 401-410. 50 This is a point that Brennan and Buchanan derive from Friedrich Hayek’s Law, Legislation and Liberty, vol. 3. The idea is that a relatively unpolitical Senate would decide on all the tax rules except rates, which should be decided upon by the common parliament.

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On the other hand, it was argued that 'private property rights' as such are not a convincing reason to restrain the state's power to tax. In this section, these considerations are used to reflect on the possible boundaries of a concept of tax. A point of reference is provided by the definition of tax that the OECD uses for statistical purposes. The OECD concept of tax for statistical purposes

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In the OECD classification the term ‘ taxes’ is confined to compulsory, unrequited payments to general government. Taxes are unrequited in the sense that benefits provided by government to taxpayers are not normally in proportion to their payments. General government consists of the central administration, agencies whose operations are under its effective control, state and local governments and their administrations, certain social security schemes and autonomous governmental entities, excluding public enterprises. Consequently, church taxes are included only in countries where the church forms part of general government. As the data refer to receipts of general government, levies paid to non-government bodies, welfare agencies or social insurance schemes outside general government, trade unions or trade associations, even where such levies are compulsory, are excluded. Compulsory payments to general government earmarked for such bodies are, however, included, provided that the government is not simply acting in an agency capacity. Profits from fiscal monopolies are distinguished from those of other public enterprises and are treated as taxes because they reflect the exercise of the taxing power of the state by the use of monopoly powers. Compulsory social security contributions are treated as taxes. Being compulsory payments to general government they clearly resemble taxes. They may, however, differ from other taxes in that the receipt of social security benefits depends, in most countries, upon appropriate contributions having been made, although the size of the benefits is not necessarily related to the amount of contributions. Consequently, social security contributions which are either voluntary or not payable to general government are not treated as taxes. Where the recipient of a service pays a fee clearly related to the cost of providing the service, the levy may be regarded as requited and would not be considered as a tax. In the following cases, however, a levy could be considered as ‘unrequited’:

a) where the charge greatly exceeds the cost of providing the service; b) where the payer of the levy is not the receiver of the benefit c) where government is not providing a specific service in return for the levy which it receives even

though a license may be issued to the payer d) where benefits are received only by those paying the levy but the benefits received by each

individual are not necessarily in proportion to his payments. Fees normally treated as non-tax revenues include: court fees, driving license fees, harbour fees, passport fees, radio and television licence fees where public authorities provide the service. Taxes include: payment for a permission to perform such activities as distributing films, hunting, fishing and shooting, providing entertainment or gambling facilities, selling alcohol or tobacco; permission to own dogs or to use or own motor vehicles or guns; severance taxes. Problems with the OECD definition The OECD definition undoubtedly covers most of the payments that are usually called taxes. Nevertheless, it has two shortcomings, from the point of view of the preceding discussions. According to this definition: 1. payments can only be called taxes when they are received by government institutions. As a consequence, cases where the state uses its taxing power to collect payments to non-governmental organisations are not covered. 2. payments cannot be called taxes when there is a quid pro quo exchange, though it is not quite clear how one should distinguish between 'fiscal monopoly' (i.e. tax) and fees for licenses and passports (not considered taxes).

51 This section is a selective quotation from OECD Revenue Statistics 1965-2003, OECD 2004, pp. 275-276.

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As a consequence, this notion of tax seems unable to cover all cases where political decision-making overrules the market mechanism of voluntary exchange. To clarify the point, attention will be paid to Adam Smith's view on taxation which emphasises the non-market character of taxation. It will be argued that no major weight should be given to the question whether or not the taxpayer gets something in exchange of his payment. The fact that the state has chosen the road of general charges instead of voluntary exchange should be sufficient to trigger the label 'tax'. An additional element to be considered is whether it matters at all why the state imposes the tax. Should a distinction be made between the 'classical' revenue-raising function of taxation, and the 'modern' interventionist function? Is an effective tax penalty on pollution (that is: all pollution is prevented) no tax because it raises no revenue? It will be concluded that it does not matter whether or not the state collects (or intends to collect) revenues. Taxation and voluntary exchange The idea that the state should be funded mainly by taxation is relatively new, and closely connected to the emergence of liberal, market-oriented democracies. Pre-modern society saw no problem in the sovereign participating in markets as a trader or an entrepreneur; rather, it expected the sovereign to develop his own resources. Explicit taxation remained an exception to the norm of sovereign self-sufficiency. From the 18th century onward, the sovereign state was no longer regarded as one participant in economic life among others, but as a separate entity. Taxation offered the means to raise revenues with minimal state participation in markets. The shift in thinking can be seen by comparing the views of Jean Bodin (1530-1596), Thomas Hobbes (1588-1679) and Adam Smith (1723-1790). Bodin, an early theorist of state sovereignty, still believed firmly that the sovereign should raise revenues from his own property, and not tax the citizens.52 Thomas Hobbes' Leviathan starts to make the shift to taxation as the state's primary source of revenue. Hobbes argues that it may be desirable that the state be funded out of public property, but that those in government are in fact not able to make prudent use of that property.53 Adam Smith was highly sceptical about state ownership; in his view, taxation should be the main source of government revenue: 'No two characters seem more inconsistent than those of trader and sovereign.'54

52 ‘There are, generally speaking, seven sources of revenues which include all the possible sources that one can well imagine. The first is the public domain, the second the profits of conquests, the third gifts from friends, the fourth tribute from allies, the fifth the profits of trading ventures, the sixth customs on exports and imports, and the seventh taxes on the subject. The first, which is the domain, appears to be the most defensible and the most reliable of all sources of income (…) It is therefore never permissible for sovereign princes to misappropriate the revenues from the domain. They have not the right of usufruct, but simply of administration, and they must, once the expenses of maintaining the commonwealth and their own estate are met, reserve the rest for some public necessity (...) The last method of raising revenue is to tax the subject. One should never have recourse to it till all other measures have failed, and only then because urgent necessity compels one to make some provision for the commonwealth. In such a case, seeing that the security and defence of each private citizen depends on the preservation of the common good, each individual must be prepared to assist in the matter.’ Jean Bodin, Six Books of the Commonwealth, abridged and translated by M.J. Tooley, Oxford 1967, Book VI (The Revenues), Ch. II. 53 ‘In the distribution of land, the Commonwealth itself may be conceived to have a portion, and possess and improve the same by their representative; and that such portion may be made sufficient to sustain the whole expense to the common peace and defence necessarily required: which were very true, if there could be any representative conceived free from human passions and infirmities. But the nature of men being as it is, the setting forth of public land, or of any certain revenue for the Commonwealth, is in vain, and tendeth to the dissolution of government, to the condition of mere nature, and war, as soon as ever the sovereign power falleth into the hands of a monarch, or of an assembly, that are either too negligent of money or too hazardous in engaging the public stock into long or costly war.’ Hobbes, Leviathan ch. XXII. 54 ‘The revenue which, in any civilized monarchy, the crown derives from the crown lands, though it appears to cost nothing to individuals, in reality costs more to the society than perhaps any other equal revenue which the crown enjoys. It would, in all cases, be for the interest of the society to replace this revenue to the crown by some other equal revenue, and to divide the lands among the people, which could not well be done better, perhaps, than by exposing them to public sale..... Public stock and public lands, therefore, the two sources of revenue which may peculiarly belong to the sovereign or commonwealth, being both improper and insufficient funds for defraying the necessary expence of any great and civilized state, it remains that this expence must, the greater part of it, be defrayed by taxes of one kind or another; the people contributing a part of their own private revenue in order to make up a public revenue to the sovereign or commonwealth.’ Smith, Wealth of Nations, Book V, Chap. II, Part I.

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It should be noted that Smith rejected funding of the state by revenues from public property as 'improper'. His requirement that the state be funded primarily by taxes was, in fact, an important part of his program of economic liberalism. Voluntary transactions in the free market both generate the highest possible wealth and legitimise the distribution of that wealth. To the extent that the state needs funds, it is to collect those funds under the condition of minimum interference with free market processes and outcomes. The state should therefore not participate in the market as an owner or entrepreneur. The least distortive way to collect funds is to use taxes that are both neutral with respect to market processes, and equitable with respect to the market-generated distribution of wealth. Though Smith offered no formal definition of the concept of taxation, he obviously wanted to distinguish between taxation and voluntary exchange: taxation is taking. At the same time, he stressed that citizens should contribute to the state in an equitable way. Taxation therefore has two separate aspects. One is the aspect of confiscation: tax law provides the state with unique instruments to force the citizen to pay. The other aspect is contribution: the members of a community share the costs of joint expenditures. Under both aspects, however, equality in taxation is a primary requirement. The most concise wording of this liberal program of taxation is to be found in John Stuart Mill's Principles of Political Economy.55 State neutrality towards citizens and their economic choices is here connected, it would seem, to an obligation of citizens to take their fair share of the tax burden. Taxation has to be equal, that is: neutral, because it is taking and citizens can rightly expect to be asked nothing in excess of a fair contribution. By taxing neutrally, the state accepts that voluntary market transactions create 'just' individual entitlements to goods and services. Mill even concludes a contrario that, if markets generate non-justifiable results, the state's claim to these results should not be called a 'tax' because the payment would not truly be a burden. He believes that the structural increase in the value of land is such case of unjustified result - the increase is due to demographic pressure, not to the landowners' efforts.56 If one would try to generalise this single observation57, the conclusion should be that Mill distinguishes two separate types of payments: - taxes: those payments that represent fair contributions, accepting market results as the legitimised 'benchmark' distribution of goods, services and wealth; - payments that correct unjustified market results, which should not be called taxes. As noted before, the idea that the state should be neutral with respect to the functioning of markets has been abandoned in the welfare state. It is obvious that a modern concept of tax cannot follow Mill's distinction as generalised here, as this would mean that all tax corrections of market results, including explicit income redistribution, are ignored. A diluted form of this distinction can however be found when the classical function of taxation - to raise revenue in an equitable way - is contrasted with the interventionist function - using taxes to correct economic choices and market results. Social insurance contributions: taxes?

55 ‘For what reason ought equality to be the rule in matters of taxation? For the reason that it ought to be so in all affairs of government. As a government ought to make no distinction of persons or classes in the strength of their claims on it, whatever sacrifices it requires from them should be made to bear as nearly as possible with the same pressure upon all, which, it must be observed, is the mode by which least sacrifice is occasioned on the whole. If any one bears less than his fair share of the burthen, some other person must suffer more than his share, and the alleviation to the one is not, cæteris paribus, so great a good to him, as the increased pressure upon the other is an evil. Equality of taxation, therefore, as a maxim of politics, means equality of sacrifice. It means apportioning the contribution of each person towards the expenses of government so that he shall feel neither more nor less inconvenience from his share of the payment than every other person experiences from his. This standard, like other standards of perfection, cannot be completely realized; but the first object in every practical discussion should be to know what perfection is.’ J.S. Mill, Principles, Ch. V.2.7. 56 ‘But whatever may be thought of the legitimacy of making the State a sharer in all future increase of rent from natural causes, the existing land-tax (which in this country unfortunately is very small) ought not to be regarded as a tax, but as a rent-charge in favour of the public; a portion of the rent, reserved from the beginning by the State, which has never belonged to or formed part of the income of the landlords, and should not therefore be counted to them as part of their taxation, so as to exempt them from their fair share of every other tax.’ J. S. Mill, Principles, V.2.30. 57 However, Mill's support for 'sin taxes' on alcohol etc. shows that one should be careful to generalize. Such taxes clearly interfere with consumer sovereignty, and do not have a self-evident relation with 'fair shares'. Yet, Mill sees no problem in using the word 'tax' in this context.

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In most European countries, pensions and unemployment benefits have been organised in social security schemes, rather than being paid out of tax revenues. Apart from a historical explanation58, this separate organisation can be seen as an attempt to give workers a feeling of 'ownership' and responsibility for the insurance institutions. As insurance is usually mandatory, the question arises whether or not social security contributions must be included in the concept of taxation. In many countries, social security contributions are treated as 'earmarked taxes', and comparative OECD statistics on tax burdens in the western world always include social contributions. However, the literature on the subject suggests a more sophisticated approach. Taking as a starting point that those who participate in mandatory insurance schemes do not only contribute but also receive entitlements to future benefits, the question is to what extent payments are the 'price' for those benefits. The yardstick is the level of premium that a private insurance company in an efficient market59 would require; only excess payments can be labelled 'tax'.60 Such excess payments may be due partly to inefficient organisation of social security institutions. But usually, social security schemes contain ex ante redistribution61: for some of the insured, it is foreseeable that they will receive less than they paid, while others can foresee that they will get more than they ever paid. To the extent that social security contributions are actuarily fair, it seems an arbitrary decision either to include these payments in, or exclude them from the concept of taxation. To be sure, payments are compulsory; and given the freedom to choose, people might have chosen to give an alternative use to their money. On the other hand, they get 'value for their money', and the option of provision through a competitive market is often not available. However, it can be argued that the mandatory character of social security should be the overriding consideration to include social contributions in the concept of tax. If these contributions would conceptually be split in a 'value for money' part (no tax) and a 'forced redistribution' part (taxation), the same approach could be applied to taxes proper. For every individual, the question would then become which part of his tax payments is, so to speak, reimbursed by provision of public goods and services. That part of his payments should then not be called a tax. It has already been observed that Murphy and Nagel come close to that conclusion, in the sense that taxation creates no real burden, as long as it is counterbalanced by public benefits. It has also been noted that John Stuart Mill tended to draw the opposite conclusion: redistributive levies aimed at correcting unjustified market results should not be called taxes. Apart from evident problems of measurement at the individual level, both conclusions would lead to an undesirably narrow concept of taxation. Whether or not an individual’s tax payments are reflected in the benefits he receives from the state, the point remains that his own preferences may have been overruled by those of a majority of his co-citizens. 'Instrumental use' of taxation Traditionally, taxation has been conceived primarily as a means to collect state revenue. Should that be a defining element in a concept of taxation? To start with, it should be noted that there is a long tradition in limiting specific consumer choices through taxation. For example, Bodin, though not an enthusiastic supporter of taxation, advocates the taxation of sins with some apparent enthusiasm.62

58 Workers' mutual insurance initiatives usually preceded legislation, that often used these initiatives for a mandatory regulation. 59 Markets for pensions and unemployment benefits often cannot be efficient, due to problems like adverse selection (only bad risks search for insurance, only good risks are accepted) and moral hazard (those who are insured take less precaution to reduce risks). That is the economic rationale for mandatory systems, and the yardstick of 'competitive premiums' is in fact difficult to measure. The next-best measure would then be actuarial fairness: to what extent can an insured individual expect to get an normal return on his payments at given individual risks? 60 L. Summers, Some Simple Economics of Mandated Benefits, American Economic Review, 79(2), 1989, pp. 177-183. 61 Insurance always involves ex post redistribution: from those who paid without incurring the insured risk, to those who did incur the risk. 62 ‘If anyone asks what form taxes should take which are to redound to the honour of God, and the profit of the commonwealth, to the satisfaction of men of substance, and the relief of the poor, I suggest that they should be levied on those commodities which corrupt the subject. Taxes should be raised on luxuries and ornaments of all sorts, perfumes, cloth of gold and silver, silk, lace, fine tissues, gold and silver enamel. They should also be charged on all unnecessary articles of clothing, and on scarlet, crimson, and cochineal dyes and so forth. One should not prohibit the sale of these articles. Men are so made by nature that they find nothing more attractive than that which is strictly forbidden. The more superfluities are denied to them, the more earnestly are they desired, especially by giddy and unstable natures. It is

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Mill, as a convinced liberal in economic affairs, had only slightly more difficulty to get to the same conclusion.63 But an almost libertarian defence of free consumer choices (at least to the extent that these choices do not harm others) comes, perhaps surprisingly, from Bentham.64

Nowadays, the distinction between a classical and an interventionist function of taxation seems hard to draw. It has become generally agreed upon that market externalities may be corrected by use of taxation; all types of 'paternalistic' considerations can also find their way into tax rules. There may be doubts about the quality of the political process that generates these tax incentives, as well as about their effectiveness, but such considerations only strengthen the conclusion that a normative approach of taxation should include the cases where taxes intend to intervene in citizens' choices rather than raise revenue.

better to make such things so expensive by heavy taxes that only the very rich and indulgent can afford them.’Bodin, Six Books, abridged and translated by M.J. Tooley, Oxford 1967, Book VI (The Revenues), Ch. II. 63 ‘To tax stimulants for the sole purpose of making them more difficult to be obtained, is a measure differing only in degree from their entire prohibition; and would be justifiable only if that were justifiable. Every increase of cost is a prohibition, to those whose means do not come up to the augmented price; and to those who do, it is a penalty laid on them for gratifying a particular taste. Their choice of pleasures, and their mode of expending their income, after satisfying their legal and moral obligations to the State and to individuals, are their own concern, and must rest with their own judgment. These considerations may seem at first sight to condemn the selection of stimulants as special subjects of taxation for purposes of revenue. But it must be remembered that taxation for fiscal purposes is absolutely inevitable; that in most countries it is necessary that a considerable part of that taxation should be indirect; that the State, therefore, cannot help imposing penalties, which to some persons may be prohibitory, on the use of some articles of consumption. It is hence the duty of the State to consider, in the imposition of taxes, what commodities the consumers can best spare; and a fortiori, to select in preference those of which it deems the use, beyond a very moderate quantity, to be positively injurious. Taxation, therefore, of stimulants, up to the point which produces the largest amount of revenue (supposing that the State needs all the revenue which it yields) is not only admissible, but to be approved of.’ J.S. Mill, On Liberty, V.9. 64 ‘The principal business of the laws, the only business which is evidently and incontestibly necessary, is the preventing of individuals from pursuing their own happiness, by the destruction of a greater portion of the happiness of others. To impose restraints upon the individual for his own welfare, is the business of education; the duty of the old towards the young; of the keeper towards the madman: it is rarely the duty of the legislator towards the people.’ Jeremy Bentham, Of Promulgation of the Laws and Promulgation of the Reasons Thereof, Volume I of the 1843 Bowring edition of Bentham's works.

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1.0.b. Some propositions on tax as a legal concept

Gisela Suchy

This paper first describes tax, and then vets this description against the two fundamental ideas of modern public law: that legal rules governing public action, and that personal rights of the individual limit public power. This method should lead to a prima facie consistent legal concept of tax.

I. Tax is a complex relationship 1. Tax is a right of the public power to require a payment

Tax is a right of the public power to require a payment, independent of individual consent or benefit. This apparent truism carries a certain number of questions.

The first question is whether the right to tax does necessarily support a strictly bilateral relation between one debtor and one creditor: Indeed, tax law does not necessarily require the person carrying the burden of tax to pay themselves. Setting aside ‘indirect taxation’ or excise, the mechanism of withholding taxes requires a qualified third party on behalf of the fundamental debtor. This mechanism is similar to the distinction between debtor and solvens in civil law distinguishing the person who owes the payment and the person who actually proceeds to the payment. It is different to the extent that in the case of taxes, the solvens is personally bound to make the corresponding payment. Yet the obligation of the tax debtor does disappear. Therefore, Tax seems to be more of a ‘real right’ rather than founding a specific personal relation. Another question that cannot be peremptorily answered at this state, is whether or not there is a fundamental difference between pecuniary levies and personal duties. One argument for a distinction would be however, that personal duties are never real but always personal. Yet, this right to obtain a payment is not the only element of tax and maybe not even the most important one. Indeed, as taxes arise as a right of a third party, the public power, out of a relationship or circumstance to which it is a complete stranger, taxation requires information. 2. Tax is a right to obtain compliance Tax law requires the public power to be informed of facts that are material to ascertaining and exercising its right to obtain the payment of tax. Different means are used, for example : - requiring the debtor or a knowledgeable third party to declare spontaneously certain facts to the Authorities; - requiring individuals to document their activity and to compute significant bases or tax dues;

- requiring any person to answer truthfully to requests for information;

- requiring people to grant access to private property or documents;

- requiring people to use certain facilities .

These obligations regularly bind all potential tax payers, independently of whether or not tax turns out to be due. They also may be binding on persons that are no potential taxpayers but who are in possession of material information. Moreover, the fines or penalties for intentionally or through negligence failing to comply fully are, at least in some legal systems, harsher than penalties or fines for failure to actually pay taxes.

II. Taxation as a concept of public law

The right to levy taxes is a double attribute of the State: the right to set rules – to legislate – the right to enforce these rules.

1. Taxation is the setting of rules

a. The normative quality of taxes

From a legal point of view, taxation is the exercise of a normative capacity. Normative capacity is the power to set general, abstract rules. Rules qualify as such if they are defined in order to apply to an infinite number of factual situations which meet predefined conditions that are not specific to an individual. This is a

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fundamentally political process, and the respective editor of these rules will and should take policy aspects into consideration within the limits of superior law: the permanence of State and individual freedoms.

The abstract and general source implies that a legal bond is independent of individual consent but is created by the satisfaction of the abstract criteria set out by the rule. It also differs from an order which is specific to one or several individuals.

Therefore, a contract does not give rise to taxes since it is defined as a mutual agreement. Individual consent is not necessary in a strictly legal way, individual dissent however makes no difference for the validity of a rule but leads only to a spread between rules and behaviors. Experience shows that perfect compliance by all individuals and on all occasions cannot be obtained. However, this does not mean that rules are set against individual consent or that rulers do not try to provoke individual compliance. Indeed, ideally, most people should think that most of the rules are fairly expedient and comply with them without particular constraint.

The only cause – reason why – somebody has to pay taxes or comply with other rules concerning taxes is because he or she is subject to law. Of course, there might be a philosophical question – why law should be complied with. But, at this point of the debate, Law should be complied with because it is the essence of the State and systematic disobedience of the Law disintegrates the State. Assuming agreement on the necessity of a State as a frame of debate, the discussion of why to comply with law and therefore, why comply with taxation regulations is settled for the time being.

Nevertheless, State law generally provides for procedures to change the Law. Therefore, even if the tax law is held to be wrong, the consequence is not that it may be disobeyed. The only consequence is that the procedures to change law should be applied. Moreover, it is a premises of democratic States, that individual consent does not determine the contents of the law. Indeed, legislation according to individual will is either no legislation if there is an indefinite number of wills or monarchy.

However, the capacity of mutual consent to create an obligation needs to be distinguished from the possibility of agreeing on the meaning of an abstract norm in a specific situation. Therefore, settlements on factual data are not inconsistent with the legal origin of tax.

The availability of rulings does not necessarily imply that the payment has become contractual. It could simply be a way of managing risk. Indeed, why should anybody enter an agreement to pay taxes if otherwise they would not owe anything. Moreover, in certain specific situations, it may be difficult to assess the proper application of a rule to the case. Therefore, prior agreement may simple be a way to procure legal security, which would be in the interest of both, the State and the taxpayer. Even though, in certain legal systems, a specific problem may arise out of the prohibition for the state to enter into transactions.

b. The distinction between taxes and expropriations or the difference between rules and measures

Expropriations are measures. They rely on a specific order, an individual addressee and a specific good. Moreover, an existing title to a specific good is a prerequisite to expropriation.

Tax is defined on the same level as the content of individual property rights, law.

The right to an amount of tax arises in the same time as the property rights. The obligation to pay a tax is an aspect of property rights rather than an exception to them. For example, the law may state that two people entering into a contract of sale may define the price of the good. At the same time it states, that a proportion of the price is due as tax. Therefore, only part of the price accrues to the vendor, the other part, at the same time, to the State, at least as a receivable. Tax may also be a burden on property, requiring it to be productive. Even though taxes arising out of an exchange as well as taxes on property can have a confiscatory effect, they are still fundamentally different from expropriations: whereas an expropriation requires the surrendering of a specific good, even confiscatory taxes still leave the means of raising the appropriate funds to the debtor.

The difference between taxes (consubstantial to property rights or certain personal rights) and expropriations (avoidance of a property right) is reflected by a difference regarding indemnities: whereas an individual indemnity is a prerequisite to an expropriation, it is antonymous to tax. Indeed, the different theses on the justification of tax as an insurance premium or as a duty arising in consideration of the public good that is financed through taxes, and the psychological argument that taxes are paid only if people get something out of it they would not get otherwise, do not amount to a legal cause for the obligation to pay taxes.

2. Taxation implies the power to act

a. Public activity

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The power to tax implies the power to apply tax law. The State has the power to act according to law in different domains: legislation, judicial powers, regulation. There is currently a debate on which are the proper functions of the State, but there seems to be an agreement that functions that are not or not satisfactorily provided for by private initiative, require at least some State activity, either as a facilitator or as an agent. It seems fair, on this level of debate, to consider the definition of State activity as an issue of policy and of politics.

This implies that the public powers have to provide for the efficiency of the rules they set and for the implementation of their policies. These functions may be carried out by State services or whether they are performed by private services under public supervisions. However, as long as they are implemented using prerogatives of public power such as the power to make decisions unilaterally, they remain public activity.

Levying taxes is one of these activities. In some jurisdiction, social security contributions are levied by specific non state institutions. For this reason, among others, they are distinct from taxes. However, the fundamental relation remains the same: a levy, that is due qua lege, independent of individual consideration, and that is levied using prerogatives of public power.

b. Inverse public service

If there is agreement that the State does or should limit its intervention to taking care of issues that are in the common interest but are not satisfactorily satisfied by private initiative, then they cannot be funded through market mechanisms, and the State should not depend on market mechanisms for its funding. In mid twentieth century literature, tax has sometimes been considered a secondary funding mechanism, whereas market pricing would be a primary mechanism. Tax being only the redistribution of wealth created through the markets, which would lead to the question whether taxation should be a subsidiary means of State funding. This approach however is an economic one, that ignores a legal specificity of the State: it cannot be an actor on the market like another one, as one cannot be in the same time referee and player. Indeed taxation is the analogous means for providing for the public good: the public good cannot be or not fully be apportioned to the individual. Therefore, the proper price to be paid by the individual cannot be determined. Hence, if funding cannot reasonably be provided through individual agreement, and considering the idea of purely voluntary contributions as not viable, funding needs to rely on statute, creating obligations on the persons subject to domestic law, much in the same manner as other public policies create a right or a benefit for the same persons. To that extend, taxes are a mirror image of public services.

The persons that are subjects of domestic law being the beneficiaries of the services and activities provided for by the State, even if there is no individual bargain, there is a collective exchange. Whereas in a contract people are bound as individuals, under law, people are bound as far as they satisfy abstractly defined situations: they benefit from State activity as far as they correspond the abstract requirements, conversely, they contribute to the State as far as they fulfill the abstract requirements.

This can be construed – as Prof. Sacchetto pointed out – as taxes being an expression of solidarity. In continental law, solidarity signifies that several persons are responsible for a single debt and each one is held for the whole debt.65 Even without the private law context, each member of the community living on the State is held for liable for the charges of the entire enterprise in their interest as member of a group. On a psychological level, taxes could probably be one part of State- and citizenship building.

III. Individual rights and public prerogatives

On the one hand the Law and its enforcement through the public power is a prerequisite to the existence of Rights. On the other hand, both restrict individual Rights. Some subjective rights may not be held against the State, others can be, they are therefore called fundamental Rights. At least within the realm of the European Convention on the Protection of Individual Rights and Fundamental Freedoms – the Human Rights Convention hereafter – the conflict of individual rights and State prerogatives is arbitrated through a method that aims at finding an equilibrium between both terms. This equilibrium is more or less in favor of the individual or the public power depending on whose rights are deemed worthier of a higher protection by the Human Rights Convention: for example, degrading and inhumane treatment is absolutely prohibited meaning that no public interest can be strong enough to overrule the individual right not to be treated in such a manner – without entering the debate on the meaning of those terms – on the other hand, the power to tax

65 It is clear that for reasons of individual human rights (see sub III) this does not mean that one individual could be held liable for all the taxes of a State.

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for example is considered so worthy of protection, that it overrides the individual right to due process (at least as far as the Convention is concerned, domestic law may be more protective). Other rights call for an actual arbitration in terms of necessity, proportion, expediency, security of expectations or others. The domestic and international criteria are not strictly the same all over Europe, and sometimes are conflicting among themselves. However, their very existence could probably be agreed upon.

As far as taxes are concerned, having established that they do not proceed from individual consent, one cannot consider the individual the arbitrator of their personal preference as to what part of their liberty they surrender. Therefore, in order to be able to conclude on the compliance of a tax with individual rights, it is not only necessary to identify the individual rights that may enter into conflict with the individual obligations under tax law, it is also necessary to delimitate the concept of tax in a way to assure consistent interaction with these rights. Fundamental Rights are bidimensional: there is an absolute dimension - whether a subject’s Rights are impaired by public intervention, and there is a relative dimension, equality: the impairment of the individual right is compared to the impairment suffered by other individuals. Equality is a particular principle since it can apply to all other principles and since it creates a link between all individuals.

1. Taxation is a matter of individual Rights

Different fundamental rights come to mind when talking about taxation: property , individual freedom, privacy.

Tax is a financial burden. There may be no fundamental economic difference between contribution in kind and a contribution in money, therefore, an economist may not distinguish between an obligation to pay an amount of money, an obligation to surrender a specific item or an obligation to render a service. However, at law, fundamental rights are concerned in different ways: for example, military service may require personal action incompatible with a person’s believes and requires personal presence on certain premises for a certain time. Taxation implies to pay an amount of money and, therefore does not in the same way conflict with the freedom of conscience, the requirements of personal presence are much more limited.66 This leads to the question of wondering whether the concept of tax should be restricted to money. Professor Peeters does not think so but considers that it is useful to make a distinction between several categories of taxes: in cash, in kind or in services. I agree that obligations to contribute in cash, in kind or in services are very similar, and therefore are at least part of the same group of phenomena. However, I believe that taxes are distinct, at least from personal services, since they address other fundamental rights. First, the question of object taxes is a question of parallel democracy rather than one of conscience: as long as the objectors to military and nuclear weapons live in Belgium, they are beneficiaries of the protection thus provided. And objectors of conscience are only dispensed from the obligation to accept the possibility that they have to kill in case of war, they are neither dispensed from public service, nor, in times of war, of participating in defense. Second, money is fungible whereas personal services are not. Third, even without entering the debate on the essence and measure of ability to pay, all obligations require the capacity of the debtor to perform the obligation. And the capacity to perform a payment or to perform a service are not measured in the same terms. Fourth, having to perform a personal service or being able to buy oneself out of it is probably not felt to be the same thing. Therefore, the possibility to buy oneself out or not is felt as an inequality, especially if particularly demanding services are required. Equally before service may be nation building, whereas serve or pay is dividing. This not strictly legal argument leads to the fundamental question of equality before the law – and taxes.

2. Taxation is a matter of equality

Having established that taxes are in principle legitimate, that they necessarily interact with personal freedoms, and that they are general, taxation is a matter of equality between subjects of the law.

Equality has been constructed as absolute, abstract equality: all men are equal. Another approach is that men are relatively equal, i.e. with respect to a certain item. This item could be the potential to benefit from a specific service rendered or organized by public power. This allows to retrieve some of the problems that had

66 Professor Peeters points out that in Belgium “in the past, some tax payers have refused to pay taxes because they were used to finance the army and nuclear weapons which was against their personal believes. In court these tax payers were condemned, because they could not prove that their tax payments were used for this military purpose (the principle of the universality of the state budget)”. The same is true for Germany. He also related that “ a few weeks ago, some members of Parliament made in Belgium a proposition in order to give tax payers – within certain limits - the opportunity to specify the destination of a part of their tax contributions (f.i. to a fund for Peace in order to finance non-military solutions of conflicts)(Chamber of Representatives, March 16th 2005, Session 2003-2004, Doc. 1671/001). This bill has not been voted yet.” A scheme like this has been reported from New Hampshire in the US.

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been read as exchange: there is no exchange between the State and the individual, no do ut des. But the potential benefit or not of an individual of a service would be sufficiently distinctive to rationalize a legal distinction. It allows also a contributive yet specialized financing. (see more sub 1.3. text of M. Bourgeois)

IV. Conclusion

Taxes are not only an issue of finance, they are also a properly legal issue. They are a proper concept that cannot be fully explained in terms of private law theory of obligations. And taxes are consubstantial to the modern state: they are law, they are subject to law enforcement requiring a balance to be struck between the public prerogative, the protection of individual rights, the protection of fundamental characteristics of law and efficiency of enforcement. They are a contribution mirroring the services provided by the State, they are an intellectual collateral to public service. Up to a certain point, there is no State without taxes, and no freedom without a State. Yet ‘State’ is a fundamentally functional concept, hence taxes are a function, and do not depend on their being levied by the State in persona.

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1.1. Overview of the different sources of funds obtained by the government to finance its expenditure Gisela Suchy The financial notion of ‘funding of government action’ covers a variety of very different legal concepts. Some of these are properly financial, i.e. their purpose is overtly financial, others have simply an economic effect, yet both of these are budgetary, i.e. they can and in most cases should flow through a public budget. A third group would be extra-budgetary, a sort of making others do. The following is just meant to be a kind of menu, a fore view of things to be discussed in section 1.2. Selection is large, maybe some of the items proposed are later found not to be a resource. Moreover, use of vocabulary is approximate, the words are used to give a rough idea, not as proper terms. 1.1.a. Budgetary means Budgetary means include properly financial means and other means having a financial effect. I. Overtly financial means Overtly financial means are ‘Levies’ and ‘Prices’. 1. Levies There are different types of levies : for example income-, wealth- and value added taxes, tariffs, customs and excise duties, poll taxes. Without aiming at defining or differentiating them, these levies are due by act of public power. This act will define a situation that gives rise to the obligation to pay, yet the obligation to pay is not linked to a specific benefit obtained by the debtor. The last criterion classifies certain contributions as levies even though they may be closely related to a specific public enterprise, for example statutory contributions to the building of reads and other communal infrastructure. They may also be linked to the use of a public good without being however a price. French administrative law, provides for levies that are required from persons who occupy the public domain but are not strictly speaking a price or fee. 2. Prices and fees Prices and fees can arise out of an individual bargain or be due by virtue of an act of public power, but are linked to a specific good or benefit obtained by the debtor. Examples could include fees for public documents such as passports, entrance at public sports facilities or prices for public services such as gas and water (to the extent that they are not privately offered). Another form of ‘price’ could be indemnities accruing to the public budget to repair a tort caused by a third party. 3. Voluntary contributions Public expenditure may be financed through private contributions such as legs in favor of a museum or a service or public-private partnerships financing infrastructures. Some legal systems provide for the State to be a successor by default : if there is no heir nor legatary (in case of death of a natural person) or no designated beneficiary (in case of the dissolution of a legal person) the legacy accrues to the State. 4. Temporary means Government action can be financed, at least temporarily, through debt. The debt can be subscribed voluntarily by investors, as ordinary loans or as tradable debt instruments, such as Treasury bonds, bons du Trésor, Bundesanleihen. It can be financed through forced loans. Monetary policy has been thought of as a means of financing government action. It is not sure that economists would still agree. II. Means that are effectively financial Some payments have a regulatory or penal function, for example, ‘rights to pollute’, fines, penalty payments used for law enforcement or for the enforcement of legal decisions. Yet they accrue typically to the State (excepting their civil equivalents that accrue to an adverse party in a civil, not penal process), and, considering the amounts, they are a sometimes significant resource for government action.

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1.1.b. Non budgetary means Among the non budgetary means are those that are personal services and still more elusively, the inducement of private activity I. Personal services Some legal systems require personal services. The most known is statutory military service, were draftees serve for a notional remuneration plus food, equipment and lodging. Thus, this service is not only obligatory but also quasi gratuitous and thus a net resource for government action. Civil (‘replacement service’) due by objectors for conscience reasons turns out to be an important resource for social services in Germany. Even if they are not necessarily provided by public agencies, facilitating these services is part of the government agenda. As replacement service, that is due in lieu of military service, the creditor of the service is the State even if the direct beneficiary may be a non governmental organization such as a private hospital. Communal law may provide for other personal services such as street maintenance (in Berlin, owners of real estate are or were responsible for keeping the sidewalk bordering their property ice-free), dyke maintenance and fire fighting. II. Inducement of private activity Government may outsource the implementation of its policies by inducing private initiative to provide the services that are needed. Nonfiscal inducements are a simple form. Different forms of fiscal inducements are more intricate. 1. Nonfiscal inducement Government action needs not be taken through public agencies. Government may require behavior from individuals, production restrictions as means of market regulation have been mentioned. Others could be the encouragement of such behavior, either purely moral or through provision of facilities, for example, the encouragement of individual physical activity as a matter of public health policy. Going through the history of the Wohlfahrtsstaat should provide a sample of more or less serious or quirky examples. Moreover, the different provisions to facilitate private religiously, socially, philosophically motivated action in favor of public concerns should be counted among the resources of government action. 2. Fiscal inducement Government can induce private behavior through tax measures. One example is rendering private expenditure tax deductible in order to induce a certain behavior, for example income tax deductibility of certain types of investment, or to provide special tax rates for certain expenditure, for example a lower value added tax rate on products of first necessity such as non processed food. A similar means would be to allow the deduction of certain expenditure from the tax due. In France for example, in order to pursue a policy promoting childbirth, expenditure for childcare is deductible from income tax due (and not from the tax basis). It has been pointed out that this is in essence the debudgetization of certain types of expenditure. These measures are the equivalence of subsidizing the corresponding expenditure. One could therefore argue, whether this last mechanism is still a resource or a use of public funds. It probably is ambiguous. Last but not least, some governments are quite expert in making believe in resources for government activity by transfer between public budgets or by creating circular transfers. For example, a French levy on pharmaceutical specialties in favor of public health insurance and levied on specialties paid for by the same insurer.

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1.2. The notion of tax and the different types of taxes 1.2.a. General approach Lorenzo Del Federico (This text will follow soon)

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1.2.b. Comparative law approach Marco Barassi I. Introduction The label “Notion of tax” reminds to the existence of a notion having a general value, that is to say so large to include the different kinds of compulsory payments with fiscal nature, existing in the present legal orders. But it is not sure that such a notion exists. On the contrary, the division of the subject in different sections (domestic, international and European), suggests a changeable extension of the concept of tax. A notion is useful if it is able to summarise, in a synthetic way, a legal phenomenon that is connected with specific rules. Nevertheless under a comparative point of view, the activity of classification is an instrument to understand the types of taxes that exist in different States and may be a base to improve a legal order by using different solutions from other countries. The classification activity implies linguistic issues. It is obvious that if names are identical it doesn’t mean that concepts are identical too. So, in order to compare different types of taxes, one has to analyse the characteristics of each type of tax and not their names. There is also a translation problem because it may be difficult to translate the name of a levy in English if there is not an English word to call it. This problem arises for words like tributo or Abgabe that has been translated with “compulsory contribution67. This part deals with the different kind of taxes and simply tries to describe them making clear the different characteristics of each type of tax. The notion of tax and its functions have changed across the time, depending on the changes of the relations between the State and the individual and on the functions that taxes assumed in consequence of the State intervention in economy and society. It is not possible here to summarize the evolution of the concept of tax. However it has been conceived as a levy imposed by the Prince; then a levy in change of a service provided by the State (XVI sec.) with the consent of citizens’ representatives and then a compulsory and unconditional levy, based on the ability to pay and not in exchange for services received. The development of economy and of welfare State, during the last century has caused an increasing need of State revenue; consequently new levy and increases of existing levies were imposed68. So the functions of taxes changed and nowadays they are not only to raise revenue to cover government expenses but also to pursue economic and social aims. II. The different types of taxes There are different types of taxes in the different States. Before examining these different types it is important to choose correct words to call the different types. Civil law countries seems to be systematic in classifying the different types of taxes while in common law countries, especially UK where no written constitution exists, there is little need to do so69. The problem of finding different words to call different things is a consequence of classification that means to include all the objects with common elements in the same group. Moreover a relation must be set among the genus and the species. Some countries use a different name to call all kind of levies having fiscal nature. Germany, Italy and Spain call with a specific word the genus including all levies (general category) and this word is not “tax”. In Germany the general category is called abgabe while tax is called steuer; in Italy tributo and imposta; in Spain tributo and impuesto70. In other countries –for instance UK and France- this difference doesn’t seem to exist. In order to indicate the general category of levies, which include taxes, fees etc., it seems appropriate to use the expression “compulsory contribution”71.

67 V. Thuronyi, Comparative tax law, The Hague, 2003, 48. 68 L. Trotabas, J.M. Cotteret, Droit fiscal, Paris, 1997, 7 69 V. Thuronyi, Comparative tax law, The Hague, 2003, 49. 70 Relationships among scholars of these countries have always been close. A similar classification exists also in Brazil (see M.A. Greco’s report on the subject) but the notion of compulsory contribution in this country includes levies that do not belong to the gender of compulsory contributions in the other countries mentioned. For example compulsory loans and social security contributions are not considered compulsory contributions in Germany, Italy and Spain. 71 V. Thuronyi, Comparative tax law, cited above, 48.

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III. Tax It seems appropriate to distinguish tax, that is the most important compulsory contribution, from the other ones. The characteristics of tax, which are pointed out in different countries, are illustrated below. 1. Germany Tax is defined as a72: - monetary contribution - in which the taxpayer receives nothing in return (or that is not a consideration for a service received) - unilaterally imposed by a public entity (federation, federal state, municipality, church) - whose function is, at least in part, to raise revenue - imposed to everybody who fits in the fact considered by law. 2. United Kingdom UK scholars stress three characteristics of tax73: - it is a compulsory levy - imposed by an organ of government - for public purposes. Scholars point out the difference between tax and social contribution: the last ones are charge for a government service and not a “tax”74. However the general category called compulsory contribution doesn’t seem to be used as a legal category75. 3. France Article 34 of French Constitution says: «statute establishes rules concerning tax base, rate and enforcement of taxes of every kind »76. The French Constitutional Court provides for a negative definition of taxes that are compulsory levies different from taxes parafiscales, from social contributions and from non fiscal fees (redevances)77. Taxes differ from social contributions because social contributions are a charge for a government service. There are different definitions of tax provided by scholars. A definition is: “A compulsory payment obtained by a public entity and whose main aim is to cover government expenses apportioning them among taxpayer according to their ability to pay”78. This definition stresses three characteristics of tax: - it is compulsory; - the main aim is to collect money; - the measures of the payment is connected with the ability to pay of the taxpayer. 4. Belgium According to scholars the best definition of tax has been provided by the High Judicial Court (Court de cassation): “Tax is a compulsory payment obtained by State, provinces, municipalities, on the resources of

72 Tipke – Lang, Steuerrecht, Koeln, 2002, 40 seq.. Article 3 of Abgabenordnung defines tax: “Steuern sind Geldeinstungen, die nicht eine Gegenleistung für eine besondere Leistung darstellen en von einem öffentlich-rechtlichen Gemeinwesen zur Erzielung von Einnahmen allen auferlegt werden, bei denen der Tatbestand zutrift, an den das Gesetz Leistungsplicht knüpft; die Erzielung von Einnahmen kann Nebenzwech sein.” 73 G. Morse, D. Williams, D. Salter, Davies, Principles of tax law, London, 1996, 3; A. Shipwright – E. Keeling, Textbook on Revenue Law, London, 1998, 2 seq. 74 A. Shipwright – E. Keeling, cited above, 3. 75 V. Thuronyi, Comparative tax law, cited above, 50. 76 “La loi fixe les règles concernant l’assiette, le taux et les modalités de recouvrement des impositions de toutes natures”. 77 M. Bouvier, Introduction au droit fiscal général et à la théorie de l’impôt, Paris, 2001, 22. 78 P.M. Gaudemet, J. Molinier, Finances Publiques, Tome 2, Fiscalité, Paris, 1992, 22; “L’impôt peut être défini comme un prélèvement opéré par voie de contrainte par la puissance publique, et ayant pour objectif essentiel de couvrir les charges publiques et de les répartir en fonction des facultés contributives des citoyens”.

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the persons living therein or having there interests, in order to be allocated for public interest services”79. Another definition is provided by scholars: “Tax is a compulsory payment due by individuals without any consideration, whose aim is to finance government expenditures”80. The three characteristics of tax are: - coercive; - financial purpose; - lack of individual return81. The exclusive financial purpose is questioned. In fact Belgian scholars underline that, nowadays, taxes are not only appointed to finance government expenditure but are instruments for redistribution of wealth and to pursue economic and political aims. 5. Luxembourg In Luxembourg legal order there are different kind of compulsory payments: taxes (impôt) and retributions (rétribution). Retributions include: parafiscal fees (prélèvements parafiscaux) fees (taxes) and redevances. Scholars point out the following characteristics of tax82: - it is a compulsory monetary payment (and not in kind); - it is paid definitively (and is so different from forced loan); - it is paid without any individual return; - it is not destined to cover specific expenses; - its function is not only to raise revenue but there are aims of economic and social nature too; - it is paid to the State and municipalities (so that revenues paid to different public entities are not taxes). 6. Spain Concerning the notion of tax the Spanish law is similar to Italian law. It is well known that the relationship between the two laws are close. There is a general notion of compulsory contribution (tributo) which includes the types of tax (impuesto), fee (tassa), and special contribution (contribuciones especiales). Art. 26 of General Tax Law defines the three types of tributo. Tax (impuesto) is paid without return, whose taxable events are contracts, acts and facts of legal or economic nature which show taxpayer’s ability to pay as a consequence of wealth, of circulation of goods or income production or consumption. According to scholars, the most important characteristic of tax (impuesto) is the absence of every administrative activity83. 7. Switzerland According to Swiss courts “L’impôt est la contribution versée par un particulier à une collectivité publique pour participer aux dépenses résultant des tâches générales dévolues à cette dernière en vue de la réalisation du bien commun. Il est perçu sans condition, non pas comme contropartie d’une prestation de l’Etat ou d’un avantage particulier, mais en fonction d’une certaine situation économique réalisée en la personne de l’assujetti”84. The characteristics of taxes are: - taxes are paid in money and not in kind; - taxes are imposed by an organ of government (collectivité publique); - taxes are compulsory; - taxes are paid without consideration; 79 “L’impôt est un prélèvement pratiqué par voi d’autorité par l’Etat, les provinces, les communes sur les ressources des personnes qui vivent sur leur territoire ou y possèdent des intérêts pour être affecté aux services d’utilité générale” the judgment of 30th november 1950 is quoted in M. Dassesse, P. Minne, Droit fiscal, Bruxelles, 2001, 11. 80 “l’ impôt est un prestation pécuniaire requise des particuliers per voie d’autorité, à titre définitif et sans contropartie, en vue de la couverture des charges publiques”; this definition has been provided by G. Jèze, Cours de Finances publiques, Paris, 1936; it is quoted by M. Bouvier, Introduction au droit fiscal général,cited above, 19, and by M. Dassesse, P. Minne, Droit fiscal, Bruxelles, 2001, 11 81 See PEETERS, B., «Het onderscheid tussen socialezekerheidsbijdragen en belastingen : een vergelijkend overzicht van de Belgische en de Europese jurisprudentie», in X., Liber amicorum Luc Hinnekens, Bruxelles, Bruylant, 2002; M. Bourgeois, contribution to EATLP research. 82 See A. Steichen, Manuel de droit fiscal, Tome 1, Luxembourg, 2004, 37 seq.. 83 J.M. Queralt, C.L. Serrano, G.C. Ollero, J.M. Tejerizo López, Curso de derecho financiero y tributario, Madrid, 2001, 86. 84 J.M. Rivier, Droit fiscal suisse. L’imposition de revenu et de la fortune, Lausanne, 1998, 47

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- the main aim of taxes is to pay government expenses; but sometimes there are other aims of economic and social nature;

- specific rules apply; - the payment of taxes is definitive; taxes are not reimbursed. 8. Italy Under Italian legal order the general category of compulsory contributions (tributi) exists. Moreover, compulsory contributions belong to a wider category called “prestazioni patrimoniali imposte” that fall under the constitutional provision of the principle of legality85. Tax (imposta) is due by the taxpayer without any individual return; the typical function of tax (imposta) is to apportion government expenses among people who belong to a community (for example a State); the criterion of apportionment is set on taxpayer’s ability to pay, that is a principle set in Italian constitution; some scholars say that the participation to government expenses is founded on solidarity principle that is set in art. 2 of Italian constitution (every citizen has a duty of political, economic and social solidarity). 9. Remarks From a comparative point of view it seems that: - although definitions of taxes are provided sometimes by statute, sometimes by scholars and sometimes

by courts, - although different elements of taxes are stressed from time to time, the notion of tax does not differ significantly from one country to another. The elements used to define taxes are: - compulsion; compulsion attains to a structural element of taxes and shows that the taxpayer cannot

choose between to pay or not to pay: once the taxable event happens, the taxpayer is obliged to pay; - the main aim, that is to raise revenue for government expenses; however raising revenue in no more the

only aim as political, social and economic aims are nowadays relevant; in other words taxes are due to make government performing general interests (or those that, in a certain period, are considered to be general interests of the State like, for example, redistribution of wealth and income, driving of consumer’s choices, etc.); in general taxes are paid for public purposes;

- taxes are imposed by an organ of government; - taxes are paid without anything in return for the payment (or are not due in exchange for specific

services or goods). Sometimes the definition of tax include a reference to constitutional principles as legality or ability to pay but in most cases these principles do not influence the notion. The existence of aims other than financial ones seems to be a frequent remark. From a comparative point of view this is an interesting point. The historical evolution of functions performed by the State has made clear that raising revenue is not more the only purpose of imposing taxes. So definitions of taxes have been enlarged to include other purposes in the notion of tax or to exclude that revenue raising was the only purpose. An example is art. 3 of German Abgabenordung which was changed in 1977 and now says that „die Erzielung von Einnahmen kann Nebenzwech sein“ (“revenue raising may be only incidental”). This clearly shows that tax has to be defined considering the specific historical period. IV. Fees and other types of levies There are other types of levies different from taxes. The most important difference between taxes and other levies seems to be that the last ones are paid in change of something received by the taxpayer while taxes are paid without anything in return. The other types of levies existing in different country are examined below. 85 Art. 23 Constitution: “Nobody may be forced to perform personal service or payment without legal provision”. The concept of “prestazioni patrimoniali imposte” applies to a wider concept than that of tax: see under point 1.3 of the subject. About the notion of prestazioni patrimoniali imposte see A. Fedele, La riserva di legge, in Trattato di diritto tributario, A. Amatucci (ed.), 1994, vol. 1, tome I, 157 seq..

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1. United Kingdom There are different types of levies that are called fees, charges, rates, duties. For example licenses fees, betterment charges, school fees, stamp duty. The difference between taxes and fees seems to be the lack of any individual return in the case of taxes. 2. Germany In German tax law, as in Italian tax law, there are not only taxes (steuern – imposte) but also fees (Gebüren – tasse) and special contributions (Beiträge – contributo). Fees are important because of the federal nature of Germany: Länder and municipalities applies fees. Scholars point out that the main difference between taxes and fees is that the last ones are connected with a return from the public entity to the individual86. Fees can be divided between charges due for an activity of the administration (Verwaltungsgebühr, administrative fees for example for passport) and for the use of public services (example: use of a library; Benutzungsgebühr). Moreover there are also licenses fees (Verleihungsgebühr) applied in change of a license. Scholars and courts have often defined fees (Gebüren)87. The element that characterises fees seems to be the fact that government sustains a cost for an activity caused by an individual or that gives an advantage to him/her. This means that both the activity of government both the cost of this activity may be attributed to the individual88. It is important to underline that the private law concept of consideration cannot be applied to fees89. German scholars have debated about criteria to determine the amount of fees. There are two criteria: - the first one is the cost suffered by government to provide the activity (Prinzipien der Kostendekkung);

the fee must cover totally or partially the cost of the activity; according to some scholars if the amount of fee should exceed the cost, the difference is no longer a fee but becomes a tax (steuer)90;

- the second one is the criterion of equivalence (Äquivalenzprinzip); the amount of fees is determined according to the equivalence of advantage.

Scholars point out that ability to pay principle apply only to taxes (Steuern) and not to fees (Gebüren) and to special contributions (Beiträge)91. From a comparative point of view, this seems to be an interesting point. In Italy according to the constitutional court, the main difference between fees (tasse) and taxes (imposte) is that taxes are due according to taxpayer’s ability to pay. In fact tax is the way every State apportions government expenses among people who belong to the state community. The criterion of apportionment is the taxpayer’s ability to pay. On the other side, fees are not subject to the ability to pay principle set in art. 53 of Italian constitution. So Italian judges reach the same conclusion of German scholars but the Italian constitution include the ability to pay principle while the German constitution does not. This is an example of convergence of legal formants (court and doctrine) moving from different law (German and Italian constitution). This means that the interpretation of the court has been influenced by elements other than the constitution. For further consideration see below. Social security contributions are not considered taxes in Germany92. However they belong to the category of Abgaben as they are unilaterally imposed, public law levies93. 3. France

86 Tipke – Lang, Steuerrecht, cited above. 87 D. Wilke, Gebührenrecht und Grundgesetz. Ein Beitrag zum allgemeinen Abgabenrecht, Munich, 1973, 17 seq.. 88 L. Del Federico, Tasse, tributi paracommutativi e prezzi pubblici, Torino, 2000, 244, and the Authors there quoted. 89 D. Wilke, Gebührenrecht und Grundgesetz. Ein Beitrag zum allgemeinen Abgabenrecht, cited above, 92. 90 H.W. Arndt, Grundzüge des Allgemeinen Steuerrechts, Munich. A similar remark is made also by P. Russo, Manuale di diritto tributario, Milano, 2002, 20. 91 K. Tipke, La capacità contributiva come metro di giustizia tributaria, in Il Fisco, 30/1996, 7206; L. Del Federico, Tasse, cited above, 247. 92 V. Thuronyi, Comparative tax law, cited above, 49, note 11. 93 Gisela Suchy, contribution to EATLP research.

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There are different kinds of levies other than impôts: taxes, redevances, taxes parafiscales and cotisations sociales. The distinction between fiscal payment and non-fiscal ones is outlined by the notion of imposition of every kind (“impositions de toutes natures”). “Impositions de toutes naturse”, according to art. 34 of the French Constitution of 1958, are established by law94. Different sources of law are required to impose “impositions de toutes natures” (impôts and taxes) compared with payments that do not have a fiscal nature (redevances, taxes parafiscales and cotisations sociales). So it is crucial to know if a payment is of a fiscal nature (“impositions de toutes natures”) or not because if it has fiscal nature but is not established by law, it is illegal. a) Fees (Taxes) While the taxpayer doesn’t receive anything in change for the payment of taxes, he/she takes advantage from an activity of government in the case of fees. The individual benefit gained by the taxpayer paying a fee may be considered, according to scholars, ability to pay95. As it has been observed above, this seems to be an interesting aspect from a comparative point of view. In fact, according to German scholars ability to pay principle doesn’t apply to fees (Gebhüren)96. Ability to pay principle is not explicitly contained in German Constitution but it is derived from other constitutional principles as equality97. In Italy ability to pay principle is settled in the Constitution98 and, according to the Constitutional court, the ability to pay principle doesn’t apply to fees because, as ability to pay is a criterion of apportionment of government expenditures (indivisible services), where fees are concerned the criterion is the request of government activity made by the individual (divisible services). Part of scholars agree with the Constitutional court99 while other do not100. In comparing different law it is important to verify if the singles legal formants are in agreement or not. For instance, statutes of two country may contain the same rule but courts or scholars of different countries may interpret the same rule in different ways101. As concerns fees the situation is: France: ability to pay principle non included in the constitution but derived from art 13 of the Déclaration de droits de l’homme; scholars say that the principle applies also to fees; Germany: ability to pay principle not included in the constitution but derived from the constitutional principle of equality; the principle doesn’t apply to fees; Italy: ability to pay principle is included in the constitution; according to the Constitutional court the principle doesn’t apply to fees; some scholars agree others do not. There seem to be different interpretations (by scholars) of similar statutes (France and Germany) and similar interpretations (by Italian constitutional court and German scholars) of different statutes (Italy and Germany). Here, and from a comparative point of view, it is only possible to remark that, when similar statutes are interpreted differently, this means that the interpretation is not only influenced by the statute. This point is very interesting in comparative law because it may be a sign of the circulation of legal model or ideas102.

94 “La loi fixe les règles concernant ... l’assiette, le taux et les modalités de recouvrement des impositions de toutes natures ». 95 L. Trotabas, J.M. Cotteret, Droit fiscal, cited above, 17. 96 K. Tipke, La capacità contributiva come metro di giustizia tributaria, cited above, 7206. 97 K. Tipke, La capacità contributiva, cited above, 7205. On ability to pay principle see. M. Bourgeois’ contribution on point 1.3., III.6. 98 Art. 53: “Everybody must contribute towards government expenditures according to his ability to pay”. 99 For example G. Falsitta, Manuale di diritto tributario, Padova, 2003, 24; however, the Author points out, at page 25, that, when the service provided by government is an essential one as education or medicines, the ability to pay principle must be complied with and the cost of these services must not be paid by individuals lacking ability to pay. P. Russo, Manuale di diritto tributario, cited above, 18 seq.. 100 A. Fantozzi, Diritto Tributario, Torino, 2003, 68; F. Tesauro, Istituzioni di diritto tributario, Torino, 2003, 74; however also this Author points out that ability to pay principle is not required for non essential services. According to E. De Mita, Principi di diritto tributario, Milano, 2004, 6 seq., the reason of taxes is the ability to pay and the common feature of taxes and fees is not that both of them are “tributi” but that both are “imposed”; so fees do not belong to “tributi”. 101 R. Sacco, Introduzione al diritto comparato, Tourin, 1992, 43. 102 For instance German tax law influenced very much Italian scholars: see N. D’Amati, Il Diritto tributario, Trattato di diritto tributario, A. Amatucci (ed.), vol. 1, tome I, Padua, 1994, 56.

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Taxes are defined as a compulsory pecuniary payment on behalf of the State, local bodies, and public institutions (Etablissement public) where the taxpayer has an individual advantage from a public service, without being related to the cost of the service103. The use of the service by taxpayer may also be potential as courts say concerning waste fees (taxe d’enlèvement des ordures ménagères)104. Taxes differs from fees as for the second ones there is a service or an activity of government so it seems useful to outline that the difference is the existence of something in change for fees and nothing for taxes. This criterion doesn’t work to distinguish fees from other payment, not having a fiscal nature, but where there is a service provided105. More properly scholars point out that fees are perceived in occasion of a public service106. The criteria used to distinguish fees (taxes) from other levies are107: - the nature of service, that is compulsory for taxes; taxes are due in occasion of a service that

government has to provide; the taxpayer may only choose to refuse the service108; - the cost of service that is equivalent to the amount of redevances while differs in case of taxes; The Conseil d’Etat seems to prefer the second criterion109. b) Redevances As noted above, according to courts the main difference between fees and redevances concerns the equivalence of the amount of redevances with the cost of the service provided. Redevances are not compulsory. c) Parafiscal fees (Taxes parafiscales) are established by a decree of the Conseil d’Etat110 and not by law. However, to impose a taxe parafiscal after the 31st of December of the year of its establishment, it needs the authorisation of law. Constitutional court placed them outside the category of impositions of every kind (“impositions de toutes natures”). Taxes parafiscales are defined as “fees perceived for an economic or social interest by public or private entities different from the State, the local governments and their administrative public entities”. Taxes parafiscales are compulsory. As they do not seem to be very different from taxes (fiscals) it is useful to outline the differences between the two categories. The most important differences seem to be: - the source is statute for taxes and decree for taxes parafiscales111; - taxes parafiscales are perceived for a social or economic interest; so, if the interest is a general one, the

proper levies are taxes and not taxes parafiscales112; - entities which perceive taxes parafiscales are private or public but different from the State, local

government and their administrative public entities. Example of taxes parafiscales is the charge on atmospheric pollution perceived by Agency for air quality.

103 P.M. Gaudemet, J. Molinier, Finances Publiques, Tome 2, Fiscalité, Paris, 1992, 52. 104 L. Trotabas, J.M. Cotteret, Droit fiscal, 18; municipalities may choose between taxe d’enlèvement des ordures ménagères and redevance d’enlèvement des ordures ménagères: see M. Bouvier, Introdution au droit fiscal, cited above, 23, footnote 14. 105 see L. Trotabas, J.M. Cotteret, Droit fiscal, cited above, 18; P.M. Gaudemet, J. Molinier, Finances Publiques, cited above, 48 seq.; M. Bouvier, Introdution au droit fiscal, cited above, 23. 106 P.M. Gaudemet, J. Molinier, Finances Publiques, cited above, 51 107 L. Trotabas, J.M. Cotteret, Droit fiscal, 18. 108 According to scholars this is the criterion preferred by judges. 109 P.M. Gaudemet, J. Molinier, Finances Publiques, cited above, 51; L. Trotabas, J.M. Cotteret, Droit fiscal, 18; C. David, O. Fouquet, B. Plagnet, P.F. Racine, Les grands arrêts de la jurisprudence fiscale, Paris, 2000, 14. 110 Art. 4 of the ordinance 59-2 of 2nd of January 1959. 111 As parafiscal fee do not seem to differ very much from taxes, but they are established by a decree and not by law, the interpretation of the notion of parafiscal fees is broad and, consequently, the possibility to impose parafiscal fees is an exception and must be interpreted restrictively not to avoid the need of law to establish taxes. See C. David, O. Fouquet, B. Plagnet, P.F. Racine, Les grands arrêts de la jurisprudence fiscale, cited above, 7; V. Thuronyi, Comparative tax law, cited above, 49, footnote 10. 112 Conseil d’Etat 26 october 1990 quoted in P.M. Gaudemet, J. Molinier, Finances Publiques, cited above, 31.

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d) Cotisations socials

They are partially established by statute (established by the legislator who also defines the payer and rules concerning assessment and recovery); social contribution is compulsory and is addressed to cover social security. Despite the different type of levies, it is clear that French judges feel free to characterize a levy as a tax, a fee, a charge, without be bounded by the name113. 4. Luxembourg

114 As explained above, there are different types of compulsory payments different from taxes. They are parafiscal fees, fees and redevances.

a) Parafiscal fees

Parafiscal fees are compulsory payment but, differently from taxes, they are specifically destined (to social insurance). They are not perceived by the State but by private or public entities different from the State. b) Fees The difference between tax and fee is the existence, for the second one, of an individual benefit of the taxpayer. The benefit consists in the existence of the service provided by government not in the use of the service. So, if the individual doesn’t use the service, he/she has to pay the fee in any case. There are different kinds of fees. A first distinction is between taxe rémunératoire and taxe proprement dite. Local public bodies (frequently municipalities) perceive the last category of fees. The function is to raise revenue and there is no specific benefit for the taxpayer. This function approaches fee to tax and scholars suggest to use the notion fee for payment due in occasion of a service provided and tax for payment without anything in return. It is interesting to observe that, according to courts, tax is determined according to ability to pay while fee is based on services provided to a person115. This interpretation is similar to the one of Italian constitutional court. The Luxembourg constitution doesn’t include the principle of ability to pay but scholars consider it a principle of constitutional value116. The remunerative fee (taxe rémunératoire) is due for a special advantage gained by the person or for a service provided by government. The fee has to be paid by persons who may benefit of the public service: it is not required that he/she uses the service being required that he/she may use it. Moreover, fees must be destined to cover the costs of the service. According to courts this happens when revenue from fees is destined to cover those costs and not when it is mixed with other public revenues. The taxe de quotité belongs to the category of taxe rémunératoire but the difference is that it is not determined considering the cost of the public service (so there is no relation between the amount of the fee and the cost suffered by government to provide the service). The taxe de remboursement belongs to the category of taxe rémunératoire too; it is compulsory and perceived in the occasion of a public service but the amount approximately corresponds to the cost of the service. The courts do not consider remunerative fees as taxes because their function is not to cover government expenses; so the same rules of redevances apply. This means that they are not considered having fiscal nature.

c) Redevances As reimbursement fees, redevances are due for a service provided by the State or by local government. According to the courts the distinction between reimbursement fees and redevances is that for the first ones the use of the service is compulsory while it is optional for the second ones.

113 C. David, O. Fouquet, B. Plagnet, P.F. Racine, Les grands arrêts de la jurisprudence fiscale, cited above, 8. 114 See A. Steichen, Manuel de droit fiscal, cited above, 67 seq.. 115 See. A. Steichen, Manuel de droit fiscal, cited above, 74, note 1. 116 See. A. Steichen, Manuel de droit fiscal, cited above, 467.

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5. Spain Compulsory contributions (tributo) are divided in three types: tax (impuesto), fees (taxa) and charges (contribuciones especiales). Fees are defined by art. 26 of Tax General Statute as: “compulsory contributions whose taxable event is a private utilisation or special exploitation of public domain, a service or the realisation of activities in public law regime, referred or giving advantage specifically the taxpayer if one of these circumstances occurs: First. Services or activities must not be voluntary required by individuals. The request is not considered to be voluntary: when it is imposed by statute or regulation. when goods, services, activities required are indispensable for private or social life of the taxpayer. Second. they are not offered by private independently if there is or not a reserve for public sector established by law”117. Scholars point out that the notion of fee has always been discussed and the definition cited above was replaced in 1998 after a judgement of the Constitutional court (185/1995). Fee is characterised by the existence of an administrative activity (for instance the authorisation to occupy a public domain, a service from administration). The existence of an administrative activity is the difference of fee (where the activity exists) from tax (where no specific activity exists). Moreover, fee is compulsory. Compulsory occurs when the individual cannot choose because the payment of the fee is connected with the request of a government activity or service imposed by law or by regulation (this means that the taxpayer is not free too ask or not the activity or the service but he/she is obliged to) or when the government’s activity or service is indispensable to satisfy a basic need of the life of the individual118. Public prices (precios públicos) are received by public bodies in change of services or government activity voluntary required or received by the individual; services and activities are provided also by privates and not only by public entities119. After an important judgement of the Constitutional court120, scholars and courts point out that public prices: - belong to a category placed between compulsory contributions and private law prices; - are not compulsory contributions even if they are “prestaciones patrimoniales” according to art. 31.3 of

Spanish constitution; - are based on a contract and not on the law (ex lege obligation)121. Special contributions (contribuciones especiales) are defined by art. 26 of Tax General Statute as “ ... compulsory contributions whose taxable event is the taxpayer’s receipt of a benefit or the increase of value of a property as a result of the carrying out of public works or the establishment or expansion of public services”. 6. Belgium

117 “Taxas son aquellos tributos cuyo hecho imponible consiste en la utilización privativa o aprovechamiento especial del dominio público, en la prestación de servicios o en la realización de actividades en régimen de Derecho público que se refieran, afecten o beneficien de modo particular al sujeto pasivo, cuando se produzca cualquiera de las siguientes circunstancias: Primera. Que los servicios o actividades no sean de solicitud voluntaria para los administrados. A estos efectos no se considerará voluntaria la solicitud por parte de los administrados: Cuando venga impuesta por disposiciones legales o reglamentarias. Cuando los bienes, servicios o actividades requeridos sean imprescindibles para la vida privada o social del contribuente. Segunda. Que no se prestan o realicen por el sector privado, esté o no establecida su reserva a favor del sector público conforme a la normativa vigente.” 118 J.M. Queralt, C.L. Serrano, G.C. Ollero, J.M. Tejerizo López, Curso de derecho financiero y tributario, Madrid, 2001, 92. 119 Art. 24 Act 4th of April 1989, n. 8. 120 N. 185/1995. 121 See L. Del Federico, Tasse, tributi paracommutativi e prezzi pubblici, cited above, 254.

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The Belgian constitution mentions the words “impôt”(“belasting”), “charge”(“last”), “imposition”(“belasting”) and “rétribution”(“retributie)”122. It seems that the most important difference, particularly from a constitutional point of view, is the one between impôt and rétribution. The concept of rétribution is largely questioned and has been differently interpreted123. For instance, some Authors refer the concept of ‘rétribution’ to fees in the strict sense of the term. So rétribution is a levy which the government collects in return for services or benefits directly and specifically provided to the benefit of the citizen-payer (rétribution-redevance, vergoedingsretributie). Some Authors argue that the rétribution-concept has to do with services rendered by the government under legal or de facto monopolistic situation, that is activities which the government performs (sometimes through delegation) in an exclusive manner124. This additional condition allows that one makes a logical distinction between fee and price, which are subject to different rules. In this sense fees-rétributions are considered as non-tax levies and, consequently, different rules apply. Besides this first definition of the concept of rétribution in art. 173 Const., some Authors have suggested a second alternative definition for the concept of rétribution mentioned in the same constitutional provision. Rétribution would also mean tax-rétribution (rétribution fiscale, belastingretributie). Reference made to the way art. 173 at issue is labelled, the concept of rétribution would refer to a category of taxes in the traditional sense (compulsory levy without individual return), that are collected to the benefit of public (or even private) bodies other than the authorities mentioned in art. 170 of the Constitution. The specific character of these taxes, implying the label of rétribution, would lie in the particular quality of the beneficiaries (departure from the beneficiaries’ norm provided for in art. 170). As a matter of fact, these tax-rétributions are of a fiscal nature. Moreover scholars and case law have elaborated a separate category that includes fees (taxe) connected with an individual return of the taxpayer125. The Belgian ‘taxes’ (taxes rémunératoires, verhaalbelastingen) are aimed at compensating specific public interventions. Certain government actions are performed in the (general) public interest. They can thus theoretically benefit every citizen. However, the cost related to them is charged to a specific group of taxpayers, on the basis of the assumption that these citizens particularly and more intensively enjoy the government services. In the Belgian legal order, the difference between taxe (verhaalbelasting) and rétribution-redevance (vergoedingretributie) is that the payment of taxes is compulsory whereas it is voluntary in case of redevances: in the first case payment has to be made even if the service is not actually being used, whereas in the second case payment only arises if the service is actually being used. It is interesting to observe that the Belgian Constitutional court (Cour d’Arbitrage) and the High Judicial Court (Cour de cassation) have recently characterised a levy in a complete different way. The matter concerns a compulsory levy whose aim is to guarantee the constitutional freedom of printed press, whose receipts from advertising have fallen because of the introduction of commercials on television, by imposing a levy on advertising receipts of broadcasting corporations in order to transfer the revenue to the printed press sector

122 Art. 170: § 1er. Aucun impôt au profit de l'État ne peut être établi que par une loi. § 2. Aucun impôt au profit de la communauté ou de la région ne peut être établi que par un décret ou une règle visée à l'article 134. La loi détermine, relativement aux impositions visées à l'alinéa 1er, les exceptions dont la nécessité est démontrée. § 3. Aucune charge, aucune imposition ne peut être établie par la province que par une décision de son conseil. La loi détermine, relativement aux impositions visées à l'alinéa 1er, les exceptions dont la nécessité est démontrée. La loi peut supprimer en tout ou en partie les impositions visées à l'alinéa 1er. § 4. Aucune charge, aucune imposition ne peut être établie par l'agglomération, par la fédération de communes et par la commune que par une décision de leur conseil. La loi détermine, relativement aux impositions visées à l'alinéa 1er, les exceptions dont la nécessité est démontrée. Art. 173 Hors les provinces, les polders et wateringues et les cas formellement exceptés par la loi, le décret et les règles visées à l'article 134, aucune rétribution ne peut être exigée des citoyens qu'à titre d'impôt au profit de l'État, de la communauté, de la région, de l'agglomération, de la fédération de communes ou de la commune. 123 For the summary of the different interpretations see M. Bourgeois’s contribution to EATLP research. 124 J.J. COUTURIER, B. PEETERS, Belgisch Belastingrecht, Anvers, Maklu, 2004, 28-29. 125 M. Bourgeois contribution to EATLP research.

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and to compensate the losses due to the fall of their advertising income. While the Constitutional court considered the levy not to be a tax, the High Judicial Court considered the levy to be a tax126. Social contributions127 The social contributions are included in a global extra-fiscal category called parafiscalité. Social contributions are imposed on employers, employees and self-employed. From a legal viewpoint, these contributions are not treated as taxes, because the revenue is not registered in the budget of one of the governments mentioned in art. 170 of the Constitution. The revenue is directly allocated to a separate legal person that is responsible for the management of the social security system. The categorising of social contributions in an extra fiscal category is criticised by Authors as the constitutional framework related to taxation is not applied to this important type of compulsory levy. 7. Italy Italian scholars generally accept that compulsory contributions may be classified in three types:

- tax (imposta) - fee (tassa) - special contributions (contributo speciale).

This means that all these types belong to the kind of compulsory contributions (tributi). According to some Authors fiscal monopolies (monopoli fiscali) belong to compulsory contributions too. As regards fee it is, from a legal point of view, identical to tax (imposta), i.e. it is a compulsory obligation to pay a sum of money stated by statutory law. Also the function of fees, which is aimed to raise revenue for government expenses, is identical to the one of taxes. Italian doctrine bases the difference between tax (imposta) and fee (tassa) on an extrinsic element: the description of the economic facts by which tax and fee arise/are due. As regards fees, the economic facts comprehend also the activity or the act which is provided by government. The distinction between tax and fee has a fundamental consequence drawn by the Italian constitutional court (decision 55/1963 and 23/1968). Taxes are due according to taxpayer’s ability to pay and therefore come within the scope of application of Art. 53 of the Italian Constitution, whereas fees do not. This statement derives from the application of an economic criterion. Fee, in fact, finds in its own definition of the economic facts which raise the obligation the criterion of apportionment among people who belongs to the community. But this qualification has another consequence: the duty of solidarity which affect taxation in the domestic constitutional system cannot be extended to fees. The real question, however, is the criteria which distinguish a fee form a (public) price, being the first a compulsory obligation whereas the second due to the will of the contracting parties. The phenomenon is particularly evident in local taxation. Many of the compulsory contributions which finance local governments are established in the form of fees. Local fees are subjected to a progressive change from the present legal nature to those of tariffs (in some cases due to the Community acts). Are tariffs compulsory contributions? Formally no, but they maintain the same (authoritative/coercive) discipline of the previous fees. Therefore, in some cases, the Supreme Court stated – according to the principle substance over the form – that also tariffs should be considered a compulsory contribution. But probably, tariffs do not share the tax nature and this produces relevant legal consequence.

Special contributions (contributo speciale): it is doubt if rate still exists as an autonomous type of compulsory contribution; moreover, in Italian tax law there is now only a levy that could be characterised as special contribution (so called “contributo di urbanizzazione”). In general special contribution is due for public works that give an advantage to the community as a whole but also a specific, economic advantage to somebody (who is the taxpayer of the rate).

126 Cour d’arbitrage, July 3, 2002, n° 117/2002; Cour de cassation, March 20, 2003 ; M. Bourgeois contribution to EATLP research. 127 M. Bourgeois contribution to EATLP research.

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V. Conclusions With respect to the notion of tax, this does not seem to differ significantly from country to country128. A reason may be the follow. Tax is the typical compulsory contribution and the most important one. The main function performed by taxes is an economic and basic one for every State: raising revenue to cover government expenses. Once State borned in the modern age, taking the place of the Prince, the problem of apportioning government expenditure related to the general activity of the State, raised. So, tax is an essential instrument of every State because every State need to apportion government expenses among individuals who belong to the community. These seem the reasons why the notion of tax has been developed by the studies of scholars129 and was not influenced by the characteristics of the specific legal order of every State. Studies and ideas moved from one country to another. With respect to compulsory contributions different from taxes, the framework is more complex. The analysis of the different types of taxes shows that in some countries there are similar types of taxes. This is the case of Italy, Germany and Spain in which there is a general notion of compulsory contribution which includes three types of levies: tax, fee and special contributions. It is well known that the relations among these countries in the field of law have always been close. Other similarities exist among France and Luxembourg and, to some extent, also Belgium. Modern States have high expenditures. When expenditure are financed not with taxes but with levies required to the person that is in a close relation with the government’s activity, difficulties arises. If a levy falls in the area of compulsory contributions, the constitutional guaranties must be complied with. The distinction between fiscal and extra fiscal area is thin on the borders. The fiscal area requires the existence of compulsion and government activity. On the contrary, in the extra fiscal area there is not compulsion and the user may choose to require or not a service; moreover there may be a private entity performing the activity. In the extra fiscal area one finds private prices that are considerations for a service or an activity performed.

128 The definition of tax provided by Prof. W. Barker (U.S.A) in his contribution to the research is “a pure tax (or imposta) is a compulsory exaction from an individual paid to the government to provide for the public services of common interest without particular regard to the particular benefits received by the taxpayer”. 129 Many scholars from different countries refer to Adam Smith’s Wealth of Nations; French language scholars often refer to Gaston Jèze.

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1.3. Constitutional (see: general) framework of the different types of income Marc Bourgeois Under this section, we try to identify legal rules, which explicitly or implicitly refer to a legal concept of tax. In a certain way, this topic justifies the object of our research. We should define the concept of tax because legal rules or principles refer to this concept. As observed above, a distinction should be made between political constraints and legal constraints. Political constraints relate to “non legal” factors having an influence on choosing how to finance government action and how to qualify the different modes of financing government activities. These elements include political opportunity considerations130, economic factors (e.g. public or private goods, externalities), philosophic options (e.g. fairness), and social objectives (e.g. equality vs. liberty), … Legal constraints imply that legally enforceable rules determine the way of financing government services. In particular, taxation as a financing instrument is regulated. Should this be “taxation is regulated as a financing instrument” or “taxation, as a financing instrument, is regulated”? A constitutional framework specifically influences the use of taxes in order to cover public sector spending. Under certain circumstances, the government may be legally deprived of any taxing power and must resort to other methods for financing its activities. Conversely, legal (constitutional) rules may result in the government being forced to tax without any alternative. In this case, the use of taxation appears to be compulsory. Finally, where the government is entitled to tax (without necessarily being forced to act in this way), it has to act in accordance with procedural and substantive rules relating to the introduction of the tax in the legal system. The same reasoning may be followed with respect to the use of taxation as an economic or social (or environmental,) instrument (depending on the national definition of the concept, as regards in particular the admissibility of other functions than the financial one). All these rules require a clear and precise concept of tax. The latter is an element of the former. Consequently, tax must be defined in order to apply the rules, which directly or indirectly refer to it. As seen under section 1.2. the notion of tax is often characterized in contrast with other types of government income : tax vs. fee ; tax vs. social security contribution ; tax vs. fine ; tax vs. price ; etc. It is therefore interesting and useful to consider the guidelines and principles concerning these other types of financing government actions. Their study will be limited to the extent it allows a better understanding of the legal concept of tax.

1.3. a. Constitutional (see: general) guidelines concerning the different modi of financing government action This subsection deals with the general constitutional principles that can have an influence on the way government activities are or should be financed. By using the term ‘general’, it is intended to limit the scope of point “a” to rules that do not specifically refer to tax (or to other particular types of financing government action). Their importance for the purpose of our subject relates to the impact such rules indirectly have on the government’s financing choices. Specific constitutional principles concerning taxation or other types of levies will be further examined respectively under points “d” and “e”131.

130 For instance, where an elected politician had made the promise not to raise the taxes or to leave existing tax rates unchanged, he would be willing to state that a newly introduced levy does not constitute a tax, but a fee (in return for specific services) Unclear as to meaning of “or a price” in this context, recommend removal.. 131 From a comparative law point of view, classifications are not so easy to make and may sometimes appear to be pretty arbitrary. For instance, the principle of legality will be examined, as a specific tax principle under subsection 1.3.d. It is considered one of the most classical formal precepts linked to the concept of taxation. However, this view is all but absolute. In Italy, for instance, art. 23 of the Constitution, that is the basis of the legality requirement, referring to the

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Generally speaking and as a permanent feature, constitutions neither directly impose, nor directly recommend any specific financing means for the State and its political subdivisions132. Apparently, the choice how to finance government expenditure is therefore up to Legislative body. As a matter of principle, that body may choose between a tax or a price according to political and economic reasons. However, the issue of how to choose a method turns out to be more complex when looking thoroughly at the whole constitutional framework, taking into account all potential indirect factors. I. Liberal vs. social background of the national Constitutional framework Discussion about the definition of the concept of tax and its importance in the national legal financing scheme may be in a certain way dependant on the social root (or character) of the constitutional framework. Old 19th century constitutions, such as that of Belgium, The Netherlands or Luxembourg, predominantly appear to be founded on liberal grounds. Successive revisions have gradually introduced social rights in the formal text, without totally changing the global approach thereto133. These constitutions may be compared with more recent (post World War II) 20th century Constitutions134. Indeed, social equity considerations are largely and more explicitly present in the latter, globally characterizing the constitutional framework. As a matter of principle, the initial fundamental provisions (or the preambles) of the German, Italian, Spanish, French or Portuguese constitutions explicitly refer to “solidarity”, “intangible human dignity”, “social democracy”, “social state”, etc. Such reference formally indicates how the constitutional assembly had conceived, following political compromise in a particularly critical context135, the economic and social organization of the community. From a legal viewpoint, the following questions may be considered: - Should these “fundamental social provisions” be treated as legally binding in these countries? - If so, do they imply that the government is restricted in its freedom to choose the way of financing its activities? - Would it notably mean that a certain global level of tax would be imposed by the constitution, the concept of tax being defined as a “compulsory” levy “without individual return”? In order to answer these questions, a series of factors must necessarily be considered: - Do these fundamental social provisions have direct effect in the legal system? For instance, where the Constitution mentions solidarity as one of the pillars on the grounds of which the state is established, could it be relied upon as such before a court in order to challenge some rule(s) of the national tax or financial law? - In particular, can laws (acts of parliament) be tested against the constitution?

- Are the fundamental provisions relating to social equality considerations corroborated by more specific provisions implementing it? For example, according to art. 2 of the Italian Constitution, the republic ensures the performance of the unalterable duty to political, economic, and social solidarity; art. 53 confirms this statement by providing that everyone has to contribute to public expenditure in proportion to their capacity (“capacità contributiva”). II. A constitutional principle of solidarity

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expression “prestazioni patrimoniali”. According to the Italian Constitutional Court, it includes taxes, but is not limited to taxes. In other words, the principle of legality applies to a wider range of concepts than merely that of tax.. 132 For instance, in France, the Declaration of human rights from 1789, article 13, which is held to be part of the French constitution (see below), states that for the financing of the administration and the public forces, a common contribution is necessary. However, this provision has never been interpreted as implying that tax, i.e. the common contribution, should be the only means of financing of public expenditure. State income, for example, is regularly derived from: industrial, commercial, financial activities and real estate, gifts, sale of property and others (organic law “relative aux lois de finances”, art. 3). Like other countries, France also uses secured? debt to finance current public expenditure. 133 The old 1815 Constitution of the Netherlands has been fundamentally revised in 1983 and basic social rights were included therein. Likewise, in Belgium, social and economic rights were introduced in the Constitution in 1994 under art. 23. 134 See f.i. the Italian Constitution, the Spanish Constitution, the Portuguese Constitution, the French Constitution or the German Basic Law. 135 End of a war or collapse of a dictatorial regime. 136 Notice that the concept of solidarity is mentioned in the preamble before the Charter of Fundamental Rights of the Union, as well as in the project of European Constitution (part I – The Union’s objectives).

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a. The notion of solidarity (see ‘section II’ below) refers to an harmony of interests and responsibilities among individuals in a group, especially as manifested in mutual support and collective action. There’s no doubt that solidarity constitutes a moral, political or economic concept, the content of which is subject to extralegal discussion. Belgian, Dutch or British jurists would find it unusual that the discussion be converted into a legal one. This is however the situation in many EU Member States such as Italy, France, Spain, Germany or Portugal. From a constitutional law viewpoint, the concept of solidarity has frequently turned out to be an important legal question. In particular, with regard to the financing of government action, a fundamental constitutional concept of solidarity may provide relevance of social equity concerns and promote a special category of financial resources. Indeed, “tax”, within the traditional sense, is compulsory (no prior consent by the taxpayer) with no individual return for this payment to the direct benefit of the taxpayer. The latter condition (no individual return) allows introduction into the financing system the idea of a sacrifice137 in opposition to a typically private law-coloured ‘do ut des’ relationship. So, the traditional concept of tax acts to give a concrete expression to constitutionally required “solidarity.” However, if such an underlying principle appeared to be legally-binding (for the government), it would be very difficult to determine its concrete consequences. Solidarity includes at least two aspects : inter-individual solidarity within the whole state and inter-community solidarity where the state is federalized or regionalized138. To a large extent, its content is abstract and subjective, dependant on political judgment. Effective constitutionality review of the government’s financing decisions would require the court(s) defining what the national solidarity should be. Is it the job of a court to determine it within a state community ? The issue is of a fundamental nature. b. What proceeds can be illustrated by the French law139. According to the French Constitutional Court, “national solidarity” is a constitutional principle which the Legislative body must develop and respect under the court’s review140. It implements the fundamental notion of fraternity embodied in the 1789 Revolution. The first decision mentioning such a principle was pronounced in 1987141. The legal justification was given later in a decision of 1997 concerning family allowances142: the French constitutional principle of solidarity would be based on the 10th and 11th paragraphs of the preamble of the 1946 Constitution to which the currently in force 1958 Constitution formally refers143. In its 1997 decision, the Conseil constitutionnel forced the government to develop solidarity policies, in casu to the benefit of families. However, the government remains free to choose the concrete modalities for attaining such aims (social allowances, tax allowances such as the quotient familial), making clear that the core of the constitutional requirement resulting from the 1946 preamble may not be affected. Could such a case law have an influence on the government’s financing options. In other words, could the government be constitutionally constrained to collect taxes (impôts) instead of fees (taxes, redevances ou prix) or instead of (social) contributions (cotisations) to finance its activities. In our view, the answer is essentially “no”. The abstract and subjective content of the principle of solidarity, its intrinsic political aspects and the democratic character of the French Republic are opposed to such a conclusion. Even though the court limited itself to protect the ‘core’ of the solidarity, its self-restrained

137 Solidarity deviates from a system based on equity, in which each person’s contribution would strictly depend on the benefit received in return. See PIRES, M., «Solidarité dans l’imposition», in C. SACCHETTO (coord.), Il dovere di solidarietà. Giornate europee di Diritto Costituzionale Tributario, Bergamo, Facoltà di economia, 14/15 novembre 2003, available on the internet site of the University of Bergamo : http://www.unibg.it/struttura/struttura.asp?cerca=6E20EDC9-2C86-469F-A08D-7976E2C3BDB3. 138 In the case of inter-community solidarity, perequation (adjustment) mechanisms are generally introduced in order to realize it : see f.i. the German Federal Constitution, title X, especially art. 107. 139 Solidarity theories (solidarism) have influenced the way certain legal writers view the concept of tax. See DE CROUY CHANEL, E., «La citoyenneté fiscale», in GUTMANN, D., (ed.), L’impôt, Archives de philosophie du droit, Vol. 46, Paris, Dalloz, 2002, (39-77) 65-71. 140 On the principle of national solidarity in France, see among others M. BORGETTO, “Rapport du Conseil constitutionnel français, in La fraternité, Proceedings of the Ottawa Congress of the ‘Association des Cours Constitutionnelles ayant en Partage l’Usage du Français (ACCPUF)’, juin 2003 (available on the internet site of the association) ; B. MATHIEU, M. VERPEAUX, Contentieux constitutionnel des droits fondamentaux, Paris, L.G.D.J., 2002, 665-669. 141 Decision n° 87-237 DC, December 30 , 1987, loi de finances pour 1988. See http://www.conseil-constitutionnel.fr. 142 Decision n° 97/393 DC, December 18, 1997, loi de financement de la sécurité sociale pour 1998. 143 In France, the hierarchy of legal rules and regulations is subordinate to a collection of constitutional texts called the bloc de constitutionnalité. According to the case law of the Conseil constitutionnel, it includes not only the Constitution of 4 October 1958, but also its preamble, which refers to another preamble, namely that of the 27 0ctober 1946 Constitution. Therefore, the latter is completely integrated within the constitutional order. The 1946 preamble in its turn refers to the Declaration of the Rights of Man and of the Citizen of 26 August 1789 (French Revolution). As a consequence, the “Declaration” also belongs to the French Constitution.

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attitude forced the judges to exhibit political value judgments about this imprecise and indeterminable concept. As a matter of principle, we think that such a provision has no direct effect, in the technical sense, within the French legal order. However, the preceding conclusion has no absolute effect. Consider a hypothetical radical reform of the financing system by the French legislature on the basis of the benefit principle. Globally speaking, all divisible services (including health, education, justice,) would be financed on grounds of a complex system of fees, prices and other kinds of counterparts. Such a hypothetical situation “could” be considered as, among others, (partially) incompatible with the solidarity foundations of the French legal order and criticized by the Constitutional Court. Another context in which the principle of solidarity could be and is effectively used regards compliance with the principle of equality. Indeed, when interpreting art. 13 of the Declaration of the Rights and the Citizens of144, which constitutes the main basis of the principle of equality in tax matters, the Conseil constitutionnel has frequently mentioned the principle of national solidarity : - to justify a higher charge imposed to a certain category of citizens or to a certain territorial part of the country (on the grounds of a higher ability-to-pay) - to prohibit a characterized breach of equality before public charges generated by a category of citizens or a portion of the territory being totally exempted from any common contribution145. In this way, the constitutional principle of national solidarity completes and moderates the principle of equality146. c. Let’s now have a short look at the text of other constitutions. The Italian Constitution mentions the notion of solidarity as an inalterable fundamental duty147. Solidarity also appears to be one of the fundamental grounds of the Spanish148 and the Portuguese149 Constitutions. Art. 25(4) of the Greek Constitution provides that « the State has the right to claim of all citizens to fulfil the duty of social and national solidarity ». d. Here we might extend the scope of the discussion and bring up the fact that art. 20 of the German federal Constitution qualifies Germany as a “social state”. This is one of the principles that pursuant to article 79(3) of the German Basic Law may not be affected even by an amendment. The case law of the Federal Constitutional Court reveals that this social state clause (Sozialstaatsklausel) is in the nature of an instructive norm: an instruction to the legislature to develop social activities. But this does not mean that the courts can decide which provisions the legislature is to make. The legislature must be allowed room for maneuver in order to be able to take into account concrete circumstances150. The social norm nevertheless plays a part in the case law of the Federal Constitutional Court in its interpretation of constitutional and statutory regulations and in weighing up the interests of the individual against those of society as a whole151. However, the Court has always refused to assign to the social norm a direct effect and to allow individuals to claim certain facilities by invoking before the judge the Sozialstaatsklausel 152. 144 « A common contribution is essential for the maintenance of the public forces and for the cost of administration. This should be equally distributed among all the citizens in proportion to their means ». As we have seen above, this provision constitutes positive law in the French legal system by virtue of cross-reference in the preamble of the 1958 Constitution. 145 The French legislator can differentiate among taxpayers on the basis of the solidarity precept. He will however commit a characterized breach of equality if his distinctions go too far, that is ahead of what is required in order to realize what the solidarity requirement implies. 146 See BELTRAME, P., « Le devoir de solidarité en droit fiscal français », in C. SACCHETTO (coord.), Il dovere di solidariatà. Giornate europee di Diritto Costituzionale Tributario, Bergame, Faculté d’économie, 14/15 novembre 2003, available on the internet site of the University of Bergamo : http://www.unibg.it/struttura/struttura.asp?cerca=6E20EDC9-2C86-469F-A08D-7976E2C3BDB3. 147 Art. 2 Italian Const. : « The republic recognizes and guarantees the inviolable human rights, be it as an individual or in social groups expressing their personality, and it ensures the performance of the unalterable duty to political, economic, and social solidarity ». The Corte Costituzionale has invoked the constitutional solidarity requirement as such in many decisions : note for instance : decision of June 14, 1990, n° 307 (damage caused by compulsory vaccination against poliomyelitis ; solidarity imposes to the government to indemnify the victims) ; decision of February 17 , 1992, n° 75 ; decision of December 15 ,1995, n° 519 ; decision of February 23 , 1998, n° 27. See the internet site : http://www.cortecostituzionale.it. 148 Art. 2 Spanish Const. and, with regard to the solidarity between the different areas of Spanish territory (in particular, the Autonomous Communities), see art. 138 and art. 156. 149 Art. 1 Portuguese Const. : « Portugal is a sovereign Republic, based on the dignity of the human person and the will of the people, and committed to building a free and fair society that unites in solidarity ». 150 See PRAKKE, L., KORTMANN, C., Constitutional Law of 15 EU Member States, Deventer, Kluwer, 2004, 359. 151 K. TIPKE, Die Steuerrechtsordnung, Cologne, Verlag Dr. Otto Schmidt, 2° Auflage, Vol.1, 398-416. 152 See PRAKKE, L., KORTMANN, C., Constitutional Law of 15 EU Member States, cited above, 359.

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According to art. 1 of the 1958 French Constitution, “France shall be an indivisible, secular, democratic and ‘social’ Republic ». Art. 1 of the Spanish Constitution also defines the State as a ‘social’ one. One of the fundamental aims of the Portuguese Republic is the achievement of economic, ‘social’ and cultural democracy153. e. Many Constitutions also mention ‘human dignity’ as the most fundamental and intangible human right154 that government must guarantee. Human dignity is not only based on individual freedom vis-à-vis the government (political liberties). It also consists of health care access; access to justice, right to education, etc., what one would/could generally call ‘social rights’. According to some authors, such a reference may be one of the constitutional grounds, with the principles of equality and of ability-to-pay (see infra), for a compulsory tax-exempt subsistence minimum155. Human dignity would therefore imply that the tax law decision-maker would have to refrain from taxing what is considered as the subsistence minimum, referring to definition thereof by social or welfare laws. As a constitutional rule, such a fundamental protection would be legally binding on the legislator. . f. All constitutional provisions of this kind raise the question as to which legal consequences may be derived as regards the financing of governments’ activities and the public finance law decision-making process156. The question is open to discussion and will certainly be discussed during the EATLP Congress. Politically and historically, the social character of the state, as a consequence of 19th and 20th century progressive ideas, has led to great reforms in the way taxation is viewed. For instance, certain legal writers derive from the ‘welfare state’ principle, as written in the Constitution, a concept of tax founded on ability-to-pay considerations157 (see below). In Perelman’s words, in the tax and social state (Etat fiscal, Steuerstaat), money is collected on the grounds of each one’s economic capacity (à chacun selon ses possibilités) and it is redistributed on the grounds of each one’s needs (à chacun selon ses besoins). g. So, to summarize this point, the concept of solidarity and all other related concepts (social state, human dignity, social democracy, etc.) are fundamentally of an abstract and subjective nature. In our view, the solidarity requirement should be specified or materialized further by more concrete provisions in the Constitution in order to be legally binding (f.i. specific ability-to-pay protection, specific economic and social rights the core of which should be guaranteed158, etc.). For instance, in the Portuguese Constitution, the principle of solidarity is implemented, in financial matters, by the articles 101 (“The structure of the financial system shall be determined by the law in such a way as to guarantee (…) that the financial resources necessary for economic and social development are provided », 103 (« The fiscal system shall be directed towards meeting the financial requirements of the State and other public bodies, and the fair distribution of incomes and wealth »), 104.1 (« Personal income tax shall seek to reduce inequality and shall be a single,

153 Art. 2 and 9 of the Portuguese Const. On the expression of ‘social democracy’, see M. PIRES, «Solidarité dans l’imposition», cited above. 154 Among others, see art. 1 of the German federal Constitution. As mentioned above, in 1994, economic and social rights were initially introduced in the 19th century liberal Constitution of Belgium : art. 23 states that « Everyone has the right to lead a life in conformity with human dignity ». See also, for instance, art. 19 of the Finnish Constitution, art. 20.3 of the Dutch Constitution, art. 41 of the Spanish Constitution. 155 K. TIPKE, Die Steuerrechtsordnung, Cologne, Verlag Dr. Otto Schmidt, 2° Auflage, Vol.1, 398-403 and 420-425; K. TIPKE, “El derecho tributario constitucional en Europa”, Revista Euroamericana de Estudios Tributarios, May-august 2000, (9-28) ; A. STEICHEN, “ La justice fiscale entre justice commutative et justice distributive”, in GUTMANN, D., (ed.), L’impôt, Archives de philosophie du droit, Vol. 46, Paris, Dalloz, 2002, (243-279) ; HALLER, Die Steuern, 3°ed, Tübingen, 1980, 82. 156 Remember that public finance economists consider the redistribution of wealth an essential state function, on equal footing with allocation and (macroeconomic) regulatory functions. 157 See K. TIPKE, Die Steuerrechtsordnung, cited above, 402. According to A. STEICHEN, “L’Etat de droit social aboutit au rejet du principe de l’équivalence au profit de celui de la capacité contributive” (in La justice dans l’impôt, Luxembourg, 1994, 181) ; A. STEICHEN, “ La justice fiscale entre justice commutative et justice distributive”, in GUTMANN, D., (ed.), cited above, 269. According to M. PIRES («Solidarité dans l’imposition», cited above, 13), la capacité contributive est la “projection du principe de la solidarité sur la repartition des charges publiques”. 158 Right to education ; social security rights such as pensions for elderly people, indemnity for sick people, etc.

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progressive tax that takes account of family needs and income »), 104.3 (« Property taxation must contribute to equality between citizens »), 104.4 (« Consumption taxes shall seek to adjust consumption to the changing requirements for economic development and social justice, and those taxes shall be weighted against luxury items »). Specific (non-tax) economic and social rights will be examined further under subsection 1.3.a. IV. The specific tax principles and implementation of solidarity views (as is notably the case of the aforementioned Portuguese Constitution) will be further commented under subsection 1.3.d. Interestingly, by way of introduction of the following point, all these generally speaking ‘social’ declarations may certainly influence the way compliance with the principle of equality is concretely appreciated. They would serve as standards and therefore make concrete the abstract notion of equality. It could even favour the interpretation of the principle of equality in conformity with ability-to-pay considerations.

III. Equality and Ability to pay

Governments need financial resources in order to fulfill their tasks. As we know, public services and, more generally, government activities cost a lot. Tax is one of the most important instruments to finance the Public Treasury, but other kinds of resources exist, as detailed under 1.1. and 1.2. above. In many European countries, the government financing (included tax) lawmaking power is limited by the so-called principle of equality159.

III1. General vs. Specific Tax Principle of Equality

a. A distinction can be made between two types of situations. In certain countries, the constitution provides for a general (non tax) principle of equal treatment under the law. This broad constitutional rule applies to all areas of the law, including the tax law and the law relating to other types of financial resources (fees, contributions, fines, etc.). For instance, in Austria160, the principle of equality is provided for in art. 7 of the Constitution (Bundesverfassungsgesetz). Some prohibited criteria of distinction are formulated therein (birth, sex, state, estate, class, religion, and disability). According to art. 3 of the German Constitution, “All humans are equal before the law”. Prohibited distinction standards are also formally enounced (sex, parentage, race, language, homeland and origin, faith, religious or political opinions, and handicap)161. In the Netherlands, equality is guaranteed in art. 1 of the Constitution, “All persons in the Netherlands shall be treated equally in equal circumstances. Discrimination on the grounds of religion, belief, political opinion, race or sex or any other grounds whatsoever shall not be permitted”. In the EU enlargement countries, equality before the law is based on art. 14 of the Slovenian Constitution or on art. 32 of the Polish Constitution. In other countries, the constitution contains a specific equal treatment provision with respect to special categories of financing government action. As a rule, these particular equality clauses especially relate to taxation. For instance, in Belgium, art. 10 of the Constitution provides that “Belgians are equal before the law”162 en art. 11 further states that “Enjoyment of the right and freedoms recognized for Belgians should be ensured without discrimination”. In addition, art. 172 of the Constitution provides for the following specific tax rule: “No privileges with regard to taxes can be established. No exemption or reduction of taxes can be established except by a law »163. The articles 10bis and 101 of the Luxembourg Constitution are very much

159 See G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, Kluwer Law International, EUCOTAX Series on European Taxation, 1999, 279 p. From a comparative law viewpoint, see also, among others : F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, International Monetary Fund, Kluwer Law International, (15-70) 19-21 and 22-23 ; V. THURONYI, Comparative Tax Law, Kluwer Law International, 2003, 82-100 ; K. TIPKE, Die Steuerrechtsordnung, Cologne, Verlag Dr. Otto Schmidt, 2° Auflage, Vol.1, 282-398 ; K. TIPKE, “El derecho tributario constitucional en Europa”, Revista Euroamericana de Estudios Tributarios, May-august 2000, (9-28) 17-21. 160 On the principle of equality in Austria, see K. KORINEK and M. HOLOUBEK, « Austria », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 35-49. 161 See also, among others, art. 33 of the German Basic Law. 162 By virtue of art. 191 of the Belgian Constitution, « All foreigners on Belgian soil benefit from that protection provided to persons and property, save for those exceptions provided for by law ». 163 On the principle of equality in Belgium, see S. VAN CROMBRUGGE, « Belgium », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 51-73 ; WILLEMART, E., Les limites constitutionnelles du

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the same as art. 10 and 172 of the Belgian Constitution. In France164, art. 1 of the 1958 Constitution (Fifth Republic) states that the Republic “shall ensure the equality before the law of all citizens without distinction of origin, race or religion”. As observed above, the doctrine of the bloc de constitutionnalité implies that the declaration of the Rights of Men and the Citizen and the preamble of the 1946 Constitution (Fourth Republic) also belong to the constitutional rules and principles currently in force in the French legal order. So, article 1 of the Declaration provides that “All men are born and remain free and equal in their rights” and article 6 declares “The law must be the same for all, whether it protects or punishes. Furthermore (and of special interest for us) art. 13 declares: “A common contribution is essential for the maintenance of the public forces and for the cost of administration. This should be equally distributed among all the citizens in proportion to their means”. According to art. 3 of the Italian Constitution, “All citizens have equal social status and are equal before the law, without regard to their sex, race, language, religion, political opinions, and personal or social conditions. It is the duty of the republic to remove all economic and social obstacles that, by limiting the freedom and equality of citizens, prevent full individual development and the participation of all workers in the political, economic, and social organization of the country ». In Italy165, universality of taxation and equal tax treatment is specifically confirmed by another provision, art. 53, stating “Everyone shall contribute to public expenditure in proportion to his capacity (capacità contributiva)”. In Spain166, the general equality clause is completed, as regards taxation, by art. 31 : “Everyone shall contribute to the public expenditure in proportion to his financial means, through a just and progressive system of taxation based on principles of equality, which shall in no case be confiscatory in character”. Note that constitutional protection against discriminatory tax legislation is not absolutely universal. In the United Kingdom, there is not currently and there has never been any written constitution in the traditional sense of this word. Therefore, no formal rule may be relied upon in order to challenge the tax legislation on the grounds of incompatibility with constitutional norms167. Under the traditionally sustained doctrine of parliamentary sovereignty, the Parliament is entirely sovereign and its legislation, duly enacted, cannot be struck down for breach of any ‘constitutional’ principle168 such as equality. Generally speaking, except for the principle ‘no taxation without representation’ written in the Magna Carta, no constitutional guidelines should be complied with by the legislator when drafting the financial scheme of the UK government. However, it should be noted that such a conclusion is in a certain way limited in its effects. Indeed, the principle of equality is contained in the European Convention on Human Rights and in the European Law. To the extent these international sources have been integrated in the internal UK law, English courts may have acquired a certain leeway to test tax legislation against equal treatment guarantee (see further). b. The preceding conclusion relating to the UK situation gives us the opportunity to point out? that art. 14 of the European Convention on Human Rights (ECHR) requires that the rights guaranteed by the convention should be enjoyed without discrimination. Furthermore, art. 26 of the International Covenant on Civil and Political Rights (ICCPR) contains a general prohibition of discrimination. Unlike the ECHR, the scope of the ICCPR equal treatment provision is not limited to the protection of the fundamental rights acknowledged therein. Note that in countries where the Constitution effectively guarantees protection against discrimination (see below: availability of constitutional review of tax legislation), the equal treatment rules based on

pouvoir fiscal, Bruxelles, Bruylant, 1999, 274 p. 167-250. On the constitutionality of tax exemptions in the Belgian legal order, see P. GLINEUR, S. WILMET, «Propos sur l’efficacité, en matière d’impôt, des principes constitutionnels d’égalité et de non-discrimination», in Mélanges John Kirkpatrick, Bruxelles, Bruylant, 2004, 343-367. 164 On the principle of equality in France, see P. MARCHESSOU, “France”, in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 75-88 ; C. DAVID, O. FOUQUET, B. PLAGNET, P.-F. RACINE, Les grands arrêts de la jurisprudence fiscale, Paris, Dalloz, 2003, 4d ed., 134-142. See also the very interesting contribution of L. FONBAUSTIER, “Réflexions critiques sur un principe à texture ouverte : l’égalité devant l’impôt”, in D. GUTMANN (ed.), L’impôt, in Archives de philosophie du droit n° 46, Paris, Dalloz, 2002, 79-102. 165 On the principle of equality in Italy, see A. DI PIETRO, “Italy”, in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 115-124. 166 On the principle of equality in Spain, see T. ROSEMBUJ, « Spain », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 157-163 with interesting developments about the links between the equality rule in taxation and the principle of ability-to-pay and the principle of progressiveness, both formally written in the Constitution. 167 See P. BAKER, « United Kingdom », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 165-167 « To say that the United Kingdom has no written constitution is not to say that we have no constitutional law. We do have, but it is not enshrined in a written document ». 168 See P. BAKER, « United Kingdom », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 166.

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international law treaties - with the exception of the prohibition of discrimination in European Law – are of little importance169. c. In the outline of the present research, it was decided to study the principle of equality according to the way it is formulated in the constitutional framework of each EU state separately. Where a general (non tax) equality rule is concerned170, its specific impact on the different financial resources of the government, and especially on the taxes, should be examined under section 1.3.a. On the other hand, where taxation (or other kinds of financing resources) formally fall under a specific tax (or fee) equality principle, it should be analyzed under section 1.3.d. (specific constitutional principles of taxation) or 1.3.e. (specific constitutional principles concerning the other types of financing of government action). However, we think that such a distinction is not in line with the facts with respect to the way the equality rule is applied in the different states under review. If we analyze the case law of the German Constitutional Court, it appears that it has been very active in striking down tax legislation for violating the principle of equality. The Court has applied the equality rule in the most far-reaching way and has developed a specific interpretation of it with respect to taxes (essentially on the basis of ability-to-pay considerations). In France or in Italy, the constitution provides for a specific principle relating to equality in taxation and thus formally accentuates the relevance of this rule in the tax area. However, the French and Italian constitutional courts have shown much greater deference to the judgment of the legislator than has the German Constitutional Court. Both have struck down relatively few tax provisions as contrary to this principle171. As a consequence, they have limited the effectiveness of the constitutional guarantee. So, the German “judicial activism”172 contrasts with the French or Italian (more) “reluctance” approach to equal treatment scrutiny. It is also interesting to mention here the case law of the Belgian Constitutional Court (Cour d’arbitrage). When testing the tax laws against the Constitution, the Cour d’arbitrage has always declared that the specific equal tax treatment clause in art. 172 of the Constitution (see above) only represents a particular implementation of the general equality provision provided for in articles 10 and 11. In other words, the particular tax equality protection does not distinguish from the universal non-discrimination clause, but confirms it. With regard to judicial review of taxation in Belgium, the general (non tax) and the specific tax principles are read together and explicitly combined173. d. So, this all goes to demonstrate that the equality issue has nothing to do with the way these rules are formally drafted in the Constitution (general non-tax principle vs. specific tax rule). What is important is the answer given to the following questions: - Is there a constitutional court that can overturn tax legislation or, more generally, can laws (statutes) be tested against the Constitution, including The principle of equality? - If so, what is the extent of this review? Has the Court been active in testing the tax legislation and striking down violations of the equal treatment requirement? Or, does the Court remain deferential to the judgment of the legislator and reluctant to get into question the legal classifications? - The preceding question depends on how the judiciary views its legitimacy in the legal order : how should we combine the rule of law with the democratic character of the tax law decision-making (democratically legitimized legislature)174 ?

169 See, among others, the national reports of S. VAN CROMBRUGGE (« Belgium »), K. VOGEL, C. WALDHOFF (« Germany »), or A. DI PIETRO (« Italy »), in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, Kluwer Law International, 1999. 170 Being applicable to all areas of the law, including taxation. 171 See notably V. THURONYI, Comparative Tax Law, cited above, 88-91 and 95. 172 The expression is used by V. THURONYI (Comparative Tax Law, cited above,68). 173 Cour d’arbitrage, July 4, 1991, n° 20/91 ; Cour d’arbitrage, July 14, 1997, n° 43/97 ; Cour d’arbitrage, March 29, 2000, n° 33/2000 : « Les articles 10 et 11 de la Constitution ont une portée générale. Ils interdisent toute discrimination, quelle qu'en soit l'origine. Ils sont également applicables en matière fiscale, ce que confirme d'ailleurs l'article 172 de la Constitution, lequel fait une application particulière du principe d'égalité formulé à l'article 10 ». This case law may be justified on procedural grounds. Until recently, the Belgian Constitutional Court had limited control of what?. Formally, it could only check violations of the general equality clause (art. 10 and 11 of the Belgian Const.). By declaring that the specific tax equality principle (art. 172) only confirmed the applicability of the general equality rule in tax matters, the Court was willing to extend its scrutiny powers and to test tax laws against the equality and non-discrimination standards. In 2003, the competence of the Cour d’arbitrage has been explicitly extended to the specific tax principle of equality (art. 172). However, in our opinion, such an extension won’t change much in the way the review is substantially applied. A. ALEN, K. MUYLLE, Compendium van het Belgisch Staatsrecht, Bruxelles, Kluwer, 2003, 442-445. See also the case law of the Belgian Cour de cassation, October 5, 1990, Pasinomie, 1991, I, 123 and of the Belgian Conseil d’Etat, decision Commune de Lanaken, January 30, 1990, n° 33.905. 174 As regards the relationship between constitutional review, rule of law and principle of democracy, see the jusnaturalistic approach to the issue by H. GRIBNAU (in « General Introduction », G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 1-33): “The power of the majority is subject to legal regulations and limits

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III2. Availability of Constitutional Review of Tax Legislation

a. Let us have a brief look at the judicial review issue. The legally binding character of the constitutional principle of equal treatment and non-discrimination is dependent on the possibility for Acts of Parliament to be tested by a court against the Constitution. The following conclusions will also be valid with regard to the protection of fundamental rights (see below). However absence of constitutionality review does not mean that there is an absence of constitutional/judicial? control. As we’ll see very briefly, the equality protection may also arise from testing the tax legislation against international treaties, included European Law (see, for details, parts 2 and 3 of the present research: The concept of Tax in EU Law and The Concept of Tax in Treaty Law). b. In some countries, the courts do not have the power to strike down statutes on the basis of Constitutional violations (unconstitutionality). This is the case in the United Kingdom where, as seen above, there is no written Constitution175. However, U.K. courts can invalidate Acts of Parliament on the basis that they violate European Law176. Furthermore, the Human Rights Act 1998 incorporated provisions of the European Human Rights Convention into UK law, so that Courts must give them effect. This means that tax legislation must be construed, so far as possible, so as to be consistent with the convention. In addition, UK courts may declare provisions of UK legislation incompatible with the convention177. However, strictly speaking, the integration of the EHRC into UK law has not created a right that binds the Parliament. As the Official Yearbook of the United Kingdom of Great Britain and Northern Ireland 2005 (p. 204) states: “The rights in the Convention do not take precedence over an Act of Parliament. Where they conflict, the higher courts may make a declaration of incompatibility and Parliament then decides what action to take”. From a technical point of view, the principle of parliamentary sovereignty continues to apply with full force and effect. However, in practice, it is subject to erosion due to various factors. The adoption of the Human Rights Act 1998 (entered into force in October 2000) expressed the formal intention to give the widest possible effect to the rights and freedoms of the Convention178. In the Netherlands, even though the principle of equality is explicitly provided for in art 1 of the Constitution (see above), tax statutes violating this constitutional rule could not be struck down by the courts. Indeed, according to art. 120 of the Dutch Constitution, “The constitutionality of Acts of Parliament and treaties shall not be reviewed by the courts”179. The meaning of art. 1 - and the Constitution at large – is thus now fairly symbolic. Equal treatment provisions laid down in the Netherlands Constitution only provide guiding principles when applying statutory provisions rather than strictly enforceable rules. As a result, the impact of the non-discrimination provisions of the human rights conventions has been much greater in the Netherlands than in countries where such guarantees are provided for in national law180. c. Unlike the United Kingdom and the Netherlands, many EU countries have introduced constitutional review mechanisms. We can make a distinction between the decentralized approach under which all ordinary courts

established to guarantee the fundamental rights, e.g. the principle of equality. Judicial review belongs to a system of checks and balances, but the judiciary has to leave the democratically legitimised legislature a certain margin of appreciation”. 175 P. BAKER, « United Kingdom », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 165-167. 176 V. THURONYI, Comparative Tax Law, cited above, 65. 177 V. THURONYI, Comparative Tax Law, cited above, 110. See also P. BAKER, “Taxation and the European Convention on Human Rights”, British tax Review, 2000, 211 ; P. BAKER, « United Kingdom », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 165-167; S. OLIVER, “The Human Rights Act in Prospect : Some Reflections, British tax Review, 2000, 199 ; J. PEACOCK & F. FITZPATRICK, “The impact of the Human Rights Act 1998 in the Tax Field”, British tax Review, 2000. 178 L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 2004, 923. See also I. LOVELAND, Constitutional Law, Administrative Law and Human Rights, 3d edition, 2003, 620 and seq. 179 However, there is an emerging political agreement to limit the scope of art. 120, and to allow the courts to test legislation with respect to the ‘classical’ constitutional rights, including art. 1. The ‘social rights’ of articles 19-23 would nevertheless remain within the scope of art. 120. 180 Indeed, according to art. 94 of the Dutch Constitution, “Statutory regulations in force within the Kingdom shall not be applicable if such application is in conflict with provisions of treaties that are binding on all persons or of resolutions by international institutions”. See R. HAPPE, « The Netherlands », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 125-155 ; K. VAN RAAD, « The Netherlands », in H. AULT (ed.), Comparative income taxation : a structural analysis, Kluwer Law International, 1997, 88 and 94.

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are entitled to test the legislation against the constitution and the centralized approach implying that constitutional review is exercised by a specialized court181. The decentralized approach is used for instance in Sweden182. Other countries such as Austria, Belgium, France, Germany, Italy or Spain183 have a specialized constitutional court (centralized approach). Usually, tax laws are testable against the constitution and a tax could be declared unconstitutional on the grounds of breach of equality, subject to conditions and restrictions proper to the national constitutional review procedure. For instance, in France, the Conseil constitutionnel tests the constitutionality of laws prior to their enactment and in response to complaints emanating only from institutional organs (President, Prime Minister, president of one of the two assemblies, sixty representatives (‘députés’) or senators - art. 61 of the French Const.)184. In Germany, conversely, access to the Bundesverfassungsgericht is very much more open: legislation can be challenged upon referral from a court (in concreto), upon petition by legislators or a government (in abstracto), or upon complaints brought by individuals or other persons185. Freedom of access or, conversely, limited access to the constitutional court may certainly have an influence on the way the principle of equality is applied and judicially protected. III3. The Principle of Equality and the Different Types of Income Financing Government Activities a. Except for the less relevant distinction made above between general and specific tax principles of equality, the content of the equal treatment clause is formally about the same in all countries186. It is nevertheless a fact that a great diversity characterizes the judicial approach in the different countries to the non-discrimination requirement in tax matters. Indeed, the principle of equality has been applied in different ways by the courts of different countries to limit the power of the legislator187. Such diversity arises from the court’s philosophy and style considerably varying from one country to another. Even though the equality rule applies to all areas of the law, it is especially important in tax matters188. A Tax law is by its nature a distinguishing law. For policy189 or opportunity reasons, all kinds of distinctions are made between situations that may be similar from an economic viewpoint. It is not the purpose here to develop in detail the constitutional equality issue from a comparative law point of view190.. Actually, the way taxation is tested against the principle of equality justifies the subject of the present research: it is necessary to define the concept of tax because, to a certain extent, the equality and non-discrimination rules apply to tax in specific ways. b. The problem with the principle of equality is its abstract character. Theoretically and generally speaking, similar cases must be treated equally and different situations should be treated unequally191. According to F.

181 THURONYI, V., Comparative Tax Law, cited above, 64, note 14. 182 L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 2004, 838. The decentralized approach is also practised in the United States. 183 About the effectiveness of constitutional precepts in Spain, see J.M. QUERALT, C.S. SERRANO, G.C. OLLERO, J.M.T. LOPEZ, Curso de derecho financiero y tributario, Madrid, Tecnos, 2003, 102-104. 184 In France, even prior to entering in force, legal rules are not systematically challenged on constitutional grounds. There might be therefore a certain cleavage between constitutional tax law and substantive and procedural tax law. However, there lies an action for inconsistence of a currently applicable law with an international treaty. As a matter of consequence, with respect to fundamental rights, certain principles are derived from the European Convention of Human Rights in particular, even though they could probably be found in the Constitution (in the above-mentioned large sense : ‘bloc de constitutionnalité’). 185 Subject to all fiscal legal channels being exhausted beforehand. 186 C. PETERS, M. SNELLAARS, « Non discrimination and tax law : structure and comparison of the various non-discrimination clauses », EC Tax Review, 2001-1, 13. 187 THURONYI, V., Comparative Tax Law, cited above, 82 ; F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 20. 188 For instance, R. HERZOG, qualifies it as the « Magna Carta des Steuersrechts » (in Bund der Steuerzahler, VI, Deutscher SteuerzahlerKongress, 1991, 11) and G. GEST and G. TIXIER talk about « l’un des piliers du droit fiscal » (in Manuel de droit fiscal, Paris, 1986, 36). 189 Social reasons, environmental reasons, housing protection reasons, concerns relating to administration, etc. 190 See the above-mentioned set of contributions in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation. 191 Make notice that in France, the constitutional review seems to be limited to testing whether different tax rules legitimately apply to similar situations. Conversely, unlike the situation in other countries, the french constitutional judge won’t prohibit the tax legislator from applying the same rules for different situations. So, this traditionally second aspect of the equality scrutiny (passive discrimination) would not be subject to control, the legislator remaining free to differentiate

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VANISTENDAEL192, the equality requirement has two meanings, one essentially procedural and one substantive. The procedural meaning indicates that the law must be applied completely and impartially, regardless of the status of the person involved. This means that no one may receive either preferential or discriminatory treatment in the application of the law or may be denied procedural rights to challenge application of the law to him or to her. The substantive meaning of the principle of equal treatment starts from the position that persons in equal circumstances should be treated equally. The question thus becomes whether laws are prohibited from using certain criteria to discriminate among persons. Testing tax legislation against equality, from a substantive point of view, certainly requires standards of comparison. As seen above, certain discriminatory criteria are generally prohibited. Sometimes these are formally mentioned in the text of the Constitution (sex, race, origin, thoughts, religion, etc.) So, purely arbitrary distinctions will easily be struck down by constitutional courts.: For example, a tax based on the colour of a person’s eyes. Furthermore, a British inspired ‘poll tax’ (head tax), without rational justification, could be successfully challenged before more “activist” courts (the German Court for example)193. However, potential discriminations within tax legislations do not appear so clearly. Tax law generally makes distinctions among persons and among legal and factual situations. In practice, for the judge, it is difficult to determine whether one is talking about comparable issues (married couple vs. non-married couple; high-income earner vs. low-income earner; landlord vs. tenant, etc). Generally, all distinctions should be based on objective and reasonable justifications. Such a justification will be appreciated according to the purpose and the result of the tax rule, taking into account the principles that are generally accepted in a democratic community194. Moreover, the means used must be in proportion to the intended goals195. c. Equality is the main constitutional rule against which tax laws are tested in countries where judicial review is allowed196. With respect to the government and its indivisible services (defence, public parks, police, etc), economists think that compulsory collective financial resources are necessary for those services to be offered. Thus, it seems very difficult to relate each individual’s payment to each individuals resulting benefit. In other words, prices or fees are often technically intractable. As a consequence, taxation, in the traditional sense (see above), is appropriate in order to finance these types of services. It doesn’t create any exchange relationship and is calculated independently from any government concrete and separate intervention. On the other hand, where divisible services (f.i. public education) are concerned, the freedom of choice is more open and it seems possible to finance government expenditure on the basis of income having a compensation character. From a technical point of view, taxes, strictly speaking, have no priority over other types of financing for government activities, such as fees, prices, contributions, etc. Under the equality rule, the question is whether all kinds of criteria may be admitted for making distinctions between citizens when taxing or, more generally, charging them: - Should the tax distribution be founded on ability-to-pay criteria (indivisible and divisible services)? In other words, is ability-to-pay the “appropriate” measure with respect to equal treatment in tax matters? or,

or to assimilate the legal arrangements with respect to different situations. It is a specific feature of the french case law in relation to equality. See among others, L. FONBAUSTIER, “Réflexions critiques sur un principe à texture ouverte : l’égalité devant l’impôt”, cited above, 93. 192 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 19. 193 K. TIPKE, Die Steuerrechtsordnung, 2000, cited above, 473-475. 194 G.T.K. MEUSSEN, “Conclusion”, in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 173. 195 So doing, constitutional courts generally parallel the case law of the European Court of Human Rights when analysing the principle of equality. 196 See K. VOGEL, C. WALDHOFF, « Germany », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 89 ; K. TIPKE, “El derecho tributario constitucional en Europa”, cited above, 17. This is the case in Belgium, in particular for procedural reasons : until recently (2003), the Cour d’arbitrage could only check violations of the rule of equality (in addition to violations of the freedom of education and of the constitutional distribution of powers between the central government and the regional governments). Challenging statutes therefore required that the complaint be founded on non-discrimination arguments. From 2003 onward, the control has been extended to a series of fundamental rights. See A. ALEN, K. MUYLLE, Compendium van het Belgisch Staatsrecht, cited above, 442-445 ; F. TULKENS, “La loi du 9 mars 2003 modifiant la loi sur la Cour d’arbitrage : changements de fond ou ameliorations de façade ?”, Revue belge de droit constitutionnel, 2004, 251-269.

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- Are other distinction standards available in order to categorize the taxable persons and situations? Can the government differentiate the amount of each one’s contribution according to policy objectives, political opportunity, economic constraints, etc? - If you relate the payment to specific government services received by the payer, what do you have to do in order to prevent any discrimination or violation of the equality principle? Does equal treatment mean that the charges should be adjusted to the cost of the services? All these questions are subject to discussion. They anticipate a different approach to equality in function of the type of resources concerned by the judicial or doctrinal test. History (French Revolution, American Revolution, etc.) can help us to answer these questions. It shows the importance of the principle of universality of taxation and therefore, of the struggle against privileges. Another look at the more contemporaneous history adds to the generality rule some social considerations. The ideas of ‘social state’ and ‘human dignity’ introduced above promote a more social concept of tax (legal equality vs. factual equality197). In a social viewpoint, the tax distribution should compulsorily be founded on each one’s ability-to-pay. Pushing further the idea of solidarity, it is even assumed that the tax could be structured in order to favour no- or low-income earners. Redistribution is therefore promoted as an element of the concept of tax. However, it goes without saying that history has no legal value as such. Then, economic circumstances and conceptions can change over time. Historical arguments are thus to be taken into account, being nevertheless all but absolute.

III.4. Generality of taxation

a. Eighteenth century liberal revolutions generalized the scope of taxation. Art. 13 of the French Declaration of the Rights of Man and Citizen declares: “A common contribution is essential for the maintenance of the public forces and for the cost of administration. This should be equitably distributed among all the citizens in proportion to their means”. Universality of the tax is stated in this fundamental text that is still present, as seen above, in the current constitutional framework of France. Being members of the political body, all citizens shall be subject to tax and no privilege can be opposed to it198. It is an expression of the principle of equality before public charges199. Normally, no mathematical equality is required. Such views, globally conceived (looking at the whole charges imposed to taxpayers), would lead to difficulties with respect to the purpose of a balanced budget in all but the least interventionist of states: mathematical equal contribution from anyone leads to a necessarily minimum tax liability (amount payable by anyone) insufficient for covering all government costs200. As already stated above, certain EU constitutions explicitly provide for a general duty to contribute to public expenditures: for instance, art. 53 of the Italian Constitution201 or art. 31 of the Spanish Constitution202. In other countries, universality of taxation is differently expressed in their Constitution, through a clear prohibition of tax privileges203. We comment hereon a very important rule in taxation. It differentiates this type of resource from other categories of government income.

197 K. TIPKE, Die Steuerrechtsordnung, 2000, cited above, 400. 198 DE CROUY CHANEL, E., «La citoyenneté fiscale», in GUTMANN, D., (ed.), L’impôt, cited above, (39-77) 65. 199 See L. MEHL, P. BELTRAME, Techniques, politiques et institutions fiscales comparées, Paris, P.U.F., 1997, 634-635. 200 DE CROUY CHANEL, E., «La citoyenneté fiscale», in GUTMANN, D., (ed.), L’impôt, cited above, (39-77) 63. 201 « Everyone shall contribute to public expenditure in proportion to his capacity”. About this provision of the Italian Constitution, see A. FANTOZZI, Corso di diritto tributario, Turin, UTET, 2003, 19-27 ; G. FALSITTA, Manuale di diritto tributario, Padoue, Cedam, 2003, 133-159. 202 “Everyone shall contribute to the public expenditure in proportion to his financial means, through a just and progressive system of taxation based on principles of equality, which shall in no case be confiscatory in character”. See J.M. QUERALT, C.S. SERRANO, G.C. OLLERO, J.M.T. LOPEZ, Curso de derecho financiero y tributario, cited above, 104-107. 203 Art. 172 of the Belgian Constitution, art. 101 of the Luxembourg Constitution.

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Fines are only paid by those who are in breach of the law. If you never violate the law, you’ll never pay any fine. Fees in a large sense are dependant on services received from the state. Whoever gets something from the government must pay for the costs of it. Whoever does not pay anything does not normally get any service in return. This is a completely different philosophy that only concerns divisible services. A strict application of the equivalence principle does not lead to generality of the contribution. Equality will therefore be appreciated on the basis of criteria other than universality: intensity of the benefited service, cost of it, value for the recipient-payer, etc. Finally, as regards the modern concept of ‘social contribution’, also called ‘social security payment’, it realizes a kind of professional solidarity, instead of national solidarity. This assertion implies that only employers, employees and self-employed contribute to the system in order to provide workers with social insurance (social allowances in case of invalidity, unemployment, retirement, etc). In many countries, this sort of contribution is not treated as a tax204. From the equality requirement point of view, the idea of generality is not relevant, as a consequence of the link between duty to contribute and insurance benefits in return (for employees and self-employed workers). As a matter of principle, the financing scheme does not extend outside the professional sphere. Recently though, the distinction between social security contributions and taxes has been affected by the progressive introduction of tax components in the social security financing system (“fiscalisation”). The main purpose of the famous French ‘cotisation sociale généralisée (CSG)205, introduced in 1990, was to generalize the duty to contribute to the social protection system. All kinds of income-earners, and not only workers, should pay for it. In France, the CSG has been qualified as tax (‘impositions de toute nature’) by the Constitutional Court206. In Belgium, when dealing with reform of the social security contribution scheme, aiming at the generalization of financing liabilities, it is suggested to use more extensively taxation (fiscalisation) instead of social contributions. So, both illustrations clearly show that the generalization criterion has to do with the use of the ‘tax’ label when distinguishing the concepts of taxation on the one hand and social contribution on the other hand. In our view, all these distinctions between categories of public resources fundamentally correspond to a different approach to the principle of equality. b. What about the instrumental use of taxation? In many legal orders, the question arose as to whether exemptions and tax incentives are compatible with the principle of equality because they clearly depart from the universality rule. In this regard, art. 172 of the Belgian Constitution is very illustrative207. It provides that “No privileges with regard to taxes can be established. No exemption or reduction of taxes can be established except by a law ». Privileges are prohibited: they can be introduced neither by the legislator nor by the executive. Conversely, prohibition of tax exemptions and tax cuts is only relative, as they may be established by an act of Parliament (principle of legality)208. We think that such a formal distinction of the concepts of ‘privilege’ and ‘exemption’ legitimizes to a certain extent a functional approach to taxation in the Belgian legal order. Exemptions do not create privileges from a legal point of view and may be allowed under certain conditions. These exemptions are nevertheless subject to judicial review. Indeed, the Constitutional Court (Cour d’arbitrage) checks whether such exemptions or tax cuts do not violate the principle of equality and non-discrimination, thus requiring rational justification and proportionality between means and aims. In fact, universality of taxation is not of an absolute nature and may be derogated, subject to good reasons.

204 D. WILLIAMS, « Social Security Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, (340-400) 345-348. See also, for France, C. DAVID, O. FOUQUET, B. PLAGNET, P.-F. RACINE, Les grands arrêts de la jurisprudence fiscale, cited above, 12-16 and for Belgium, B. PEETERS, «Het onderscheid tussen socialezekerheidsbijdragen en belastingen : een vergelijkend overzicht van de belgische en de europese jurisprudentie», in X., Liber amicorum Luc Hinnekens, Bruxelles, Bruylant, 2002, 373-406. 205 The ‘cotisation sociale généralisée (CSG)’ is famous in the European context because it was subject to important decisions from the European Court of Justice in 2000 : ECJ, february 15, 2000, C-169/98 and C-34/98, Commission vs. France, two decisions. 206 Conseil constitutionnel, decision n° 90-285 DC, dec. 28, 1990, Loi de finances pour 1991. For a stimulating discussion about this new kind of tax resource, see M. PELLETIER, “Existe-t-il une approche post-moderne de la fiscalité ? L’exemple de la CSG”, in GUTMANN, D., (ed.), L’impôt, cited above, (209-228). 207 See also the Luxembourg Constitution, art. 101. 208 J. COUTURIER, B. PEETERS, Belgisch Belastingrecht in Hoofdlijnen, Anvers, Maklu, 2004, 50.

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This typical construction of the generality rule has been followed in other countries209. Usually, admissibility of tax breaks is also subject to a rationality test by the constitutional courts. Further, where ability-to-pay is constitutionally guaranteed, as is the case in the Italian and Spanish systems, departure from it should necessarily be justified by other constitutionally guaranteed values (culture, family, health, employment, savings, etc.). Thus, functional taxation must actually rely upon some constitutional non-tax provision. Such a case law is easily developed in a constitutional framework explicitly and largely protecting economic and social rights (see below). This is certainly the case in Spain or in Italy. c. To summarize, universality characterizes the legal system of the concept of tax as a matter of principle. Exceptions thereto may be admitted, subject to rational justification, usually assessed by referring to constitutionally guaranteed values.

III.5. Ability-to-pay

a. In some countries, taxation based on individual ability-to-pay is explicitly guaranteed in the Constitution with respect to taxation. It is the case in Italy (art. 53 Const.)210, in Spain (art. 31.1 Const.)211 or in Greece (art. 4.5. Const.). As seen above, art. 13 of the French Declaration of the rights of Men and the Citizen provides that the common contribution, necessary for the maintenance of the public forces and for the cost of administration, “should be equally distributed among all the citizens in proportion to their means (‘facultés contributives’)”. Interestingly, the French situation illustrates the confusion implied by artificial doctrinal classifications (such as that suggested in the outline of the present research). Ability to pay is formally referred to in the Constitution (‘bloc de constitutionnalité’). Non-tax provisions nonetheless influence the way this principle is construed in concrete cases212. So, in a certain way, the ability-to-pay rule is also in France the consequence of non-tax provisions (even though ability-to-pay is, contrary to Germany (see below), formally mentioned in the French Constitution). Indeed, the case law of the Conseil constitutionnel shows that equality before public charges and ability to pay are closely integrated with, for instance, the protection of family, in order to appreciate the tax legislator’s choices213. So, traditionally, income taxation is based in France on families, or more precisely on households214. The protection of the family is provided for in the preamble of 1946. There is some case law based on that principle alone: it seems that the matrimonial situation needs to be taken into account to a certain extent by the tax legislator215. Compliance with the ability-to-pay rule will therefore be evaluated as a function of compliance with the protection-of-family provision that is, as a consequence, tax-coloured. Incidentally, in Italy, where a specific tax principle of ability-to-pay is formally written in the Constitution, interpretation of it is also closely linked to non-tax constitutional provisions, such as art. 2 (principle of solidarity) and art. 3 (general principle of equality). Anyway, as indicated in the aforementioned outline, the impact of the specific tax principles of ability-to-pay systems will be briefly examined under subsection 1.3.d. below.

209 See, for instance, in Italy, F. TESAURO, Istituzioni di diritto tributario, Turin, UTET, Vol.1, 2002, 65-66 ; in Spain J.M. QUERALT, C.S. SERRANO, G.C. OLLERO, J.M.T. LOPEZ, Curso de derecho financiero y tributario, cited above, 105-106. 210 For an essential doctrinal contribution to the principle of ability-to-pay in Italy, see F. MOSCHETTI, Il principio della capacità contributiva, Padoue, 1973. 211 For an essential doctrinal contribution to the principle of ability-to-pay in Spain, see P.M. HERRERA MOLINA, Capacidad Economica y Sistema Fiscal, Madrid, 1998. 212 G. RUTH SUCHY, personal contribution to the eatlp WG. 213 Conseil constitutionnel, Decision n° 99-419 DC, November 9, 1999, Loi relative au Pacte civil de solidarité ; 214 Conseil constitutionnel, Decision n° 81-133 DC, December 30, 1981, Loi de finances pour 1982. 215 Conseil constitutionnel, Decision n° 2002-464 DC, December 27, 2002, Loi de finances pour 2003. However, the protection of the family can be assured in different manners, in particular through the quotient familial (family income tax obtained, roughly by adding the income of all members of the household and dividing it through their number, including members without income, then applying the progressive income tax to this amount and multiplying again by the number of family members). It could also be guaranteed through subsidies. To summarize, the government must protect the family: total abstention violates the Constitution. Nevertheless, it has the choice of the method in order to ensure such a protection (fiscal means, tax relief or payment of subsidies) (Decision n° 98-405 DC, December 28, 1998, Loi de finances pour 1999).

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b. In the other EU countries, although it is used as a general principle for legislators in the design of the tax system, ability-to-pay is not formally included in the Constitution and therefore cannot normally be enforced before the courts to limit the taxing power of the government216. For instance, in Belgium, when looking at the official data bank of the Constitutional Court’s case law, on the website of the Cour d’arbitrage, there is amazingly no key word (verbo) referring to ability-to-pay (capacité contributive or facultés contributives). As a matter of principle, the Belgian traditional approach to ability to pay seems to make it a non-legally-binding guideline for the legislator217. One could easily understand the perplexity or great surprise of Italian or Spanish jurists about such a restrained view. However, the absenceof a formal constitutional provision relating to ability-to-pay doesn’t necessarily imply that no protection exists in this respect. Indeed, the German Constitutional Court218 has considered the principle of ability-to-pay (Leistungsfähigkeitsprinzip) as being the main standard through which tax legislation is tested against the principle of equality provided for in art. 3 of the Basic Law219. Ability-to-pay therefore plays an important role in the German tax law. b.1. Actually, the German doctrine that taxation must be imposed in line with ability-to-pay has a larger constitutional foundation than the sole principle of equality provided for in art. 3 Const.220. It has indeed fourfold roots: the regulation for distribution of tax money between federal state, länder and municipalities in art. 106 Const221.; the principle of equality of art. 3 Const.; the principal of the social state; the principle of the rule of law (as prohibiting arbitrariness). According to art. 3 of the German Basic Law, “All humans are equal before the law”. This rule is the traditional expression of fairness (Gerechtigkeit) in modern constitutions222. As seen above, the principle of

216 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 22. In the US, there is similarly no ability-to-pay requirement. Make notice nevertheless that it was to achieve a tax that was most in compliance with this notion that America passed the 16th Amendment to the Constitution permitting Congress to impose tax on income (observation by Prof. W.J. BARKER in the Working Group). 217 As a matter of exception, the Belgian Constitutional Court explicitly tests the tax legislation against the ability-to-pay standard. See for instance, Cour d’arbitrage, November 21, 1991, n° 34/91, 2.B.5. or July 14, 1997, n° 43/97, B.7. However, what is to be emphasized here is the fact that such test has never been systematically formalized in the Belgian constitutional case law. Such appears to be of an exceptional nature. The case law of the High Administrative Court of Belgium (Conseil d’Etat) seems to be more open to testing tax rules against ability to pay strictly appreciated (see for instance, Conseil d’Etat, decision Bailly, April 12, 1989, n° 32.370). Interestingly, in certain decisions, it uses the ability-to-pay standard without even combining it with equality and non-discrimination. Nonetheless, up to now, this case law has never been systematically consolidated and analysed as such in the legal doctrine, as is the case in Germany. See, among others, WILLEMART, E., Les limites constitutionnelles du pouvoir fiscal, cited above, 182. 218 Legal writers are used to distinguishing three different phases in the case law of the German Constitutional Court. We do not examine here the content of them. See K. VOGEL, C. WALDHOFF, « Germany », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 89 ; K. TIPKE, “Über Steuergesetzgebung und Verfassungsgerichtsbarkeit, Steuer und Wirtschaft, 1990, 308. 219 As regards ability-to-pay in Germany, see among others J. LANG, K. TIPKE, Steuerrecht, Cologne, Verlag Dr. Otto Schmidt, 2002, 78-94 ; K. TIPKE, Die Steuerrechtsordnung, 2000, cited above, 479-534 ; K. TIPKE, “La capacità contributiva come metro di giustizia tributaria”, in Il Fisco, 30/96, 7204-7212 ; K. VOGEL, C. WALDHOFF, « Germany », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 99-114, with all references mentioned therein. 220 We take here the view suggested by K. VOGEL and C. WALDHOFF (in « Germany », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 100-105). Make notice, however, that there are a number of differing points of view to this regard. For instance, K. TIPKE, Die Steuerrechtsordnung, 2000, cited above, 481 and especially 483-484 criticizing the K. VOGEL’s und C. WALDHOFF’s approach. 221 Art. 106 of the German Basic Law distributes the taxes between the different governments in the Federation. All taxes referred to in this provision appear to rest upon the concept of ability-to-pay. From the fiscal federalism point of view, art. 106 creates a balance. New taxes resting upon something other than the ability-to-pay or fundamental changes to existing taxes could alter this distribution and thus the balance of the system. According to K. VOGEL and C. WALDHOFF, “the principle of the ability-to-pay is also presumed in the catalogue of taxes in art. 106 of the Basic Law and at the same time gives, with regard to this principle, a kind of ‘format’ for the ordinary legislator” ( in « Germany », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 101-102). See again K. VOGEL, “Der Verlust des Rechtsgedankens im Steuerrecht als Herausforderung an das Verfassungsrecht”, in KARL HEINRICH FRIAUF (ed.), Steuerrecht und Verfassungsrecht, 1989, 123 (now published in K. VOGEL, Der offene Finanz- und Steuerstaat, 1991, 642). 222 K. TIPKE, “La capacità contributiva come metro di giustizia tributaria”, cited above, 7205.

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equality has an abstract character and must therefore be evaluated in relation to the “appropriate” standard. The appropriateness of the chosen standard varies according to the type of the law (welfare law, subsidy law, criminal law,) that is subject to judicial review. The core of the German case law lies in the link that it makes between equal treatment in tax matters and ability-to-pay as the appropriate criterion to compare and to distinguish between taxpayers. On the contrary, the head-tax principle would clearly be unacceptable in the legal order. The benefit principle is admissible under strict conditions, as an exception in the system223. So, Gebühren and Beiträge should be justified as being appropriate from a constitutional law point of view. Their amount should be limited to the cost or the value of the government’s services given in return (see below). Therefore, ability-to-pay standard gives a context to the abstract equal treatment rule and allows for control to be implemented by a court in a way, which is not (too) subjective. So, a guideline is given to the legislator to design its laws. A guideline is also given to the court to test the tax legislation. The reasoning is logical up to a certain point. It must however be determined why it is suggested to distinguish within the government financial resources a specific category which is called ‘tax’ and why its application should be based, as a matter of principle, on the ability-to-pay criterion. In our view, the constitutional principle of the ‘social state’ (der soziale Rechtsstaat), as the third root of the principle of the ability to pay, can justify the primacy given to such distribution rule. Indeed, art. 20 of the Basic Law (“The Federal Republic of Germany is a democratic and social federal state”) must be read together with art. 1 guaranteeing human dignity for everybody. Finally, the above-mentioned construction could not be effective without the given approach to the concept of the Rule of Law in Germany. The Bundesverfassungsgericht is effectively entitled to test tax legislation. The idea of the state governed by law finds a concrete implementation and so locks the system. K. TIPKE224 also considers the definition of the concept of Steuer in §3 Abgabenordnung as a confirmation of the constitutional principle of ability to pay, as it refers to the lack of individual return on behalf of the taxpayers for the payment of taxes. b.2. As already mentioned above, the German Constitutional Court has been very active in striking down tax legislation for violating the principle of equality225. In Europa, the Bundesverfassungsgericht is the court that has applied the principle of equality in the most far-reaching way226. The main issues treated by the Court227 relate to marriage taxation228, the basic tax-free allowance, the family minimum standards of living, taxation according to the assessed value in net-wealth tax229, taxation of interests230, … Frequently, the rulings issued by the Constitutional Court with respect to this principle deal with income tax. However, according to some authors, their scope is not formally limited to this specific type of tax231. In its case law, the Bundesverfassungsgericht essentially emphasizes the role of the principle of equality as the main

223 For a very subtle approach to the equivalence principle in the German tax law, see the comment of J. LANG (in Die Bemessungsgrundlage der Einkommensteuer, 1988, 101) : “The principle of the ability to pay and the principle of parity are not to be understood as mutually opposed or exclusionary principles supporting the system. Rather both principles have their own independent, legal-systematic areas of application”, cited by K. VOGEL and C. WALDHOFF in « Germany », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 108, note 90. See also K. TIPKE, Die Steuerrechtsordnung, 2000, cited above, 476-479 and 494. 224 K. TIPKE, Die Steuerrechtsordnung, 2000, cited above, 491. 225 THURONYI, V., Comparative Tax Law, cited above, 82. 226 G.T.K. MEUSSEN, “Conclusion”, in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 173. 227 See, among others, THURONYI, V., Comparative Tax Law, cited above, 82-88 and 92-93. 228 One of the first decisions with respect to equality in tax matters relates to marriage taxation. The simple fact of marriage may not increase the total tax burden of the spouses. Therefore, the joint assessment of husband and wife was declared null and void (BverfGE 6, 55 (1957)). 229 The net wealth tax and the inheritance tax have to be changed because the value of real estate was unreasonably lower than the fair market value, which was the value retained for most other assets (BverfGE 93, 121 (1995)). 230 The former system of taxation of interest was considered unconstitutional because it did not provide for proper enforcement : there was so much tax evasion by way of non declaration of interest income that taxpayers declaring their income were taxed unfairly (BverfGE 84, 239 (1991)). 231 K. TIPKE, “La capacità contributiva come metro di giustizia tributaria”, cited above, 7205 ; K. TIPKE, Die Steuerrechtsordnung, 2000, cited above, 494.

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justification of the ability-to-pay criterion232 (see the above-mentioned doctrinal roots of the principle of ability to pay). It combines it with other constitutional provisions: for instance, art. 6 protecting marriage and family. b.3. The content of the ability-to-pay concept is subject to discussion. For instance, according to TIPKE, the tax should be based on the actual economic capacity of each one (Realprinzip and Ist-Prinzip), and not on the nominal or potential ability (Nominalprinzip and Soll-Prinzip)233. The Constitutional Court, however, seems to deal with a more abstract taxpayer model, when testing the tax legislation against ability-to-pay requirement. Such abstract approach should nonetheless be based on serious probabilities in a real context. One concrete legal consequence of the ability-to-pay principle lies, for instance, in the protection it gives to the so-called existence minimum, prohibiting thus the legislator from taxing it234. b.4. Various indicators may justify a series of different kinds of taxes235. Conformity of indirect taxes with the constitutional ability-to-pay principle has been, for a long time, the most controversial issue in the legal doctrine236. It must affect consumption as an indicator of each one’s ability to pay. According to the legal doctrine, consumption should nevertheless be uniformly taxed, what is an essential aspect of VAT. On the other hand, numerous excises could be struck down, unless being justified on the grounds of another legitimate objective (health for cigarettes, environment for petrol, etc.) (see below). Normally, the ability-to-pay principle only applies to taxes in the strict sense (Steuer as defined by §3 Abgabenordnung), and not to other types of contributions (Gebühren, Beiträge)237. It is an illustration of the flexibility238 of this principle that is not, as seen above, formally written in the Constitution, but derived from other formal principles. Such flexibility contrasts with the approach to ability to pay in countries where this requirement is explicitly mentioned in the Constitution (Italy, Spain) (see below 1.3.d.) b.5 An important question arises as to whether tax rules pursuing objectives (social, economic, environmental, etc.) other than the financial one (Lenkungssteuern) are also subject to the ability-to-pay requirement. In other words, such an issue inherently relates to the function of taxation discussed above under section 1.2. Should tax incentives or tax deterrents take into account the economic capacity of taxpayers? In legal writings, not only in Germany, but also in France, Spain or Italy, substantial developments regard this essential legal problem (what does this last clause mean?). It is not the place here to comment in detail about the issue. However, we mention it to illustrate the major interest in categorizing the various types of financial resources of the government. Certain authors239 suggest creating a distinction within the tax legislation according to the object and the purpose of the tax rule. Normally, tax is aimed at procuring money for the government. As a matter of principle, the required contribution should thus be distributed among taxpayers on the basis of the ability-to-pay precept. It is the appropriate standard of distribution following democratic, equality and social historical evolution. However, with regard to the

232 For a critical approach to the one-dimensional case law of the Court, see K. VOGEL, C. WALDHOFF, « Germany », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 104-105 : “The multi-dimensional deduction of the principle of the ability-to-pay allows a relatively unforced incorporation of other constitutional principles in this process of applying the law” . See also D. BIRK, Das Leistungsfähigkeitsprinzip als Masstab der Steuernormen, 1983, 50 ; M. RODI, Die Rechtfertigung von Steuern als Verfassungsproblem, 1994, 67 et seq. 233 K. TIPKE, Die Steuerrechtsordnung, 2000, cited above, 497-498. 234 In 1992, for instance, it was decided that the basic exemption for personal income tax may not be lower than the minimum amount necessary for existence which corresponds to the amount which is paid to the poor by the state welfare authorities (BverfGE 87, 153 (1992)). 235 K. TIPKE, “La capacità contributiva come metro di giustizia tributaria”, cited above, 7208-7212 ; K. TIPKE, Die Steuerrechtsordnung, 2000, cited above, 502-512 ; K. VOGEL, C. WALDHOFF, « Germany », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 108-109. 236 K. VOGEL, C. WALDHOFF, « Germany », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 112. 237 K. TIPKE, “La capacità contributiva come metro di giustizia tributaria”, cited above, 7206. The author briefly comments here the legitimacy of the commutative criterion in the German legal order. Further, it is suggested to balance under certain circumstances the ability-to-pay principle with other constitutional values such as the principles of criminal justice. The author gives the example of the deductibility in the income tax of illegal costs (f.i. bribe offered by an entrepreneur to an official). Priority could be given to the protection against criminal behaviours and non-deductibility will be so justified. 238 K. TIPKE, “La capacità contributiva come metro di giustizia tributaria”, cited above, 7204 ; L. DEL FEDERICO, Tasse, tributi paracommutativi e prezzi pubblici, Turin, G. Giappichelli ed., 2000, 246-247. 239 K. TIPKE, Die Steuerrechtsordnung, 2000, cited above, 495 ; K. TIPKE, “La capacità contributiva come metro di giustizia tributaria”, cited above, 7206-7207; K. TIPKE, “El derecho tributario constitucional en Europa”, cited above, 19-20 ; K. VOGEL, C. WALDHOFF, « Germany », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 113.

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interventionist function of taxation (that is, the use of tax instruments for other objectives than bringing money to the Treasury) we should emphasize the fact that those special rules only formally (technically) belong to the tax sphere. From a substantive point of view, such ‘tax’ provisions really belong to the area of welfare law, environmental law, town planning law, economic law, etc. As a consequence, they should be tested against the principle of equality on the grounds of the criteria that are ‘appropriate’ for these specific areas of the law to which they essentially belong. For instance, social allowances under the form of a tax relief or reduction must be appreciated on the basis of the “necessity” criterion, which is appropriate when talking about welfare law240. Health protection will guide the distribution of the system of tobacco taxation in conformity with the equal treatment rule. . b.6. Note that the subsistence minimum must also be protected against Lenkungssteuern. However, this limitation is mainly based on human dignity (art. 1) and freedom (art. 2), and not on ability-to-pay consideration241. b.7. Once again, flexibility242 clearly characterizes the way the scope of the ability-to-pay is determined in Germany with respect to taxation. The issue is of a logical and rational nature. We look for an appropriate reason (policy reason, distributive fairness, etc.) to depart from the ability-to-pay rule. Is there an economic, social, or other substantial justification for the distinctions made between taxpayers and taxable situations. If not, the tax distribution must necessarily be founded on generality (see above III.4) and further on each one’s real economic capacity. In conclusion of the preceding discussion, it must be stated that, even though no formal provision refer to the economic capacity in a constitution, the national constitutional case law is likely to consider ability-to-pay as the essential standard for distributing the public charges among taxpayers. This is a very good illustration of a general non-tax constitutional rule (equality) influencing in a specific manner the way a state’s financing system shall be structured. Conversely, to our knowledge, in the countries under review, no constitutional rule explicitly mentions (to favour it) a head-tax and benefit principles with respect to taxation243. Moreover, if we take into account historical developments, it also seems difficult to derive from general constitutional frameworks a kind of implicit rule relating to mathematical equality or equivalence for financing of the Public Treasury. These are more of an exceptional nature, being clarified that benefit-founded levies may be justified under certain specific circumstances. Ability-to-pay must be the dominant principle and a good reason should always justify departure from it.

III.6. Equality, ability-to-pay and benefit-principle

a. Where taxation based on the taxpayers’ ability-to-pay is not constitutionally guaranteed, the legislators seem to be totally free to determine the structure of the state’s financing resources. Subject to political arbitration, the government may tax in the traditional sense (compulsory levy without individual return). But, it can also establish a link between what is required from the citizens and what they actually receive from the state. Accordingly, the user of government’s services must pay for the cost of them (benefit view). Further, when anyone’s behaviour or activity causes government expenditure, it may be justified to charge this person for the costs of it (liability view - polluter payer principle, for instance). So, beside the typical taxes (impôt, Steuer, belasting, imposta, impuesto), other kinds of levies are used, the purpose of which is to cover the costs or the value of specific divisible government services (taxes et redevances, retribution, Gebühren, Beiträge, tasse, contributi, …).

240 Technically speaking, when a social tax relief is given under the form of a deduction from the taxable base, it could benefit more high income earners than low income earners, in contrast with the social purpose of the measure. It could therefore be considered as violating the principle of equality, being clarified that the test is based, not on the ability-to-pay criterion (that would paradoxically favour the rich taxpayers) , but on the necessity or the needs of the recipients. 241 K. TIPKE, Die Steuerrechtsordnung, 2000, cited above, 496. 242 On the difficulty to follow the same reasoning in a country where the ability-to-pay requirement is explicitly written in the Constitution (in Italy, art. 53 Const.) see K. TIPKE, “La capacità contributiva come metro di giustizia tributaria”, cited above, 7207 ; L. DEL FEDERICO, Tasse, tributi paracommutativi e prezzi pubblici, Turin, G. Giappichelli ed., 2000, 246-247. 243 K. TIPKE, “El derecho tributario constitucional en Europa”, cited above, 19.

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Thus, as a matter of principle, the legislator enjoys a discretionary (political) power with respect to the choice how to finance government actions. b. In countries where the Constitution directly or indirectly protects the taxpayers’ through an ability-to-pay standard, it seems to be more difficult to justify a (partial) departure from this principle for distributing the public charges among the citizens. In Germany, as seen above, ability-to-pay is not directly mentioned in the Basic Law, but is derived from four types of constitutional provisions. This indirect legal foundation allows a certain level of flexibility when interpreting the rule, notably with respect to benefit taxation in a large sense (see above). The ability-to-pay criterion must therefore apply only to Steuer, and not to Gebühren and Beiträge. According to German authors244, there are situations in which it is suggested, and even required, to finance government services through prices, tariffs, fees or, in a large sense, through benefit taxation. It seems to be especially the case when the government action relates to non-compulsory services, the cost of which is easy to determine, and that benefits a limited group of citizens (e.g.. car tax, mineral oil taxation). Some government activities have almost nothing to do with the general interest and concern ‘inadequate’ social behaviors from a restrained set of taxpayers. K. TIPKE gives the example of a football match generating costs of security requiring specific police intervention. It would be inappropriate to charge the whole community for such particular costs. Where the ability-to-pay criterion is directly written in the Constitution, as is the case in Italy or in Spain, it appears to be more difficult for legal writers to give the reason for exceptions245 to the principle. In Italy, for instance, the tasse246are considered ‘tax’ resources, though, being essentially related to government services and to the cost or value of them, they don’t easily combine with the constitutional ability-to-pay rule247. According to the Italian Constitutional Court, art. 53 Const., referring to economic capacity with respect to taxation, only applies to levies financing indivisible services (general expenditure)248 such as the so-called imposte249. As regards the tasse, they don’t fall under the ability-to-pay requirement250. To legitimize them from a constitutional viewpoint, the Italian Court relies on a ‘distributive justice principle’ according to which it is fair to charge the persons making necessary those public costs251. It is suggested by 244 For instance, K. TIPKE, Die Steuerrechtsordnung, 2000, cited above, 478 ; K. TIPKE, “La capacità contributiva come metro di giustizia tributaria”, cited above, 7206. 245 Benefit or commutative taxation : tasse, contributi, tasas, contribuciones especiales. 246 See above under subsection 1.2. The tassa is a tax the base of which is determined according to a public service or a public good which individually benefit the taxpayer. The contributo is a tax the base of which is determined according to public services or civil engineering performed to the benefit of the community as a whole, which indirectly benefit the taxpayer as a member of this community. 247 L. DEL FEDERICO, Tasse, tributi paracommutativi e prezzi pubblici, cited above, 105-108. See also A. FANTOZZI, Corso di diritto tributario, cited bove, 21 ; G. FALSITTA, Manuale di diritto tributario, cited above, 150-151 ; F. TESAURO, Istituzioni di diritto tributario, cited above, 70. 248 Corte Costituzionale, decision of March 18, 1964, n° 30, (judicial procedure taxation : « Risponde (…) ad un principio di giustizia distributiva che il costo del processo sia sopportato in definitiva da chi ha reso necessaria l'attività del giudice ed ha percio occasionato la spesa implicata dal suo svolgimento (…) » and, in particular, with respect to art. 53 Const., « Avendo fatto richiamo alla capacita' contributiva e alla progressività rispettivamente come indice di imponibilità e come criterio di imposizione, e' intuitivo che esso ha avuto riguardo soltanto a prestazioni di servizi il cui costo non si puo' determinare divisibilmente. Non concerne percio' quelle spese giudiziarie la cui entita' e' misurabile per ogni singolo atto, e che quindi possono gravare individualmente su chi vi ha dato occasione; ed e' richiamabile solo per la spesa della organizzazione generale dei servizi giudiziari che e' sostenuta dallo Stato nell'interesse indistinto di tutta la collettivita', e che, di conseguenza, indistintamente su tutta la collettivita' deve gravare, in proporzione della capacita'contribuitiva di ognuno dei suoi membri ») ; decision of April 3, 1968, n° 23, (contribution for assistance and defence by barristers) ; decision of July 14, 1972, n° 149 ; decision of November 22, 1973, n° 167 ; decision of April 13, 1977, n° 62. As regards the Italian ‘contributi’, see the decision of April 16, 1980, n° 54 (the principle of ability-to-pay applies to ‘contributi’). 249 The imposta is a tax the base of which is determined according to a fact relating to the taxpayer’s personal situation (residence, activities, personal property, transactions which he carries out, …). This fact normally reveals the taxpayer’s ability-to-pay, in a contributive approach to taxation. 250 This case law of the Constitutional Court is criticized by some Italian authors. They emphasize that ‘essential’ divisible government service should also be financed through levies complying with the ability-to-pay rule. The essential character of the government service must be evaluated according to the values formally protected by the Constitution (health, education, …). See, F. TESAURO, Istituzioni di diritto tributario, cited above, 70, and especially the note n° 47. 251 According to E. DE MITA, the tasse are poorly justified from a constitutional viewpoint. This anachronistic institution is a survival of the time when the government did charge its subjects for all services performed (in Principi di diritto tributario, Milan, Giuffrè Ed., 2000, 9).

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Italian authors to validate the departure from the ability-to-pay rule by emphasizing the necessary link between the amount of the contribution and the cost or value of the service252. Commutative taxes would be legitimate only where the link between government service on the one hand and taxpayer’s liability (for the cost) or benefit on the other hand clearly results from the rules defining the tax base. Conversely, the solidarity-based ability-to-pay principle should automatically be applied where costs or equivalence principles are not formally complied with. Such a view is inspired by the way the German authors have legitimized the so-called Gebühren253. In German law, the cost and equivalence principles (Kostendeckungsprinzip254 and Aquivalenzprinzip255) are relevant in order to validate this type of government income256. c. To summarize, and by way of generalizing the approach to the issue (all countries), when you relate the imposed payment to specific government services benefited by the payer, a series of factors should be taken into account from a constitutional viewpoint. So, the cost or the value of the government action257 should be balanced against the amount of the required contribution. In countries where judicial review is organized, court could control over this link has been reasonably appreciated by the legislator on the grounds of: either - the potentially legally binding ability-to-pay rule. Departure from it should rely upon an appropriate justification. It necessarily deals with economically divisible services, the cost or value of which may be easily determined and individualized. The government service should not be essential from a constitutional viewpoint: it therefore means that no fundamental constitutional values are actually concerned. Finally, the distribution of the charges among the citizens is not influenced by economic, social, environmental, etc., objectives (Lenkungssteuer): it is not the purpose to influence the taxpayer’s behavior or activity or to redistribute the wealth within the community. or - equality before the law. When testing effectively such specific types of government income against discrimination or violation of the equality principle, are there requirements to comply with? If the reason why you charge persons is the fact that these persons have benefited government services, you should adjust the contribution to the cost or value of these services with respect to each one’ benefit or liability (for the public cost). If not, you discriminate among the users without any justification. or - other legal consequences. In some countries, the link between the cost or the value of government activities and the charges imposed to the users of these services is relevant to qualify the levy in order to determine the legal rules applying to it. For instance, in France or in Belgium, the fees (redevance, rétribution), the compensating character of which is subject to judicial control, do not normally fall under the strict principle of legality258. As a consequence, the main rules relating to this kind of levy are not to be fixed

252 L. DEL FEDERICO, Tasse, tributi paracommutativi e prezzi pubblici, cited above, 101-104 (The Italian Constitution requires a certain degree of solidarity among citizens. This, as well as the principles of substantial equality and of ability-to-pay, could limit the tax legislator’s power to use too intensively the cost and equivalence principles in order to finance (certain) public activities (tax-free minimum, universal services, fundamental constitutional rights – education, justice)). 253 See K. VOGEL, Vorteil und Verantwortlichkeit. Der doppelgliedrige Gebührenbegriff des Grundgesetzes, in Festschrift für W. Geiger, Tübingen, 1989, 518 ; P. KIRCHHOF, Staatliche Einnahmen, in ISENSEE & KIRCHHOF, ed., Handbuch des Staatsrechts, Heidelberg, 1990, 170; WILKE, Gebührenrecht und Grundgesetze, Tübingen, 1973, 105. 254 The levy (Gebühr) is determined by reference to the public costs generated by the taxpayer’s behaviour or activity. 255 The levy (Gebühr) is determined by reference to the market value of the government service. 256 J. LANG, K. TIPKE, Steuerrecht, cited above, 47-48 and 81-82 ; L. DEL FEDERICO, Tasse, tributi paracommutativi e prezzi pubblici, cited above, 245. 257 In this regard, an important issue arises. Some government services cost hardly anything for the government (f.i. public concession). However, beneficiaries enjoy a great benefit. Which cost or value of the government service should we refer to ? Is the cost for the public authority relevant ? Or is it convenient to take into account the value on behalf of the taxpayer-user ? 258 In French law, see, J.J. BIENVENU, T. LAMBERT, Droit fiscal, Paris P.U.F., 2003, 30-39 and 76-82 ; C. DAVID, O. FOUQUET, B. PLAGNET, P.-F. RACINE, Les grands arrêts de la jurisprudence fiscale, cited above, 16-18. In Belgian law, see R. ANDERSEN, «La notion de ‘redevances’, spécialement au regard de l’art.113 de la Constitution», in X., Liber Amicorum Prof. E.M. Krings, Bruxelles, Story-Scientia, 1991, 941-951 ; J. KIRKPATRICK, P. GLINEUR, «La distinction entre l’impôt et la “rétribution” régie par l’article 113 de la Constitution», in X., Présence du droit public et des droits de l’homme. Mélanges offerts à J. Velu, Bruxelles, Bruylant, 1992, 547-579.

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by an act of Parliament, in opposition to what is required with respect to taxation (see below under 1.3.d. and 1.3.e).

III7. Soft equality test with respect to taxation

By reason of the specificity of the tax law area, it could happen that the courts soften the way they scrutinize any tax legislation against the principle of equality and non-discrimination. We find in Belgian law a good illustration of this case law. So, the Cour d’arbitrage (constitutional court) is used to limiting itself to a kind of marginal control with respect to taxation259. As a consequence, tax distinctions, which are only ‘reasonably’ relevant, instead of being perfectly adapted for attaining the legislator’s objectives, will be validated. In its first rulings in tax matters, the Belgian Court assumed that tax rules could make distinctions between different situations and draft categories which only approach a very simplified reality (categories simplificatrices et approximatives). Moreover, appropriate justification depends on the effectiveness of the criteria and on the administrative costs of implementation260. Nevertheless, this case law has recently developed and the Belgian Court has appreciably reinforced its scrutiny. For instance, the reference to the administrative costs is no longer used. But, as a matter of principle, it continues to allow the legislator to tax on the basis of categories that approximately correspond to the reality261 (un certain degré d’approximation). The legislator is therefore given a great room for maneuver in order to determine the content of its tax policy. The principle of equality is only effective with respect to obvious violations of it. In order to justify this approach to the issue, the legal doctrine262 relies upon: - the technical aspects of the tax law, rendering particularly difficult the law-making process for the government and the legislator; - budgetary reasons: when tax rules are struck down, the budgetary consequences of the Court’s ruling may jeopardize the continuity of the government’s policies; - the role of the Constitutional Court in Belgium is to pacify and not to divide or to call into question long considered and fragile political compromises263, especially in a country like Belgium, which is all but united and coherent. Taxation is one of the most essential elements of a government’s policy. Interestingly, under certain circumstances, the Belgian Constitutional Court strengthens the test of tax legislation against the principle of non-discrimination, in opposition to the method described in the preceding paragraphs. Where fundamental rights are unequally or discriminately affected, the Court tests the tax law in a stricter way, strongly applying the traditional criteria of objectivity, relevance and proportionality, and striking down unfair tax rules264 (see also below IV and subsection 1.3.d.). Subject to discussion in the EATLP Congress, such self-restrained approach to equality in tax matters may appear in other legal systems and be justified by more or less the same reasons. It certainly accentuates the specific character of the equality rule with respect to the concept of tax.

III8. General conclusion and ultimate remarks with respect to equality and ability-to-pay

The equality requirement is very important in tax matters. In some countries, the rule was closely related to the citizens’ ability-to-pay protection with respect to taxation. As a matter of principle, any taxpayer should be charged according to one’s economic capacity to finance the government activities. However, legislators are normally entitled to depart from this standard and to pursue policy objectives through tax instruments. In countries where judicial review is effective, any functional use of taxation should be strictly justified and may be tested and struck down when the means are not appropriate and proportionate to the pursued policy 259 E. WILLEMART Les limites constitutionnelles du pouvoir fiscal, cited above, 209-218. 260 See, among others, Cour d’arbitrage, July 4, 1991, n° 20/91 ; Cour d’arbitrage, January 13, 1994, n° 3/94. S. VAN CROMBRUGGE, « Belgium », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 62 ; E. WILLEMART, Les limites constitutionnelles du pouvoir fiscal, cited above, 212-213. 261 Cour d’arbitrage, December 9, 1998, n° 128/98 ; Cour d’arbitrage, February 20, 2002, n° 39/2002. 262 E. WILLEMART, Les limites constitutionnelles du pouvoir fiscal, cited above, 209-210. 263 F. DELPEREE, A. RASSON-ROLAND, Recueil d’études sur la Cour d’arbitrage 1980-1990, Bruxelles, Bruylant, 1990, 170-171. 264 Cour d’arbitrage, July 7, 1998, n° 78/98 ; November 18, 1998, n° 119/98. E. WILLEMART, Les limites constitutionnelles du pouvoir fiscal, cited above, 215-216.

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aims265. Levies based on the equivalence or benefit principles are especially admitted in countries where “ability-to-pay” guarantee is of a fundamental (constitutional) nature. Circumstances may exist in which it is fair, from a constitutional viewpoint, to charge the persons benefiting certain government services or being liable for specific government costs. However, some proportional relationship between the incurred expenditure and the required contribution should clearly appear. Otherwise, the levy could be considered illegitimate. Further, in some systems, the equivalence principle, as the basis of the financing scheme, may be prohibited with respect to what is viewed as essential government services, generally in the light of the values guaranteed in the Constitution (f.i. education, health, culture, etc.). In view of the above distinctions, we see the importance of defining precisely the concept of tax. In particular, the functional aspects of taxation clearly determine the way the tax legislation should be tested against the equality, non-discrimination and ability-to-pay rules. Is the tax essentially a redistributive or solidarity instrument? Is it also legitimately aimed at realizing some objectives of an economic, social or environmental nature? Or, conversely, should its purpose be, as a matter of principle, to finance the Treasury. According to the answers given to such questions, comparability, as well as appropriateness and proportionality with respect to the equality requirement will be differently appreciated. One has to emphasize again the relevance of the social background of the constitutional framework. Many European countries converge in declaring factual equality between citizens as a/the fundamental government objective. This statement will be confirmed in the following point, dealing, among others, with social and economic rights in the national constitutions. IV. Specific fundamental rights Fundamental government objectives like life in accordance with human dignity, social state, solidarity, social democracy, etc. are formally written in many European constitutions. As emphasized above, the legally binding consequences thereof for the different legislators are difficult to determine. Because they are foundations of the constitutional framework of the state, they may potentially influence the way the principle of equality is interpreted with respect to the different types of financial resources. The government may or should act as a consequence in order to turn legal equality into a more factual or real one. That is, to realize the conditions for real freedom on behalf of each citizen266. Real freedom as a concept is opposed here to formal freedom. In this context, we developed above the ability-to-pay issue in order to give a concrete content to these general precepts when evaluating the appropriate distribution of charges among the citizens. Accordingly, human dignity promotion and protection267 may be one of the constitutional grounds, among others, for a compulsory tax-exempt subsistence minimum to the benefit of any potential taxpayer. Such a fundamental protection would be legally-binding on the legislator, subject to effective constitutionality judicial review268 (see above). However, we have already emphasized that these general ‘solidarity’ concepts are fundamentally of an abstract and subjective nature. In our view, all requirements, such as those mentioned above, should be materialized by further more specific provisions in the Constitution in order to be effectively legally binding. In

265 In the Working Group, Prof. BARKER notes that U.S. tax law provides a great variety of charges, preferences and subsidies based on status and subject matter. The U.S. Supreme Court in this context once remarked, “And the Constitution grants legislators, not courts, broad authority (within the bounds of rationality) to decide who they wish to help with their tax laws and how much help these laws ought to provide. All the U.S. Constitution requires is a rational basis for tax legislation ; that is, a plausible policy reason for the classification and legislative facts indicating that the relationship of the classification to its goal is not so attenuated as to render the distinction arbitrary or irrational. As a legal question, the rationality and fairness of distinctions in classifications are all about determining the appropriate comparisons, or, in the words of equal protection, the similarity of the subject matter or the situation of taxpayers. 266 For example, see art. 3(2) of the Italian Constitution : « It is the duty of the republic to remove all economic and social obstacles that, by limiting the freedom and equality of citizens, prevent full individual development and the participation of all workers in the political, economic, and social organization of the country ». Among others, taxes and tax allowances are instruments to achieve these goals. What may be emphasized here is that this constitutional provision could be the source of an obligation on behalf of the Italian Government to use types of public resources having nothing to do with an equivalence or benefit relationship between the government and the citizens. That is, tax in the traditional sense (compulsory levy without individual return). 267 For instance, art. 1 of the German Constitution ; art. 23 of the Belgian Constitution ; art. 20.3 of the Dutch Constitution. 268 In Germany, see BVerfGE, 82, 60 and 85. See again BverfGE, 87 and 153.

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other words, they must be concrete, tangible, related to well-determined government activities. This is the reason for specific fundamental rights, such as education, work, housing, social protection, etc. Where judicial review is organized, there would be two ways to test financing or tax legislation against fundamental rights: - testing whether the (core of the) fundamental right as such is violated; - combining the fundamental right with the principle of equality and non-discrimination and testing whether the fundamental right has been unequally or discriminately affected to the detriment of the applicant269. Traditionally, we can make a distinction between classical rights, on the one hand, and economic, social and cultural rights, on the other hand270. Classical rights may be subdivided into civil rights on the one hand and political rights271 on the other hand. Civil rights regard all citizens’ rights to be protected against the government. Individual and collective freedoms are guaranteed and the government may not illegitimately or illegally interfere in each one’s sphere of freedom, that is, it can only limit these freedoms according to what the Constitution and the statutes provide for. Political rights imply citizens’ entitlement to participate in a way or another to the power exercise (voting, employment as civil servant,). Economic, social and cultural rights globally change the approach to the relationship between the government and individuals. It imposes positive interventions from the government to the benefit of any citizen. These are all kinds of rights allowing anyone to enjoy human dignity and to develop oneself individually and socially. The tension point between these two categories of fundamental rights lies in different approaches to government: “defense against the state”272 vs. “request from the state” for social protection, for economic support, for cultural development, for education, etc. However, the issue is more complex in the facts. Indeed, many ‘classical’ rights imply and require some positive actions from the government. For instance, the protection of family life requires some promotion measures from the government. The aforementioned distinction nevertheless remains relevant. Classical rights assume a protective character as a matter of principle, positive government measures having essentially an accessory nature. Economic, social and cultural rights fundamentally rest on positive government intervention.

It should be noted that other kinds of distinctions can be made on the basis of other criteria. For instance, substantive rights and procedural rights could be separated. What is interesting for us, and very schematically, is that: - abstention from governmental intervention (in order not to violate any classical-protection rights) also means no financing requirement (except for covering the costs for making the necessary laws – you must

269 As seen above, this was the method used in Belgium where the Cour d’arbitrage was only entitled to control violations of the principles of equality and non-discrimination, of the fundamental right to education and of the rules distributing the powers between the federal and the regional governments. From 2003 onward, the scope of control of the Belgian constitutional Court has been extended to all fundamental rights formally guaranteed by Title II of the Constitution as well as to the principles of legality and equality in tax matters. Artificial constructions combining equality and fundamental rights are no longer necessary (to the extent the rights written in the Title II or the constitutional tax principles are concerned). 270 A. ALEN, K. MUYLLE, Compendium van het Belgisch Staatsrecht, cited above, 57-58 ; A. BARBERA, C. FUSARO, Corso di diritto pubblico, Bologna, Il Mulino, 2001, 115-117 ; L. FAVOREU (coord.), Droit constitutionnel, Paris, Dalloz, 789-791 ; C.A.J.M. KORTMANN, Constitutioneel recht, Deventer, Kluwer, 2001, 443-445 ; VAN DER POT, DONNER, Handboek van het Nederlandse Staatsrecht, Deventer, W.E.J. Tjeenk Willink, 2001, 379-382 ; EKKEHART STEIN, GÖTZ FRANK, Staatsrecht, Tübingen, Mohr Siebeck, 2000, 208-209. Note that the above-mentioned distinction between classical rights and economic, social and cultural rights is not absolute from the point of view of the relationship government-citizen. For instance, the classical right to privacy implies that the government is forced to introduce some positive measures in order to make this right effective, especially with respect to relationships of particulars with each other (see also below). 271 Such a distinction is not of an absolute nature. Other categories could be drafted according to various national doctrinal traditions. 272 As regards the German constitutional framework, see L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 358-361.

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finance the law-making process - and for controlling and judging all potential violations by the government – you must finance the ruling-making process, that is, justice in a large sense). - compulsory or convenient government interventions should conversely rely upon financial means, among which you certainly find taxation. The question here is: to what extent specific categories of government income (taxation in the traditional sense, fees, prices, contribution) may be necessary or compulsory in order to guarantee effectiveness of certain fundamental rights? Under this section, the issue is examined from a legal point of view, and not from a political, economic or social one.

IV1. Classical rights

a. Many classical rights involve, contrary to the preliminary schematic definition, government intervention that may cost money and require some financing scheme (tax, fee, contribution, loan, etc.). Think about protection of property and full enjoyment of it, needing government interventions with respect to street access, environmental cleanliness, sewage systems, etc.; or, privacy rights requiring government action with respect to relationships between private persons. All these actions cost a lot and should certainly be financed. It is not the place here to thoroughly study all potential relationships between the effective guarantee of constitutional freedoms273, on the one hand, and the necessary government actions implying financial arrangements, on the other hand. So, we limit ourselves to mentioning two interesting examples illustrating this essential issue. a.1. Freedom of religion may call for well-determined options with respect to the government financial intervention274. What should the government do in order to guarantee actual freedom of religion? First of all, it may not impose heavy liabilities on churches, including (very) high taxes. That would hinder in a disproportionate way the exercise of these rights275. As regards the potential state financing of religious communities, some distinctions are to be made according to the national approach to the issue276: - In some countries, separation of church and state is manifest by prohibiting the state from financing, in one way or another, any religion. As a matter of consequence, general budget resources may not be allocated to religious communities and any church tax, under whatever name or scheme, would automatically violate the constitutional rule of radical separation. The typical illustration of such a view is the United States system277. In France, separation of state and church is derived from art. 1 of the 1958 Constitution (secularity is an essential character of the French Republic278) and from the law of December 9, 1905 on the separation of church and state that declares in art. 1 : “The republic does not recognize nor subsidize any religion”. However, this theoretically radical separation is not absolute279.

273 Inviolability of property, in relation to taxation, will be examined under subsection 1.3.b. below. 274 See V. THURONYI, Comparative Tax Law, cited above, 129-132 ; F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 28. 275 This statement also applies to other types of freedoms. For instance, the prohibition on preventive measures raising barriers to publication, taken on the grounds of the content of what is to be published, would in general infringe the freedom of expression and of the press. Such violation may lie in the imposition of financial burdens of such a nature that certain thoughts cannot be expressed because of lack of sufficient financial resources. 276 Note that a distinction can be made according to the existence or the lack of established (state) religion in the country. 277 However, in the US, tax exemption of church property has been held not to constitute impermissible state aid (see V. THURONYI, Comparative Tax Law, cited above, 129). 278 As regards education in France, the principle of secularity has been recently reinforced by the french law of March 15, 2004, n° 2004-228, encadrant, en application du principe de laïcité, le port de signes ou de tenues manifestant une appartenance religieuse dans les écoles, collèges et lycées publics, Official Journal, n° 65, March 17, 2004. 279 In this regard, see Document de travail du Sénat français, Série ‘législation comparée’, Le financement des communautés religieuses, n° LC93, September 2001.

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In the United Kingdom, as a matter of principle, the churches, including the Anglican one, do not get any direct subsidy from the state budget. Indirect subsidies nevertheless exist (e.g. tax allowances,etc.). - At the opposite extreme, in other constitutional systems, freedom of religion depends on the state allocating general budget funds, that is general taxes collected from all citizens, in order to finance in a non-discriminating way the exercise of anyone’s religion. Conditions are established for determining the beneficiaries of these general government funds (recognition, etc.). This is for instance the situation in Belgium280, in Luxembourg281 and in Greece. - Arrangements to the preceding systems may allow the establishment of a better link between the taxes collected to the benefit of well-determined religious communities and the taxpayer’s religious beliefs. Interestingly, in Italy282, taxpayers are given the right to decide in their income tax return whether they want a share of the tax (0.8 %) to be given to the church (the catholic church or one of the churches that has signed an agreement with the government). Systems of option through the income tax return, also exist in Spain283 and in Hungary. - Intermediate system consists of empowering religious communities, under conditions fixed by framework legislation, to collect a specific tax on its recognized members. It is the system of the church tax, typically applied in Germany284. The church financing is explicitly mentioned in the German Constitution285: it allows the recognized churches, having the statute of public law entity (Körperschaft des öffentlichen Rechts), to impose taxes on the members of their congregations286, within the limits drafted by the Länder’s law287. Non-members of a religious community might not be subject to church taxes288. Any member of a congregation is entitled to put an end to its adhesion to the membership list and thus to be exempt from the tax as a consequence of this deregistration289. The church tax system is also applied in Sweden or in Denmark290. In order to promote the constitutional freedom of religion, different countries may thus have different approaches to the public finance issue. In some countries, such freedom, associated to the idea of total separation of church and state, notably implies prohibition of taxation for the financing of religious communities. In other countries, the same liberty entails the total opposite conclusion: financing of religious organizations through budgetary funds, that is essentially taxation. A portion of the general taxes (income tax, VAT,) may be allocated to them. Specific taxes may also be created, being sometimes directly levied

280 See the important art. 181 of the Belgian Constitution : « § 1. The State awards remuneration and pensions to religious leaders; those amounts required are included in the budget on an annual basis. § 2. The State awards remuneration and pensions to representatives of organizations recognized by the law as providing moral assistance according to a non-religious philosophical concept; those amounts required are included in the budget on an annual basis ». 281 In Luxembourg, since there exists various religions with a variable number of practitioners, and in view of the limited size of the Luxembourg population, it may not be assumed that each religion could self finance its running. Hence, it would seem that art. 19 of the Constitution requires the State financing through taxes the various religious orders. A. STEICHEN, personal contribution to the eatlp WG. 282 In Italy, in relation to freedom of religion, art. 20 of the Constitution forbids rules or taxes which impose special burdens on religious associations and institutions. It is a specific constitutional principle of taxation commented further, under subsection 1.3.d. 283 Option to allocate 0,5239 % of the income tax to the benefit only of the catholic church. When it is not formally opted in favour of the catholic church, the portion at issue is allocated to non governmental organizations. 284 See J. LANG, K. TIPKE, Steuerrecht, cited above, 435-439 ; U. SUHRBIER-HAHN, Das Kirschensteuerrecht : Eine Systematische Darstellung, 1999 (cited by V. THURONYI, Comparative Tax Law, cited above, 129). 285 Art. 140 of the German Basic Law, combined with art. 137(6) of the 1919 Weimar Constitution to which it explicitly refers. 286 The power to tax is also extended to the so-called Weltanschauungsgemeinschaft (spiritual groups that are not of a religious nature), if the group is established as a legal entity under public law. 287 V. THURONYI, Comparative Tax Law, cited above, 129 ; F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 28. 288 Unlike in Switzerland, where a church tax scheme is also applied, imposition of church taxes on legal entities is prohibited in Germany. In Switzerland, it is not the church that imposes the tax, but the cantons (V. THURONYI, Comparative Tax Law, cited above, 130 ; F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 28). 289 J. LANG, K. TIPKE, Steuerrecht, cited above, 437. 290 See §4 and § 68 of the Danish Constitution. In Denmark, the church tax only benefits in fact the national protestant (Lutheran) church. See among others L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 169.

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and collected by the religious communities. In other words, as a general non-tax constitutional provision, the freedom at issue involves recommended or compulsory taxation or, conversely, prohibition on taxing power for the government. An essential issue has to do with the legal nature of the so-called church taxes. The question arises as to whether we might consider them as being ‘taxes’ in the above-mentioned traditional sense (compulsory levy without individual return). Might they instead be considered fees or prices compensating the government interventions in order to ensure the effective exercise of this fundamental freedom? Subject to discussion within the EATLP, the answer to this question may certainly influence the way the concept of tax is viewed in the countries under review. In addition, in legal systems where taxation based upon individual ability to pay (decide if you want to hyphenate this or not) is guaranteed (see above), compliance with this precept may be questioned. As a matter of fact, religious beliefs have nothing to do with anyone’s economic capacity to pay taxes. It does not implicate any ability to pay tax. However, as seen above, it is generally asserted that departure from the ability-to-pay rule is legitimate when the government pursues a constitutionally guaranteed objective (referring to some values especially protected by the constitution). In some countries’ view, church taxes appear to be necessary government levies (or delegated levies where they are collected by the religious bodies) in order to ensure complete and actual freedom of religion. Departure from the ability-to-pay standard would thus be reasonably justified291. a.2. Freedom of the press. The Belgian legislation and case law gives us a good illustration of the potential impact of non-tax fundamental freedoms on the national public finance scheme. The free press is an essential consequence of the more general freedom of expression. As regards the scope of the freedom, we can make a distinction between the audio-visual press on the one hand, and the printed press on the other hand. Introduction of commercials on television, especially on public broadcast, has provoked a great decrease in the income the printed press derives from advertising. The Belgian legislator292 adopted a financial regulation in order to better protect the freedom of the printed press and to guarantee effective pluralism in this field. The chosen mechanism consists of compulsory levy imposed to the two main broadcasting corporations (on their advertising receipts in order to be directly allocated293 to the printed press sector and, as a consequence, to compensate for the losses of money resulting from the fall in their advertising income. The measure was subject to constitutionality review because the executive was delegated the power to determine the amount of the levy, potentially violating the principle of legality in tax matters. Violation nevertheless depended on the answer given to the following question: is the levy a tax ? The ruling of the Belgian Constitutional Court294 is very interesting in many respects. The Court’s decision is aimed at determining the legal nature of the compensating mechanism to the benefit of the printed press. Is it a tax or not? When analyzing the scheme as submitted, the constitutional judges explicitly refer to the justification relied upon by the legislator when introducing the mechanism in the legal order. This government positive action is taken on the basis of the freedom of the press and on the necessary pluralism of the printed press. Television corporations are entitled to broadcast commercials and get money for it. As a consequence, it is more difficult for the printed press to collect sufficient financial means through advertising. In such a situation, the government must make a choice between two possibilities. Taking into account economic liberalism and free competition, the government may refrain from doing anything and let less competitive newspapers disappear. It would be a normal economic choice in a market economy. However, political liberalism and the constitutional freedom of expression oppose to such a solution. All ideological tendencies should be indeed represented in the press. As a matter of consequence, financial government intervention, that is subsidy outside the market, turns out to be necessary. Taxation, in the traditional sense, seems to be the best way to finance any subsidy of this sort. However, instead of charging all citizens, the Belgian legislator has chosen to impose a special levy on the audio-visual sector and to transfer the income from this levy to the printed-press sector. Television advertising is indeed liable for the losses incurred by newspapers’ publishers and this fact politically justifies options of this sort.

291 The problem is less acute when the church tax is calculated on grounds of the income tax basis (additional tax), as is sometimes the case in Germany. Normally, the income tax is drafted on each one’s ability to pay (J. LANG, K. TIPKE, Steuerrecht, cited above, 437-438). 292 The regulation had been introduced by the French Community legislator, that is the regional power competent for audio-visual matters in the Belgian federal state. 293 A separate budgetary fund had therefore been created. 294 Cour d’arbitrage, July 3, 2002, n° 117/2002, Revue de Jurisprudence Liège-Mons-Bruxelles., 2002, 1837, commented by G. ROSOUX (see also the internet site of the Belgian Court : http://www.arbitrage.be).

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Superficially, the financing mechanism at issue seems to be a purely compensating scheme. It would be, however, erroneous to simplify too much by considering it as a simply monetary transfer between private parties. After the money has been collected, it falls indeed into a government budgetary fund and is then transferred to the printed-press economic sector. In some legal scholars’ view, the levy is nothing else than a tax and should therefore comply with the principle of legality (see further below). The Cour d’arbitrage doesn’t agree with this view and treats the levy as a simple compensating mechanism between two private economic sectors. Accordingly, in its reasoning, it is not a tax. The delegating rule (to the executive) does not therefore violate the Constitution. What must be underlined is the fact that the Court appropriates and validates the reason given by the legislator for such a financial mechanism. The compensating levy is clearly justified by the need to safeguard the exercise of a fundamental freedom, by protecting fair competition between television news and newspapers and between the different types of newspapers themselves. Incredibly, one year later, the high judicial court of Belgium (Cour de cassation) has considered the same levy as a tax, contradicting thus the Constitutional Court’s view. Legal commentators have isolated a kind of war of judges with respect to the definition of the concept of tax. Indeed, we are not far from a sort of judicial cacophony, that implies a real lack of legal security and, as a consequence, serious implementation problems. This case law clearly shows the potential link between (non tax) fundamental freedoms and - necessary (compulsory) government interventions or actions - the way these government actions are financed (well-determined type of government income). b. In a general way, classical guarantee rights imply protection mechanisms allowing to proceed against the government. b.1.. At first, constitutional guarantees should be further developed by statutes and regulations. From an economic viewpoint, laws are indivisible goods (as well as national defence or the police). In our view, the law-making process could not be financed on the grounds of equivalence or benefit precepts. Such a conclusion has to do with generality, abstraction and impersonal character of the legal rule in the modern view. b.2.. Then, as regards the judicial protection or the access to a judge, the issue turns out to be more complex. 1) There is no or only symbolic guarantee when there exists no independent and impartial control of the government action295. The rule of law requires such a review and nobody may neglect the significant impact of art. 6 of the European Convention on Human Rights (ECHR). National judicial processes were very influenced by the international case law concerning this essential provision. Let’s take a look at this famous art. 6 ECHR. The right to equitable lawsuit doesn’t normally imply some compulsory financing mechanisms. As a matter of principle, the right on a fair trial296 is not less effective because you let those citizens going to court, pay for their court action. Free access to the court, through financing by taxes, doesn’t appear to us to be compulsory. The issue is more of a political nature. However, what about persons unable to pay for court actions, because of lack of financial means? According to the Human rights provision (art.6.1.), “everyone” is entitled to a fair lawsuit. There can be a first textual argument for free access to the courts for no- or low-income earners and therefore financing through compulsory levies collected without individual return for the taxpayer297. Art. 6.3 further enumerates minimum rights for any person being charged with a criminal offense. Among these rights, two refer to financial aspects : 1) right to defend oneself in person or through legal assistance and, in case of insufficient means to pay for legal assistance, to be given it free when the interests of justice so require ; 2) to have the free assistance of an interpreter if he cannot understand or speak the language used in court. Under these limited circumstances, tax financing seems necessary.

295 These procedural rights are the most universal and essential rights and the major aspect of the so-called rule of law (L. FAVOREU (coord.), Droit constitutionnel, cited above, 865). 296 Make notice that we talk about ‘fair trial’ in general, and not about specific tax proceedings. Indeed, as a matter of principle, the convention’s provisions requiring a fait trial in civil matters generally do not apply in tax matters. The Convention’s procedural protections for criminal trials apply to cases of serious tax penalties (see V. THURONYI, Comparative Tax Law, cited above, 110 and the doctrinal contributions referred therein). 297 In countries where attorney’s intervention in proceedings is mandatory, the right to a fair trial may certainly require some kind of means tested aid. For France, G. RUTH SUCHY, personal contribution to the eatlp WG.

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Art. 13 of the ECHR is also of great interest for us298. In our view, this article does in principle not impose any financing through taxation. Exception could be however be made for the case of poorer people, in respect of which effective guarantee could depend on no fee being charged when going to court (as an applicant or a defendant). 2) What about the national constitutions299? As a matter of principle, absence of an explicit constitutional rule implies that justice in a large sense must necessarily be financed through taxation schemes. Tax financing is conceivable and frequently used, but the fair trial is also likely to be materialized by letting citizens going to court pay for their court action. By way of exception, constitutional provisions deal with the situation of low-income persons unable to pay for action or defense. According to art. 18 of the Dutch Constitution, “1. Everyone may be legally represented in legal and administrative proceedings. 2. Rules concerning the granting of legal aid to persons of limited means shall be laid down by Act of Parliament300. The legislator is thus given the task to guarantee effectiveness of judicial rights for poor people301. Art. 24 of the Italian Constitution confers on everyone the right to bring cases before a court of law in order to protect their rights deriving from all areas of the law. “Defense is an inviolable right at every stage and instance of legal proceedings. Art. 24.3. incidentally deals with the financing scheme related to justice: “The poor are entitled by law to proper means for action or defense in all courts302” (the so-called gratuito patrocinio). In the facts, in Italy, a large part of the costs deriving from the existence of courts is financed by general taxes (imposte303), instead of by specific taxes (tasse). However, in some cases, one has to pay to go before a court. The Italian law provides for a specific integrative contribution aimed at financing the whole judicial expenditure (contributo unificato). It is in proportion to the value of the claim. Actually, we should make a distinction between proceedings before civil and administrative courts and trials before tax or criminal courts. In the former situation (civil and administrative), a specific tax is required; in the latter cases (tax or criminal), the specific tax (contributo unificato) is not required (it is nevertheless collected for third line appeals to the supreme Court, that is the Corte di cassazione). The real nature of the contributo unificato, that is the specific judicial tax, is controversial304: some scholars state that this levy is a tassa in the Italian terminology; others differently treat this specific levy as an imposta, implying submission to the constitutional ability-to-pay rule. Anyway, to summarize, it should be emphasized that in Italy the costs of trials are financed partially by a specific tax (tassa ? imposta ? contributo ?) and partially through general taxation (imposte)305. As regards the Italian legal order, make notice that proceedings costs involve attorney’s costs: anyone going to court cannot do it on one’s own, but is to be defended by a lawyer, subject to exceptions relating to legal proceedings of a minor value (f.i. tax trials the value of which is lower than 2500 Eur). Further, in tax matters, the taxpayer’s defense may be assured by attorneys or by recognized tax consultants or accountants. About the right to go to court, see also art. 19.4 of the German basic law (“Should any person's right be violated by public authority, recourse to the court shall be open to him. If no other court has jurisdiction, recourse shall be to the ordinary courts ») or again art. 24.1 of the Spanish Constitution (« Every person has the right to obtain the effective protection of the Judges and the Courts in the exercise of his legitimate rights

298 “Everyone whose rights and freedoms as set forth in this Convention are violated shall have an effective remedy before a national authority notwithstanding that the violation has been committed by persons acting in an official capacity”. 299 Constitutional guarantee doesn’t necessarily imply effective guarantee, but is subject to the national system of constitutionality review. See above our comment about the issue of judicial review in European countries under review. 300 According to KORTMANN (Constitutioneel recht, cited above, 445-446), this constitutional provision does not imply free access to representation (‘kosteloosheid’) for the poor, the legislator being entitled to require under certain circumstances a personal contribution also from low-income earners. See also VAN DER POT, DONNER, Handboek van het Nederlandse Staatsrecht, cited above, 382-384. 301 As seen above, the constitutional provisions in the Netherlands are of a rather symbolic character, in the absence of effective constitutionality review as regards acts of Parliament. 302 The indigent status is recognized on the grounds of income lower than 9.000,00 Euro. L. DEL FEDERICO, personal contribution to the eatlp WG. 303 On the distinction between imposte and tasse in Italy, see above. 304 L. DEL FEDERICO, personal contribution to the eatlp WG ; L. DEL FEDERICO, Tasse, tributi paracommutativi e prezzi pubblici, cited above, 225-226. 305 C. SACCHETTO, M. BARASSI, personal contribution to the eatlp WG.

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and interests, and in no case may he go undefended »). Section 28 of the Finnish Constitution formally guarantees everyone’s right to a fair trial. Some constitutions are not so clear in declaring everyone’s right to go to court and the right to a fair trial. This is the case of the Belgian306 and the Luxembourg Constitutions. The principles are nevertheless unquestioned. Court financing is normally subject to political choice. For instance, in Luxembourg, the functioning of the courts is essentially financed through the State budget, hence by way of taxes. In court cases, there generally exists an obligation to be represented by an attorney admitted to the courts. The costs of the attorney are always borne by the client he is representing, even if the client was to win the tax case in court307. In Belgium, justice is essentially financed on the grounds of taxation308. Legal aid schemes are thus provided for. As regards the attorney’s costs, the public aid system has been recently reformed in order to extend the scope of people entitled to it309. In France, the Constitution does not formally provide for free access to courts310 and ‘republican custom’, as an important source of constitutional law, probably does not either. In practice, the actual proceedings are free of charges, except for a notional fee required before administrative law courts. However, specific acts (expertise, communications or notifications…) and attorney’s fees are paid for by litigants311. As regards the Swedish legal order, the Court system is free of charge (with the exception of minor registration fees). As a member of the Working Group, M. DAHLBERG interestingly notices that there exists a parallel system for arbitration in commercial matters, which is paid for by the parties. This remark could be extended to other EATLP countries where private arbitration is more and more used in cases implying business litigation. 3) In conclusion, it is not usual in the legal systems under review to put in evidence the potential links between the way justice is concretely financed and everyone’s fundamental right to take legal action into court. Independence, impartiality, defence rights, and other judicial guarantees, are very much commented. But surprisingly, financial access to the courts is not frequently subject to legal discussion312. The courts’ functioning is essentially financed through general taxation, what may explain that serious problems have not so far appeared. The issue may become more worrying in the future. We refer to some proposals in some countries for introducing benefit-principle financing mechanisms to a larger extent. It partially gives an answer to the increasing needs for fairer and time-limited justice. Such social requirements, as observed in the last years in all European countries, should also be legally discussed from the public finance point of view. We could propose for the discussion the following statement. Total exclusion of general taxation may appear to be too radical and jeopardize the effective right to go to court, not only for poor persons eligible for the legal aid, but also for a great part of what we call the middle class. Partial exclusion of general taxation is let to the governments’ decisions, subject to limits with respect to the poorest. Incidentally, fines for improper appeals to the court have recently developed to a larger extent. Interestingly, subject to strict conditions, this type of financial mechanism suggests a good combination between

306 Art. 144 (‘Courts hold exclusive competency with respect to conflicts involving civil rights issues’) and 145 (‘Courts hold competency with respect to conflicts involving political rights, save for the exceptions established by law’) of the Belgian Constitution deal more with the competence of the judicial authority, than they declare a fundamental right to access to court. However, their interpretation by the case law have frequently given to them the character of a fundamental constitutional right. 307 A. STEICHEN, personal contribution to the eatlp WG. 308 Make notice that, in Belgium, registration duties are collected for certain operations and formalities treated by the Clerk’s office in the context of legal proceedings. In addition, a registration duty is collected on rulings, referring to the value of condemnations and pronounced liquidations. These duties are considered as specific taxes. 309 From January 1, 2004 onwards, the Belgian legal aid system is subdivided into two parts. The first line legal aid scheme consists of universal first legal advice which is freely open to anybody, regardless of each one’s income (practical and punctual legal council, opportunity of an action, etc.). The second line legal aid scheme is aimed at persons with no or low income (taking into account the family situation). It allows them to bring an action or to be defended in court (or to be assisted for any type of procedures) without paying all or part of the attorney’s costs. 310 Contrary to other European constitutions, the French Constitution does not contain any provision explicitly guaranteeing the formal right to go to court. Such right is nevertheless recognized in the case law of the Constitutional Court (f.i. Conseil constitutionnel, decision of April 9, 1996, n° 96-373, Autonomie de la Polynésie française) (see L. FAVOREU (coord.), Droit constitutionnel, cited above, 866). 311 G. RUTH SUCHY, personal contribution to the eatlp WG. 312 It is however certainly subject to political discussion.

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everyone’s right to go to court, on the one hand, and the necessity to introduce benefit and liability elements in the courts financing system (in order to avoid improper uses of this type of public service). b.3.. Some constitutions or constitutional principles recognize the citizen’s right to administrative transparency313. This rule promotes a new administrative culture with respect to contact with citizens. Two consequences are related to this contemporaneous fundamental right. First, administrative authorities must take positive measures in order to open itself vis-à-vis all administrated subjects. For instance, it will systematically and formally indicate on the act all potential appeals available against administrative decisions affecting anyone’s right or interest (and the deadline to lodge an appeal). Second, administrative openness implies that all citizens are allowed to consult administrative documents relating to them and to obtain a copy of those documents. The exercise of this new citizen’s right may imply costs on behalf of administrative authorities. Questions arise as to whether citizens enjoying this prerogative might be charged for the costs newly incurred (such as copy costs, copy for searching the relevant documents, costs for paying state employees delegated to these specific openness tasks, etc.). According to the Belgian 1994 law implementing art. 32 Const., a fee may be imposed by the executive in order to compensate for the costs of delivering on request a copy of administrative documents314

. IV2. Economic, social and cultural rights

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a. In many European constitutions, a series of provisions deal with what we could generally call the ‘economic, social and cultural rights’. As seen above, general concepts are used guaranteeing anyone’s right to develop oneself within the community, to completely enjoy human dignity, and to be given all chances to succeed in one’s life. Concepts such as those mentioned above are essentially of a general and abstract nature. Their protecting value may certainly be reinforced if the legal substance of the general expressions of human dignity and social development are further explained and materialized. For this purpose, many rather new fundamental rights have been introduced in some constitutions. They legally describe various aspects related to everyone’s personality development316. Therefore, it is not unusual to find in the constitutional texts a ‘right to work’, a ‘right to education’, a ‘right to social security’, a ‘right to clean environment’ or a ‘right to housing’… They are not aimed at protecting any person against government’s arbitrary interferences, but they directly impose to the governments some positive actions vis-à-vis the citizens317. However, the constitutional objectives at issue are only partially attained, as most provisions guaranteeing these fundamental rights are generally denied any direct effect and thus any legal value as such. It would be of no use, for instance, to go before a court and to complain about the fact that you are unemployed and that the government has violated the constitutional right to work as a matter of consequence. Direct applicability of the constitutional provision seems to be impossible. On the other hand, a free education requirement contained in a provision relating to primary school, for example, may probably be relied upon before a court. Direct effect is not inconceivable. It is no longer an applicability issue, but an interpretation one: that is, to what extent should educational activities be free?

313 See, for instance, art. 32 of the Belgian Constitution ; art. 110 of the Dutch Constitution, art. 268 of the Portuguese Constitution. 314 An important case law has developed in Belgium with respect to the determination of the actual costs in this particular case. Should only the direct cost for making the copy be taken into account or may the fee be extended to general indirect costs associated to the action of making and delivering the copy (delegated employees, part of general administrative costs). See for instance, Belgian Conseil d’Etat, November 12, 2002, n° 112.495 and 112.496 (internet site http://www.raadvst-consetat.be). 315 The following description essentially deals with fundamental rights provided for in national constitutions. Economic, social and cultural rights contained in international treaties are not here thoroughly examined. 316 « Si la fraternité suppose confiance, respect, estime, tolérance réciproque, on observe que les signifiants majeurs de solidarité, de dignité humaine, de justice sociale, de participation, se recoupent finalement assez bien avec ceux de fraternité. Dans le monde contemporain, l’État est en train de développer dans nombre de nations le thème assez juridicisé de «solidarité sociale» par toute une législation protectrice de droits sociaux nouveaux attestant d’une redistribution plus équitable des ressources d’une nation. Cet effort de normativisation, ou de laïcisation, partielle de la fraternité humaine institutionnalise la générosité et lui offre la sanction du droit permettant aux Cours et Conseils constitutionnels de jouer un rôle non négligeable de regulation” ( M. BEDJAOUI, “La “fraternité”, concept moral ou principe juridique”, in La fraternité, Proceedings of the Ottawa Congress of the ‘Association des Cours Constitutionnelles ayant en Partage l’Usage du Français (ACCPUF)’, juin 2003 (available on the internet site of the association). 317 « Obviously, things are different in the case of social and other fundamental rights, since with regard to these rights the emphasis is not on fending off wrongful government interference, but on the contrary on achieving appropriate government interference ; this latter field is less accessible to the courts » (See L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 164).

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No or few ‘social’ guarantees in the Constitution do not mean that these rights are not recognized in practice: for instance, the Danish Constitution only mentions three fundamental social rights (§§ 75 and 76); the right to medical care is not mentioned therein, although it is, as we know, highly developed in Denmark. b. The right to work is written in many constitutions318. Such a provision essentially assumes programmatic value and may not be independently relied upon before a court. It depends on the further elaboration of the right by statutes or regulations. Some constitutions also contain a right to public assistance319 and/or a right to social security320. Subject to exceptions, these are usually considered as deprived of direct effect321. Right to health is sometimes formally protected : for instance, art. 32(1) of the Italian Constitution requires the government authorities to pay particular attention to public health322, and to ensure “free” care for the indigent. Subject to definition of the concept of indigent (indigenti), some direct effect could be recognized to this provision, and taxation, as a financial means for this free health care, appears to be necessary. In Luxembourg, health is protected by art. 11(5) of the Constitution. Persons that are unable to participate in the financing of the personal health nevertheless benefit from the Luxembourg social security system. Hence, although special contributions (“cotisations sociales”) calculated as a percentage of the amount of net income of the beneficiary are levied, those persons that do not have any available income nonetheless benefit from social security. That means that either the amount of special contributions to be paid by those that are able to pay are calculated in such a manner so as to also cover the benefits payable to those that have no ability to pay (alternative to general taxation), or that the State budget provides for additional financing of the social security system via the levying of (general) taxes. Luxembourg uses the first technique rather than the second one323. Among others, some constitutional rights of this sort also deal with the protection of the environment324 or the right to housing.325 The right to education is interesting to analyse in the context of this research. Most legal orders, and in particular many constitutions, provide for compulsory education326: either a minimum period of compulsory education is fixed (more or less eight years), or an age is determined under which education is necessarily compulsory (in general, 16, 17 or 18 years old). This type of provision is frequently associated to a ‘free’

318 For instance, in Denmark, art. 75(1) provides that : « In order to advance the common good, efforts shall be made to afford work to every citizen capable of working on terms that will ensure him a livelihood ». See also section 18 of the Finnish Constitution, art. 23 of the Belgian Constitution, art. 22 of the Greek Constitution, art. 4 of the Italian Constitution, art. 19 of the Dutch Constitution, art. 58 of the Portuguese Constitution. See again the 1946 preamble to the French 1958 Constitution, that is part of the so-called aforementioned bloc de constitutionnalité. 319 Art. 75(2) of the Danish Constitution ; art. 38 of the Italian Constitution ; art. 20 of the Dutch Constitution. See again the 1946 preamble to the French 1958 Constitution, that is part of the so-called aforementioned bloc de constitutionnalité : the Nation guarantees for everybody the protection of health, of material safety (i.e. a level of resources to satisfy the need of subsistence), and in particular for children, mothers, old workers ; the Nation provides for decent conditions of living for the unemployed be it for old age, health or economic reasons (G. RUTH SUCHY, personal contribution to the eatlp WG). Moreover, this French preamble provides for public disaster relief. 320 For instance, section 19 of the Finnish Constitution, art. 23 of the Belgian Constitution, art. 22 of the Greek Constitution, art. 38 of the Italian Constitution, art. 11(5) of the Luxembourg Constitution ; art. 20 of the Dutch Constitution ; art. 63 of the Portuguese Constitution ; art. 41 of the Spanish Constitution. 321 Interestingly, art. 45 of the Irish Constitution classifies such rights under the title ‘directive principles of social policy’, what indicates their limited legal value as guidance principles for the legislator “that shall not be cognisable by any court”. However, some social security rights may be available, under certain circumstances, for being invoked before a court. See L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 223, referring notably to a Finnish judgment of the Supreme Administrative Court of 27 November 2000. 322 In Italy, the financing of the health care is a mixed one : part of it is assured by general taxes (imposte) and another part is financed by a special tax (tassa). Some services related to health care are not free. For example, a specific tax may be required for certain types of diagnostic. Then, the service at issue will be tax free depending on the patient’s income, age and sort of pathology. Medicines are classified into various categories. The most important ones are free ; others are subject to a specific tax. C. SACCHETTO, M. BARASSI, personal contribution to the eatlp WG. 323 A. STEICHEN, personal contribution to the eatlp WG. 324 For instance, art. 20 of the Finnish Constitution ; art. 21 of the Dutch Constitution ; art. 23 of the Belgian Constitution ; art. 66 of the Portuguese Constitution ; art. 45 of the Spanish Constitution. 325 For instance, art. 23 of the Belgian Constitution. 326 As a matter of principle, in the countries under review, only instruction or education is compulsory, and not school attendance.

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education guarantee with respect to primary school and sometimes (lower) secondary school327. In Belgium328, free access to compulsory education (until 18) is guaranteed by art. 24 of the Constitution. This constitutional protection is closely related to everyone’s freedom to freely choose between public non-denominational education and private denominational education329. Art. 23 of the Luxembourg Constitution330 provides for a free access to ‘primary instruction’ (i.e. the first six years of elementary school), as well as for ‘middle instruction’ (i.e. the subsequent 7 years of lycée). The same article foresees the obligation for the State to provide for university studies as deemed necessary, without specifying the means of financing. The primary and middle instruction being free, its running costs necessarily are financed through the State budget, i.e. by way of taxes. In Italy, art. 34 of the Constitution provides that schools are open to everyone, and that at least eight years of education is compulsory and free of tuition fees. Interestingly, the Italian provision states that capable students, even if without means, must be enabled to reach the highest levels of education. In our view, this latter objective may only be attained through financial arrangement implying a certain level of redistribution. Taxation easily implements this objective, giving the government instruments to grant aids or other kinds of allowances to only ‘capable’ students. In the facts, in the Italian system, primary education is free, that is to say, is financed through general taxes (imposte – see above for the meaning of this term). Secondary education and university are not free, since students have to pay a specific tax (tasse universitarie and tasse scolastiche – see above for the meaning of the term of ‘tassa’). Further, in order to determine the amount of (specific) tax due or to fix the granted allowance, in some cases (f.i. university fees), one has to consider a series of elements including one related to the taxpayer living with relatives. Such elements essentially consist of information on income and wealth (movable and immovable properties), most of which is included in tax331. There are good reasons to consider the ‘free of charge’ requirement with respect to education as being enforceable as such before a court332. Further, a free of charge rule in educational matters is provided for in

327 Section 16 of the Finnish Constitution provides for « the right to basic education free of charge » ; art. 16(4) of the Greek Constitution ; art. 42(4) of the Irish Constitution (‘free primary education’) ; art. 74, 75 and 76 of the Portuguese Constitution ; art. 27 of the Spanish Constitution ; art. 2(21) of the Swedish Constitution. The 1946 preamble to the French 1958 Constitution also guarantees the organization of ‘free’ and secular public education as one of the state’s duty. See also §76 of the Danish Constitution. 328 Freedom of education was one of the basic features of the liberal/catholic alliance that led to the establishment of Belgium. Down to the present day, it has continued to be a very important feature of political and social life. Powers relating to education were actually transferred to the Communities in 1988 (the Belgian federal state is subdivided into two sorts of regional entities : the Regions on the one hand and the Communities on the other hand ; as political institutions, the Communities are almost totally and exclusively competent as regards educational matters). The freedom of education is extensively described in art. 24 of the Belgian Constitution. The text formulates a few concrete, individual rights for the public, and obligations incumbent on the administration, which are inspired by the School Pact. The School Pact is a political agreement that brought an end to the second school conflict (1954-1958) and signalled the start of a period of major expansion for all educational public and private networks. In this way, the Constitution notably safeguards the right of free access to compulsory education, the right to an upbringing based on philosophical or religious principles and financed by the Community for the duration of compulsory education, and the obligation incumbent on the Community to establish non-denominational education and to guarantee freedom of choice in education. In order to avoid the freedom of education being reduced to a merely hypothetical concept for large sections of the population, the state has provided, since the very beginning, some subsidies for the educational facilities that it has not established itself. See L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 94. 329 Art. 23 of the Dutch Constitution should also be read primarily as a protection of private schools (i.e. schools with a religious background). See S. HEMELS, H. VORDING, personal contribution to the eatlp WG. 330 A. STEICHEN, personal contribution to the eatlp WG. 331 C. SACCHETTO, M. BARASSI, personal contribution to the eatlp WG. 332 It goes without saying that the scope of the ‘free of fees’ constitutional requirement shall be subject to interpretation by the Court, especially with respect to the amount of subsidy the government should grant to private schools. Assume a private educational institution saying : ‘The government must subsidy my schools in order to safeguard actual freedom of education and free choice between denominational and non-denominational schools ; my pedagogical project is a new and rather revolutionary one, but it costs a lot ; the Constitution guarantees the free of charge (fundamental) education, that is financing of (public and private) schools through the budget (essentially taxation) ; so, I’m entitled to claim from the government the whole necessary financial support to realize my pedagogical project’. As a result, by following such reasoning based on actual freedom of education, the government (and thus taxpayers) may be led to bear unlimited costs, to the detriment of taxpayers (especially those not benefiting such expensive educational schemes). Interpretation by the courts may therefore limit the scope of the free of charge rule with respect to education. By way of example, the Belgian constitutional court has developed a case law showing the potential limits to the constitutional rule : Cour d’arbitrage, April 2, 1992, n° 28/92 (the constitutional free of fees rule with respect to education must be strictly interpreted and it does not preclude a fee compensating for teaching equipment or certain activities, subject to limit according to the actual cost of equipments or activities at issue) ; Cour d’arbitrage, May 7, 1992, n° 33/92 (taking account of the legal impact of art. 13.2 of the international Covenant on Economic, Social and Cultural Rights on the financing of

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art. 13 of the UN Covenant on Economic, Social and Cultural Rights. Interestingly, this international rule also contemplates, unlike most national constitutions, higher education (in particular, universities), providing for the progressive introduction of free education. In some countries, the legal value of this provision has been discussed (direct effect?). In particular, the question arose as to whether its interpretation as a standstill rule is enforceable before a court so that states charging fees for access to universities could maintain them; the standstill free of charge requirement (for higher education) would prevent them from substantially increasing the amount of the fee, however. The issue is a very controversial one and, given the priorities of this chapter, there is no room even for a very brief discussion of it. Let us only be aware that it can certainly have an important influence on the way education is financed in the various countries under review and may particularly justify the preferential use of the tax instrument. Pointing summary, free education seems to be necessarily related to financing through taxation in the traditional sense (compulsory levy without individual return). An exception to this statement is conceivable if we consider to allow the state to finance itself through the proceeds of business activities. Such option may nevertheless contrast with the public interest nature of government activities justifying limited profits as a matter of principle. Free and open-to-everyone education (public school or grant-aided school) obviously cost a lot. If used to this purpose, income (profits) from government business activities could only finance a very small part of public educational costs. Another alternative to finance free education may lie in the government using the proceeds of a very strict penal fine system. However, financial needs could merely be satisfied in this way by applying a very repressive system potentially in conflict with the constitutionally guaranteed freedoms. In a liberal state, fines might only be income of a secondary source of revenue.

IV3. Conclusion

National constitutions formally guarantee a series of fundamental rights. Many of them, especially the so-called social, economic and cultural rights, require some positive action from the government. These actions cost a lot and must therefore be financed. Taxation as a compulsory levy without individual return, gives significant protection to low-income persons, guaranteeing enjoyment of these rights, regardless of any ability to pay for it. It breaks any potential link between what you exactly pay to the Treasury and the safety or security, in a large sense, you receive from the government333. It allows universal freedom, universal human dignity enjoyment and factual equality, that is the general fundamental objectives of the modern liberal social states. Thus, while the theoretical foundation of the concept of tax lies in the supply of public goods and well-determined private goods, the principle of the social state, provided for and developed in many constitutions, precludes the consideration of the concept of tax as a kind of price. Indeed, our contemporaneous approach to human dignity requires us to let citizens benefit from certain public goods or services, regardless of personal contribution to the financing of them334. The extent to which taxation, as a specific type of government income, is required in this context has nevertheless not been so much discussed in the countries under review. Normally, serious discussion should happen in courts and, as a consequence, in the legal scholarship that comments on courts’ decisions. However, the issue has essentially been of a political nature; the judiciary has refrained from infringing on the legislature’s prerogatives to manoeuvre. Many social rights were treated as ‘programmatic’ provisions. Accordingly, they are not enforceable as such in courts. Being essentially guidelines for government policy, these rights are only of immediate significance to the general public after they have been realized in legislation. The challenge for the future is to create conditions for a better protection for the citizen by letting

Belgian universities) ; Cour d’arbitrage, February 3, n° 12/94 (on the status of ‘European schools’) ; Cour d’arbitrage, May 19, 1994, n° 40/94 (on artistic schools). 333 “Accorder à tout citoyen, quelle que soit sa situation de fortune, un “droit à” une prestation positive de la part de l’Etat implique implicitement, quoique nécessairement, qu’il y ait droit alors même qu’il ne serait pas à même d’en assurer le financement par la voie de l’impôt” (A. STEICHEN, “ La justice fiscale entre justice commutative et justice distributive”, in GUTMANN, D., (ed.), cited above, 269). The author explicitly suggests the example of education. Assume that the Constitution guarantees a right to education for any child, regardless of the family resources. Children whose family is unable to pay fees for private schools, could only enjoy their right to education, if education is public (or state-subsidized) and free, which implies financing through the budget and, as a result, through taxation. 334 A. STEICHEN, “ La justice fiscale entre justice commutative et justice distributive”, in GUTMANN, D., (ed.), cited above, 269.

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him go to court in order to enforce some of these rights. Which rights are these? The question will be subject to discussion in the EATLP Congress335. We have already suggested that all provisions explicitly requiring free-of-charge public services should be enforced as such by the courts (see above, for education). Legal aids constitutionally secured for the indigent (as that term is interpreted) may potentially be claimed before a court. In our view, it wouldn’t be a great violation of the legislator’s prerogative to let the judges determine the scope of the term indigent and enforce the relevant constitutional provisions with respect thereto. Moreover, one of the greatest critical issues is the standstill construction of certain constitutional social rights. According to the standstill approach to fundamental rights implying indeterminate positive action from the government (no direct effect), the legislator is prohibited from diminishing the level of protection currently in force. It is allowed to better protect, or to preserve the current arrangements; it is not however permitted to go backward and to put substantial restrictions to any level of (social, economic, environmental) protection attained in the past. Standstill construction may have an indirect impact on the government’s financing options. For instance, if the government changes the way certain fundamental services are financed and substitutes fees for taxes, it may be considered as violating any standstill provision, especially for poorer people, depending on the public service at play336. Going further with these reasoning would be totally hypothetical (impractical?). I cannot go to court and complain against insufficient taxes being provided for in the budget. Fundamental rights may not be successfully relied upon in order to criticize the global budgetary options of the government with respect to the general tax level. Government interventionism is subject to political choice and it’s up to the voters to influence it and to determinate the global balance between individual risk and social collective protection.

V. Non-retroactivity337

As a rule, tax statutes and tax regulations may not be applied retroactively. This statement must however be clarified. The non-retroactivity rule is legally-binding in all countries as regards criminal law, partially as a result of international law instruments. What about other areas of the law, and in particular tax law? The Swedish approach to the non-retroactivity issue contrasts with the legal situation in most other countries. Indeed, usually, national constitutions do not explicitly formulate any non-retroactivity requirement for the legislation. A fortiori, it is rather uncommon to find a specific tax principle of non-retroactivity338. By way of principle, non-retroactivity of tax legislation is the result of a (non tax) general rule or precept, the

335 Let us recall that the issue primarily depends on the question whether legal acts, especially statutes, may be controlled against the Constitution or against international human rights conventions. For instance, in the Netherlands, statutes may not be examined for conformity with the Constitution. Both statutes and the Constitution may, however, be examined against provisions of international treaties that are binding on all persons (for instance, most provisions of the European Convention on Human Rights). (see above for the constitutionality review issue). 336 As regards social rights, the standstill approach is very controversial. In France, to our knowledge, the Constitutional Council has never validated as such the standstill rule with respect to economic and social rights. The legislator is let a great room for manoeuvre in order to determine the level of the various social allowances, being entitled to restrict the current social protection mechanisms. M. BORGETTO, “Rapport du Conseil constitutionnel français, in La fraternité, Proceedings of the Ottawa Congress of the ‘Association des Cours Constitutionnelles ayant en Partage l’Usage du Français (ACCPUF)’, juin 2003 (available on the internet site of the association). 337 From a comparative law point of view, see L. MEHL, P. BELTRAME, Techniques, politiques et institutions fiscales comparées, cited above, 524-526 ; V. THURONYI, Comparative Tax Law, cited above, 76-81 ; K. TIPKE, Die Steuerrechtsordnung, cited above, 145-176 ; F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 24-27. 338 As is the case in Sweden. See also art. 78(2) of the Greek Constitution (cf. subsection 1.3.d. below).

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legal value of which being essentially relative or symbolic339. Following the French tradition, a legal principle of non-retroactivity is stated in the civil code of some countries340. Any statutory tax rule that is a civil code provisions having no constitutional rank and being normal statutes to which the ‘lex posterior derogat priori’ principle applies could nevertheless depart from this requirement. So, as a rule, the tax legislator may legitimately deviate from the ordinary rule of non-retroactivity. In contrast, in Germany, even if there is no explicit constitutional or statutory rule on non-retroactivity in tax matters, the Constitutional Court has based the principle of non-retroactivity on the concept of the ‘Rule of Law’, which includes the concepts of legal certainty and public trust341. Where citizens are legally and efficiently protected against retroactive effect of the law (for instance, in Germany or in Sweden), exceptions are in general admitted (and validated by the courts). So, in many countries, retroactive tax legislation is usually allowed starting with the date the bill was introduced in parliament, or, in some cases, starting with the date the new tax measure was announced by the government342. Such allowed exception to the non-retroactivity rule is justified by budgetary reasons, due to the great importance of taxation for the functioning and the future of the government. Such overriding public necessity (for example, for the prevention of massive tax avoidance transactions) explains that the radical non-retroactivity precept is in a certain way partially departed from343. In principle, the non-retroactivity requirement is applied to all kinds of rules regarding government financing, and not only to taxation. Specificity taxation is only justified on the grounds of budgetary concerns and of the great importance of tax law for the continuity of the state institutions and activities. Nevertheless, legal discussion over the concept of tax in this context is not usual. It seems to be of greater interest to evaluate the concrete impact of the non-retroactivity concept in relation to the different types of taxes. The distinction between direct taxes (in particular, income taxation) and indirect taxes is especially relevant to this purpose. As a result, the discussion goes outside the framework of the present research and won’t be further commented upon.344 Non-retroactivity assumes a more absolute character vis-à-vis the executive and the courts. As regards tax regulations, it is generally accepted that they may only be enacted for the future (prospective effect). It must nonetheless be clarified that regulations and other normative acts interpreting tax legislation are typically applied with an effective date that is the same as that of the statute being interpreted345. Such reasoning is logical in order to avoid different interpretations of the same tax legislation over the time. VI. Punctual illustration : financing of motorways

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339 “In most countries, decisions about the effective date of tax legislation are considered a policy issue for the legislature. There is

no constitutional protection against retroactive legislation, as long as the legislature does not act capriciously” (see V. THURONYI,

Comparative Tax Law, cited above, 77). See also L. MEHL, P. BELTRAME, Techniques, politiques et institutions fiscales

comparées, cited above, 525 ; F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and

Drafting, cited above, 24. 340 Art. 2 of the French civil code ; art. 2 of the Belgian civil code. 341 For a brief summary of the German case law, see V. THURONYI, Comparative Tax Law, cited above, 79-81. See also F.

VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 25. The

Belgian Constitutional Court also tends to constitutionalize the principle of legal certainty. Some decisions have considered that the

protection against retroactive legislations belongs to the legal security sphere that is essentially a constitutional concern. 342 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 27.

“By setting an early date for the application of the tax law well before the final approval of the law by the parliament, the

government prevents taxpayers from escaping the new tax provisions by rearranging their affairs during the period between the

announcement of the new tax measures and the final vote in parliament”. 343 Technical corrections of mistakes in the tax legislation may also be a good reason for retroactive effect being given to the correcting arrangement. In addition, it may be legitimate for the legislature to enact retroactive tax legislation to overturn judicial decisions with which the government disagrees (see V. THURONYI, Comparative Tax Law, cited above, 76). 344 Indeed, the concept of tax is not questioned as such, but instead all sub-distinctions within this global concept (different types of taxes). The latter discussion is thus outside the subject of the topic here examined. 345 V. THURONYI, Comparative Tax Law, cited above, 78 ; F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 27. 346 On this issue, see the very stimulating proceedings of the Congress organized in the University of Bergamo on the topic “Highways : cost and regulation in Europe” on November 26th and 27th, 2004, available on the internet site http://www.unibg.it/struttura/en_struttura.asp?cerca=en_dse_highways_program.

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The preceding may be illustrated by reference to the financing of motorways.

The question is: From a legal (not economic) point of view, have constitutional provisions (or constitutional principles) influenced the way motorways are financed in the countries under review. As a rule, the answer to this question seems to be negative. In all countries examined, the motorways financing system is only determined on the grounds of political, economic and technical considerations and arbitrations347. There are no constitutional requirements or recommendations that affect this. Therefore, financial arrangements with respect to highways in Europe vary considerably from one country to another. This is why the illustration appears to be so relevant and interesting for the topic. Very schematically, two essential options available to political decision makers to finance motorways are: - collective financing of the road infrastructure The economic theory on public goods and external effects shows situations in which it is technically necessary or (socially, economically, etc.) desirable to finance certain goods or services through collective means. As a consequence, the law provides for financing of national defence (pure public good) or of free education through general budget, that is taxation in the legal sense. It must nevertheless be emphasized that collective financing does not necessarily imply financing through ‘taxation’. It is theoretically possible for the government to finance the costs of public infrastructure through the so-called mechanism of cross-subsidizing : non-tax receipts deriving from other (more market-linked) government activities are used to finance the police or to finance education, etc. So, from a conceptual viewpoint, technical public goods (technical impossibility to charge for the use of the good or the service) and legal public goods (possibility to charge the users, but not desirability) must not be financed through taxation. Other means of collective financing are available. In the facts though, taxation will be the most important, and even the only, alternative to fees (or price) financing. financing through general budget, that is, general taxation ; - charging for access to road infrastructure, which may imply : * either to levy general tolls to fund motorway operation and development; * or to make commercial vehicles pay for the use of certain roads (f.i. vignette system). In some countries, motorways have been financed for a long time through general taxation (public budget). This is the case, for instance, in Austria, Belgium, Germany, Luxembourg and The Netherlands. However, from mid 90’s, financial arrangements were, in addition, introduced to make domestic and international commercial vehicles pay vignettes for the use of national motorways for a given time period (year, month, week or day)348. The adoption of vignettes in Europe was pioneered by two countries: Austria and Switzerland. These systems, consisting of charging the so-called Heavy Goods Vehicles (HGV), were based on the time the vehicle is using the national motorways network. In those countries, there is, however, a trend toward introduction of charges levied in accordance with mileage349 (distance performed) of commercial vehicles, instead of time based (Euro) vignettes previously in force. For instance, Germany has gone out of the Eurovignette system. Interestingly, the German government has opted for a GPS based, autonomous system350. As a general rule, time charges have been replaced by distance charges.

347 See M. BARASSI, L. DEL FEDERICO, S. HEMELS, G. RUTH SUCHY, C. SACCHETTO, A. STEICHEN, H. VORDING, personal contributions to the eatlp WG. G. RUTH SUCHY notes for instance that it has been ruled in France that the free use of roads is not required by the Constitution ; motorways infrastructure may therefore be financed through users’ fees. See again P.-M. GAUDEMET, J. MOLINIER, Finances publiques, Vol. 2, Paris, Montchrestien ed., 1997, A. STEICHEN, “ La justice fiscale entre justice commutative et justice distributive”, in GUTMANN, D., (ed.), cited above, 248. 348 See for historical developments, C. BORGNOLO, “National approaches and Community’ framework for road charges in Europe”, in the aforementioned proceedings of the Congress organized in the University of Bergamo on the topic “Highways : cost and regulation in Europe”. 349 Cf., in Austria, the introduction of kilometre-based electronic charge for HGV in 2004. 350 One of the purposes of the project was to make Germany the international expert for innovative road pricing technology. The Toll Collect technical system uses satellite positioning (GPS system) and mobile communication to charge HGVs for the use of Federal motorways. Of central importance to the system is a vehicle on-board unit (OBU) consisting of a GPS receiver, a digital map and a mobile phone providing contact via short messages (SMS) with the Toll Collect charging centre. As a matter of principle, the system allows charging to be carried out automatically without stopping the flow of traffic. However, the German government has faced serious technical problems, considerably delaying the date of effective introduction of the new system.

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In other countries, general (all vehicles) distance based tolls have been traditionally levied as in France, Italy, Spain and Portugal. More recently, Greece, Croatia and Slovenia have chosen to levy tolls to fund the development of their national motorway networks351. On tolled networks of this type, the main challenge for the future will be to put an end to stopping requirements (tolls charging through toll stations) that slow down interurban road traffic. Electronic Fee Collection systems have been recently introduced to this purpose. It should be emphasized that the whole discussion with respect to motorways financing must be closely combined with recent reforms regarding motor fuel taxation and car taxation (cf. the recent communication of the European Commission to this purpose). It is a serious element for a complete approach to the issue. Moreover, the public private partnerships (PPP) legal discussion, especially from the financial viewpoint, must not be neglected, as it constitutes a critical aspect of the issue. It opens up the discussion in the sense that it increases the importance of the clear theoretical distinction between the various concepts of tax, fee and price (certainly subject to different legal rules). To summarize, there certainly exists a serious trend toward a larger use of fee, toll, or vignette systems, instead of using public budget. General taxation financing makes all taxpayers pay for divisible services benefiting essentially those having a car and using highways352. As regards divisible services, fees are, as a rule, perfectly permissible. Collecting tolls is a viable possibility on highways for the simple reason that entrances are usually few353. However, the evolution of satellite and computer technology is now opening up the possibility of collecting tolls on any kind of roads on the basis of different factors including the type of vehicles and the hours of travel354.

351 C. BORGNOLO, “National approaches and Community’ framework for road charges in Europe”, in the aforementioned proceedings of the Congress organized in the University of Bergamo on the topic “Highways : cost and regulation in Europe”. 352 Politicians frequently use such justification in order to justify the introduction of benefit based financial mechanisms, instead of general taxation financing. This argument should nevertheless be clarified. For instance, highways may certainly contribute to decongestion of intercity or city roads, benefiting motorists still using these latter roads and benefiting persons (also non motorists) residing along these latter roads. We must therefore be careful with too simplified statements with respect to this politically sensitive issue. 353 In Belgium, the government has frequently relied upon the numerous number of motorways entrances to refuse any reform introducing tolls financing systems. Nevertheless, recently, the government of the Walloon Region announced that it will make the necessary decisions and take measures aimed at globally reforming the financing system of its highways. It is suggested to promote more intensively the benefit principle in order to charge specifically the users, included foreign vehicles. We don’t know yet whether the potential future tolls or fees will be limited to trucks, or also extended to cars. An electronic system could potentially be introduced. 354 G. RAGAZZI, “Highways : toll or free ?”, proceedings of the Congress organized in the University of Bergamo on the topic “Highways : cost and regulation in Europe” (see the footnote above).

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1.3.b. Distinction between taxation and the expropriation of goods (and services) vs. the constitutional protection of property The right to own property is generally protected by national constitutions and by international law provisions. Taxation, by nature, undermines this right; all taxpayers are required to give a part of their (income from) properties to the government, and the right to enjoy one’s properties is thus lessened as a consequence. The government is entitled to tax. It must nevertheless respect everyone’s right to own property. How can we combine these apparently contradicting statements? In particular, we all know that government authorities are allowed, under well-determined conditions, to expropriate. Should we make a distinction between the concepts of taxation and expropriation? If so, what may be the legal interest or the purpose of such a distinction? All the preceding questions relate to an essential practical issue: is the government prohibited from levying confiscatory taxes, that is, taxes having very high rates which are similar to expropriating acts? I. The right to own property and taxation: a paradoxical relationship In its Discourse on Political Economy (1755), J.J. ROUSSEAU asserted: “It is certain that the right of property is the most sacred of all the rights of citizenship, and even more important in some respects than liberty itself; (…) property is the true foundation of civil society, and the real guarantee of the undertakings of citizens (…). On the other hand, it is no less certain that the maintenance of the State and the government involves costs and outgoings; and as everyone who agrees to the end must acquiesce in the means, it follows that the members of a society ought to contribute from their property to its support. Besides, it is difficult to secure the property of individuals on one side, without attacking it on another; and it is impossible that all the regulations which govern the order of succession, will, contracts, etc. should not lay individuals under some constraint as to the disposition of their goods, and should not consequently restrict the right of property”. One of the essential purposes of the state is to safeguard all citizens’ own properties. In order to perform its tasks, the government is entitled to limit everyone’s property rights. So, the reasoning apparently shows contradictory features355. There is nevertheless a kind of challenge, consisting of partially limiting the property rights in order to protect them. It goes without saying that such a challenge would certainly fail if the government were able to tax in an unlimited way: the right to own property would be meaningless as a result. Taxation power may only be justified if the abovementioned apparent contradiction is theoretically resolved. ROUSSEAU summarizes this critical philosophical issue as such: “This cruel alternative of letting the State perish, or of violating the sacred right of property, which is its support, constitutes the great difficulty of just and prudent economy”. The First Protocol additional to the Convention illustrates the tension between the right to own property and the state’s power to tax for the Protection of Human Rights and Fundamental Freedoms (ECHR)356. In order to consider taxation as a legitimate violation of the right to property, it has been suggested that taxpayers (indirectly) consent to taxes due and collected (Locke’s theory for instance). The so-called principle of legality materializes the rule of law. In particular, the enactment of tax laws by the taxpayers’ representatives (elected in parliament) substantially contributes to establish a kind of balance between

355 DE CROUY CHANEL, E., «La citoyenneté fiscale», in GUTMANN, D., (ed.), L’impôt, cited above, 44-46. See also, among others, H. GRIBNAU, « General Introduction », G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, (1-33) 1 : “Modern life seems to be impossible without taxation. Taxes make a decent existence in human society possible. But at the same time, they are an infringement upon a person’s freedom. Without taxes, states – which make peace and security possible, and protect the property of the citizens – cannot exist. Although the levying of taxes is in the public and individual interest, it hinders the use of a person’s property. No real freedom without taxes exists, but taxes are themselves an encroachment upon the liberty of the citizens”. 356 “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties”. This provision will be further examined under Part III of the present research (‘the concept of tax in treaty law’).

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potentially contradictory values. As a matter of principle, no one could be obliged to do or to pay something without previously expressed individual consent: the so-called ‘freedom of minds’ rule has a fundamental role in private law357. Both essential structural aspects of the concept of tax, that is its compulsory character and the lack of individual return for the payment, depart from the ‘freedom of minds’ principle, and thus from the principals of personal freedom and property inviolability358. Therefore, modern constitutions provide for guarantees or protections for taxpayers against arbitrary government interferences (f.i. the principle of legality commented under subsection 1.3.d. ; the principle of equality has already been examined under 1.3.a;). Excessive taxes may substantially breach the aforementioned balance by affecting the core or essence of the right to own property. It is suggested by scholars that taxes of an excess level turn the levy into prohibited confiscation. Very high levies would lose their tax justification and legitimacy and would thus be treated as direct violation of the right to own property, which is constitutionally safeguarded. This interpretation, however, is subject to discussion and is not necessarily admitted as such by all national courts of the countries under review. II. Expropriation vs. taxation: two distinct concepts Usually, the right to own property is mentioned in the national constitutions in relation to the government’s expropriation power.

According to art. 17 of the Universal Declaration of Human Rights359, (1) Everyone has the right to own property alone as well as in association with others; (2) No one shall be arbitrarily deprived of his property. We have already mentioned above the art. 1 of the First Protocol additional to the ECHR. It is applicable in most European countries and, subject to national mechanisms of implementation of international law, is legally-binding on the government. The right to own property is formulated in a positive way in many constitutions. According to §73(1) of the Danish Constitution, “The right of property shall be inviolable”. In France, the right to property is formally mentioned in the Declaration of 1789360 and is described as a natural human right that cannot be lost through prescription (art. 2 and 17). It also constitutes Republican custom, i.e. constant legislation, as evidenced in art. 544 of the French civil code361. Also art. 17 of the Greek Constitution, art. 40 (3.2.) and 43 of the Irish Constitution and art. 42 of the Italian Constitution provide that private ownership must be guaranteed by the law. Legal arrangements may limit this right to property so as to ensure its social function and render it accessible to all. In addition to this positive declaration of the right of property, the preceding constitutions generally provide for expropriation362 with a full right to compensation363. Unlike the fundamental rights discussed above, in the case of the right to property the essence does not lay in (procedural) safeguards against its violation, but in the right to compensation if the right needs to be violated364

357 Art. 1134 of the French civil code. 358 B. PEETERS, “De begrippen belasting, last en retributie in de artikelen 110 en 113 van de Grondwet”, in Rechtskundig Weekblad, 1987-1988, (241-250) 241-242. 359 As a rule, the 1948 Declaration is not legally-binding for the Member countries. It assumes only a kind of recommendation value within the legal systems concerned. 360 For the legal value in France of the “Declaration” and comments about the so-called ‘bloc de constitutionnalité’, see above under part. 1.3.a. 361 G. RUTH SUCHY, personal contribution to the EATLP WG. See also L. FAVOREU (coord.), Droit constitutionnel, cited above, 834-837. 362 In Italy, the aforementioned art. 42 is completed by art. 43 concerning essential public services, energy resources or monopoly situations (being of a significant public interest) and 44 (legal basis for land reforms). 363 As regards expropriation, the Danish Constitution contains some interesting and original provisions. According to art. 73(2), “Where a Bill has been passed relating to the expropriation of property, one-third of the members of the Folketing may, within three weekdays from the final passing of such Bill, demand that it shall not be presented for the Royal Assent until new elections to the Folketing have been held and the Bill has again been passed by the Folketing assembling thereafter”. This shows the fundamental importance of the right to property in the constitutional framework. 364 See L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 166-167.

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Some constitutions do not provide for a general positive protection of private property as such. They limit themselves to deal with expropriation and to determine the general requirements the national authorities must comply with in order to legitimately expropriate. The right to own property is thus formulated in a negative way. This is the situation in the constitutions of Belgium (art. 16), Luxembourg (art. 16) and The Netherlands (art. 14). The validity of government’s expropriations depends on compliance with three general conditions: 1) expropriation may take place only in the public interest; 2) expropriation is legitimate if it is realised in the cases and in the way provided for by an act of parliament; 3) prior full compensation is required from the state. It is usually up to legislators to develop these conditions and to determine the necessary procedures leading to it. Expropriation is any compulsory transfer (dispossession) of property as a result of the related decision taken by the competent authorities. It must be clearly distinguished from all kinds of limitations to the full enjoyment of one’s right to own property. Indeed, these limitations do not imply any formal loss of one’s right to property and are not expropriations in the strict sense of the term. In practice, the distinction between an act of expropriation on the one hand and a restriction of the exercise of one’s right of ownership on the other hand is not clear and interpretation by the courts is often required. As a rule, the concept of expropriation does not include situations of (partial) confiscation related to punishable offences or imposition of taxes. In the countries under review, it is generally asserted that expropriation on the one hand, and taxation on the other hand, are two distinct issues that must be treated and analyzed separately. However, a comparison between the two concepts is conceivable, and even suggested. Both institutions assume a compulsorily character; taxes are paid without compensation, while legitimate expropriations entail a right to (full) compensation to the benefit of the expropriated citizens. In the constitutional texts, the power to tax is never expressly formulated or presented as an exception to the compensating safeguards with respect to the power to expropriate. It seems to be just a different problem. III. Prohibition on confiscatory taxes a. In principle, governments are free to determine the level of the taxes they levy. It is very unusual to find explicit constitutional provisions fixing some quantitative limits on the amount of taxation that may legitimately be collected (f.i. under the form of a maximum percentage). Nevertheless, the Spanish Constitution (art. 31) declares that the system of taxation shall in no case be confiscatory in character365. Subject to interpretation of the term ‘confiscatory’, this provision may be considered as an explicit protection against excessive taxes. In addition, some more indirect limiting provisions may be found in other constitutions. For instance, the German Basic Law, art. 106, relating to apportionment of the tax revenue between the central and the federal and local entities, provides that the requirements of the federation and of the Länder in respect of budget coverage shall be coordinated in such a way that overburdening of taxpayers is precluded366. In most cases, however, any prohibition of excessive taxes is normally based on non-tax provisions, especially those relating to fundamental rights. In particular, the right to property plays an important part in limiting confiscatory taxes. Also, other considerations may be relied upon in order to limit the tax law making power in this way: for example, the principles of ability to pay (see above under 1.3.a. and below under 1.3.d.), protection of a minimum of existence (see above under 1.3.a.), and the freedom to choose one’s occupation or to exercise an activity or a business (excessive tax may be interpreted as preventing this freedom from being effective367). These doctrines368 have presented the question as to whether the potential social function assigned to the property, in some constitutions, could be invoked in order to give taxpayers a protection against excessive or confiscatory taxes. The answer seems to be negative in the countries under review.

365 See J.M. QUERALT, C.S. SERRANO, G.C. OLLERO, J.M.T. LOPEZ, Curso de derecho financiero y tributario, cited above, 112-113. Tribunal Constitucional, STC, 27/1981 ; 150/1990 ; 14/1998 ; 233/1999. 366 However, this rule essentially deals with a classical problem within federal state structures, that is preventing double taxation situations from appearing as a result of the distribution of the tax law making power between the centralized and decentralized authorities. 367 Among others, see K. TIPKE, Die Steuerrechtsordnung, cited above, 431-436. See, for instance, art. 45.3 of the Irish Constitution, art. 41 of the Italian Constitution or art. 38 of the Spanish Constitution. 368 K. TIPKE, “El derecho tributario constitucional en Europa”, cited above, 24.

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b. Courts’ decisions relying upon the right to own property in tax matters may be found in many countries under review369, with the number of decisions varying from one legal system to another. b.1. In Germany, the prohibition on excessive taxation is implemented by the Constitutional Court as a kind of principle of proportionality370 directly derived, in tax matters, from the principle of the Rule of Law and from the fundamental rights provided for in art. 12 (right to choose one’s occupation) and 14 (right to property). The German Bundesverfassungsgericht has founded on the latter provisions a general prohibition on confiscatory taxes (Erdrosselungssteuer371)372. Interestingly, unlike the situation in other countries, the best way to combine the fundamental right to property with taxation has been much discussed by German scholars. It gave rise in 1995 to important rulings from the Constitutional Court (BverfG decisions of June 22, 1995, 93, 121 and 165). The first case dealt with taxation on the assessed value in net-wealth tax. According to the judges, the over-all tax burden due to taxation of the acquired assets, the inventory of assets and the use of assets must be synchronized by the legislator in such a way that a consistent encumbrance is guaranteed and an excessive burden is avoided. One of the fundamental bases of the decisions is the right to own property in art. 14 of the Basic Law. The German Court has opted for a global (ganzheitlich) approach to taxation and developed a principle of half sharing (Halbteilungsgrundsatz) of the use connected to properties373. The case law results in an original interpretation of art. 14.2 of the Constitution: (2) Property entails obligations. Its use shall also serve the public good. The word ‘also’ is an inadequate translation of the German word ‘zugleich”. The gleich expression introduces an equivalence nuance in the constitutional provision, entailing the half sharing that considerably restricts the freedom of decision of the legislator with respect to taxation. So, to summarize what proceeds, confiscatory taxation is prohibited in Germany; further, the tax might take no more than 50 % of the income from property, when combined with other taxes. The great issue illustrated by the German Court’s rulings is the conflict between judicial restraint and judicial activism. We should note that the aforementioned case law has been developed by the second section (Senat II) of the Bundesverfassungsgericht ; the first section (Senat I) seems to remain attached to a more self-restrained position. Clearly, what is important is the fact that the legislator has imposed limits, subject to courts’ review, of the total burden of taxes it may collect from the taxpayers. The Halbteilungsgrundsatz rule has been criticized by some authors374. It goes obviously further than only prohibiting confiscatory taxation (Erdrosselungssteuer), Which would include ‘shocking’ tax levies, that is to say all taxes the level of which is so high to create an expropriation (without compensation) in the strict sense. This is not the case of a tax burden just above 50 %. According to a more classical approach, the principle of proportionality used in this context should and could only impose a marginal limitation on the taxing power of governments.

369 For instance, in Ireland, see Daly v. Revenue Commissioners, (1995) 3, Irish Reports, 1 (High Court, July 27, 1995) ; Brennan v. Attorney General, (1984), Irish Law Reports Monthly 355. Both decisions are cited by V. THURONYI, Comparative Tax Law, cited above, 98-99. See again K. CORRIGAN, Revenue Law, 2000, 84-100. 370 J. LANG, K. TIPKE, Steuerrecht, cited above, 117-121. See also G. ROSE, “Zur Quantifizierung des verfassungsrechtlichen Verhältnismässigkeitsgebots im Steuerrecht”, in Der Betrieb Zeitschrift, 2000, 993 ; K. TIPKE, Die Steuerrechtsordnung, cited above, 205-207 (formal aspects of the principle of proportionality) and 417-468 (substantial aspects of the principle of proportionality). 371 In German, the word ‘erdrosseln’ means ‘to strangle’ in English. 372 K. TIPKE, Die Steuerrechtsordnung, cited above, 417-468 (for the evolution of the case law of the German Constitutional Court). See also, M. JACHMANN, “Sozialstaatliche Steuergesetzgebung im Spannungsverhältnis zwischen Gleichheit und Freiheit : Belastungsgrenzen im Steuersystem”, in Steuer und Wirtschaft Zeitschrift, 1996, (97) 100. The decision BverfGE 87, 169, formulates the prohibition as follows : “Steuergesetze sind in ihrer Freiheitsbeschränkenden Wirkung jedenfalls an Art. 2 Abs.1 GG zu messen. Dabei ist indes zu berücksichtigen, das Steuergesetze in die allgemeine Handlungsfreiheit gerade in deren Ausprägung als persönliche Entfaltung im Vermögensrechtlichen und im beruflichen Bereich (Art. 14 Abs. 1, Art. 12 Abs. 1 GG) eingreifen. Dies bedeutet, das ein Steuergesetz keine ‘erdrosselnde’ Wirkung haben darf : Das geschütze Freiheitsrecht darf nur so weit beschränkt werden, das dem Grundrechtsträger (Steuerpflichtigen) ein Kernbestand des Erfolges eigener Betätigung im Wirtschaftlichen Bereich in Gestalt der grundsätzlichen Privatnützlichkeit des Erworbenen und der grundsätzlichen Verfügungsbefügnis über die geschaffenen vermögenswerten Rechtspositionen erhalten bleibt”. 373 “Die Vermögensteuer darf zu den übrigen Steuern auf den Ertrag nur hinzutreten, soweit die steuerliche Gesamtbelastung des Sollertrages bei typisierender Betrachtung von Einahmen, abziehbaren Aufwendungen und sonstigen Entlastungen in der Nähe einer hälftigen Teilung zwischen privater und öffentlicher Hand verbleibt”. This case law was very influenced by Prof. P. KIRCHHOF’s view, as a result of its role as a judge in the Constitutional Court. 374 J. LANG, K. TIPKE, Steuerrecht, cited above, 119-121, with references to critical literature. The authors emphasize that the Constitutional Court has reached the highest level of what we can call judicial activism.

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As was already emphasized with respect to the German ability-to-pay case law, the question arises as to whether judges are entitled to restrict in this way the legislator’s room for manoeuvre. Is it the appropriate role of the courts? We know for instance that, according to the Court, art. 2(1)375 of the Basic Law, read together with art. 14 (property), the law protects a “basic core of the fruits of one’s own labour in the economic sector” in such a way that the personal minimum existence level must stay free of burden376. This is an important substantial restriction to the legislator’s freedom (see above, under 1.3.a.). Once again (cf. ability-to-pay under subsection 1.3.a.), the judicial activism in Germany is interesting and impressive. What about other countries377? b.2. In France378, the Conseil constitutionnel has often accepted to hear grievances based on the claim of unwarranted infringement of the right to property by taxes. In particular, it has been held that tax on wealth (impôt sur la fortune) should be payable on the income normally generated by property379. Therefore, if the right to use and enjoy income (usufruit) is split from the right to the capital (nue-propriété), the owner of the sole nue-propriété could not be held liable for wealth tax380. More generally, the Constitutional Council is often required to rule on complaints founded on the confiscatory character of some taxes. The reasons for often dismissing the appeals are not clear. The Court usually limits itself to state that the levy is not of a confiscatory nature without developing further its view. As a rule, the principle of proportionality is not applied; indeed, it is limited to penal matters and taxes are not considered a punishment381. b.3. In Italy382, protection of property and taxes are considered as different matters. The duty to pay taxes is justified by the principle of solidarity, and not as an expropriation of private property. According to scholars, the two institutes should not be mixed up, dealing with different aims and framework. Confiscatory or too excessive taxation won’t normally be treated as an unconstitutional expropriation (because of lack of compensation), nor as a direct violation of the right to property. The limit to excessive taxation has to be treated as a way of complying with the specific tax principle of ability-to-pay directly formulated in the Constitution (art. 53)383 (see below subsection 1.3.d.). However, most scholars hold that even if there hadn’t been art. 53, the taxpayer’s guarantee against excessive taxation would still exist as a consequence of other general constitutional principles such as the solidarity and equality standards384. b.4. In Belgium, the Constitutional Court is now developing a case law in the area of death duties. In the Belgian federalized state, the inheritance tax has been transferred to the regions. As a result, regional governments have introduced their own rules with respect to this tax. Among others, tax scales have been substantially reformed. Rates typically differ depending on the relation between the deceased and the beneficiary. In the Brussels Region, the legislator has included into the scale a rate of 80 % for inheritance transfers outside the family (between persons not having family link). The Cour d’arbitrage has ruled that such a high level of tax is not disproportionate with respect to relationships between persons not belonging to the same family385. Another case is now pending before the same Court. It regards the tax inheritance reform recently voted in the Walloon Region. According to this regional legislation, death transfers outside the family sphere may be subject, according to the amount, to a tax rate of 90 %. It is notably asked to the

375 “Every person shall have the right to free development of his personality insofar as he does not violate the rights of others or offend against the constitutional order or the moral law”. 376 BverfGe 87, 153. The protected amount must be determined on the basis of amounts payable under the welfare laws. 377 The Irish case law has been briefly mentioned in a preceding footnote. 378 G. RUTH SUCHY, personal contribution to the eatlp WG. 379 Conseil constitutionnel, decision of December 30, 1981, n° 81-133 DC. 380 Conseil constitutionnel, decision of December 29, 1998, n° 98-405 DC. 381 Interestingly, the Constitutional Court has relied upon the right of property to impose some budgetary allocation measures to the government. Indeed, it has found that the use of voluntary contributions from individuals to a specific government action for other purposes might hurt the individual’s right of property (Conseil constitutionnel, Decision of July 25, 2001, n° 2001-448 DC - G. RUTH SUCHY, personal contribution to the eatlp WG). However, this reasoning has not yet been tested in matters of statutory contributions. As a matter of principle, the Constitutional Council does not accept good faith or trust as an argument to limit the power of the legislator. Further, the case law accepts quite easily levies on local or specialized budgets. In our view, as tempting as it might be, it is not very likely that any such argument would prosper, be it through the bias of property. 382 C. SACCHETTO, M. BARASSI, personal contribution to the eatlp WG. 383 Art. 53 of the Italian Constitution is considered as the principle providing for the division of public expenditure among the members of the community. 384 L. DEL FEDERICO, personal contribution to the eatlp WG. 385 Cour d’arbitrage, April 28, 2004, n° 66/2004.

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Court whether such tax rate does not imply expropriation and, as a result of the lack of compensation, violation of the right to property. We do not know whether the Court will reiterate its case law with respect to the Brussels 80% tax rate. Maybe it will be impressed by the exceptionally exorbitant tariff. Anyway, a discussion has arisen about the potential treatment of such a situation as an expropriation one. For some scholars, there is no admissible expropriation characterization in the area of inheritance taxes. The deceased is no longer owner as a result of his death ; he may not thus be considered as expropriated. Heirs are not yet completely owners, and may not as well be expropriated. The object of taxation would therefore be situated in a kind of transition legal sphere (transfer) for which the protection of property (expropriation clause) would not apply. As a consequence of this opinion, an inheritance tax could never be considered as an act of expropriation. Such an interpretation is controversial and we do not adhere to it. b.5. The Luxembourg386 case law also tends to consider expropriation and taxation as being two distinct issues. Even though scholars declare that taxes should not be so high as to become expropriative (art. 16 of the Constitution), the Constitutional Court387 has ruled that this provision is not applicable to tax matters which create a burden on the total net assets of the taxpayer. Art. 16 only deals with the prohibition of expropriation without compensation of individual assets388. b.6. According to M. DAHLBERG, as a member of the working group, in Sweden, the generally accepted view seems interestingly to be that the Constitution cannot protect against what might be perceived as excessive taxation. As a consequence, the Swedish system stands at the opposite extreme of, for instance, the German system to this regard. c. In conclusion, the following proposals may be suggested: - It should be noticed that no potentially applicable prohibition on excessive taxes has ever prevented governments from imposing progressive taxes389. - In many countries, legal rules have been introduced, dealing with the upper limit with respect to the combination of various taxes (in particular, income tax and wealth tax); this kind of restriction generally consists of a legally binding formal percentage. Such limitations are of a statutory nature, not constitutional. - Where an anti-confiscation rule formally exists, practical problems frequently arise with respect to taxation. The confiscatory character of the tax system usually doesn’t result from one isolated tax, but from a combination of various taxes. The question arises as to which taxes should be taken into account in this grouping approach. Furthermore, when confiscatory features are identified, which tax within the group should actually be reduced in order to make the combination more acceptable? - Protection against confiscatory taxation appears to be less useful as globalization develops and produces an environment of tax competition between states or between local entities within states. The result seems to be a decrease in the tax pressure in all countries, not in an homogeneous way for all tax bases though (work income vs. capital income){?} Moreover, as a matter of fact, taxation, more than all other kinds of government levies, obviously affects the right to own property. Such assertion has to do with the traditional attributes of the concept of tax. Its compulsory characteristic entails the absence of prior (direct or indirect) consent of the owner for the money he pays to the government. Moreover, the lack of individual return for the levy reinforces its restricting aspect in relation to the fundamental right of property. Unlike the compensating legal system with respect to expropriation, taxation breaches the right of peaceful ownership without any compensation. As regards the other types of levies (fees, social contributions, prices), these restricting characteristics do not appear with the same intensity. Either the compulsory aspect is less marked (f.i. fees for freely-requested public service),

386 A. STEICHEN, personal contribution to the eatlp WG. 387 Cour constitutionnelle luxembourgeoise, December 8, 2000, n° 10/00 (as regards the income tax). From the reasoning of the Court it may be inferred that the same conclusion applies to any taxes levied in Luxembourg. A. STEICHEN, personal contribution to the eatlp WG. 388 Compare with G. FRANSONI, personal contribution to the eatlp WG, Memorandum : expropriations are aimed at the wealth of a single member of the community, while taxes necessarily involve the (decrease of) the wealth of many members (otherwise there would be no sharing of the relevant cost). 389 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 23.

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or direct compensation is given by the government (f.i. social allowances in relation to prepaid social contributions). All these considerations allow us to state that the concept of tax is, from a conceptual viewpoint, at the opposite extreme of the right to property. That clearly justifies why coexistence seems to be so difficult, at least from a theoretical point of view. - Finally, it must be emphasized that the prohibition on confiscatory taxation is noticeably dependant on the way the concept of tax is defined, especially as regards its functional aspect. If the purpose of the tax is not exclusively to bring money to the Treasury, but also to influence the taxpayers’ behaviours (economic or social functions of the tax - Lenkungssteuern), very high tax rates could be constitutionally permitted. For instance, where the legislator applies the environment polluter-payer principle and collects therefore a green tax of 80 % on certain polluting activities, could such a tax law fall into the scope of the prohibition of confiscatory tax rule? It is not clear as the main objective of the tax is not to collect money, though to make taxpayers change their activities. An 80 % rate in this context is less shocking than an 80 % levy the purpose of which would only be to provide the government with financial means.

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1.3.c. Tax competence (power of setting taxes): at a central or decentralised level (distinction between unitary and federal countries; possibility of a different concept of tax between the central and the decentralised level). It is not the purpose here to deal extensively with the division of taxing powers in the several eatlp countries. Fiscal federalism is a very complex issue and a comparative study of all relevant aspects of this phenomenon would certainly require a great deal of theoretical developments, and then a whole book390.

In this subsection, the question is to explain if, and if yes, why there exists a relationship between the interest of defining the concept of tax and the way the tax power is divided within the countries under review. The answer to the first question is clearly positive : it may be even suggested that the concept of tax topic is a key issue in countries where the tax competence is decentralized.

The following questions will be examined in order to better understand the aforementioned relationship:

- Is the tax law making power decentralized in the countries under review ; what are the main features and consequences of potentially tax decentralized state structures ?

- Is there a different concept of tax between the central and the decentralized levels of government ?

- In federal (or rather decentralized) countries, what is the relation between the tax competence and the so-called substantial (regulatory) competences at the federal and decentralized levels ? Is the tax power considered as an autonomous one or is it substantially connected to other kinds of government responsibilities (social policy, economic policy, environmental policy, …) ? Could the taxing power be used to legislate or regulate in areas where the taxing authority might not otherwise have the power to do so ? In other words, could the taxing authority disguise regulatory measures as taxes, including in areas for which it has no substantial responsibilities ? Is the power to regulate a subject matter necessarily connected to the spending power implemented in the same matter ?

- In federal (or rather decentralized) countries, does the distribution of the tax law making power differ from the way the power on other types of financial resources (fees, contributions, prices, fines, …) is distributed among the various levels of government ? In particular, does the power to levy ‘fees’ (with or without a fiscal nature) necessarily follow the matter to which it relates (environment, health, energy, roads and transports, education, …) ?

- Finally, does the Constitution contain a guarantee for an economic and monetary union ? Does this guarantee specifically limit the taxing power of the governments at the decentralized levels ? More generally, does it influence the way the financial arrangements are drafted within the whole country, including its different parts ?

As clearly announced above, these questions will be commented by way of punctual illustrations, without aiming at being here exhaustive. Discussion during the eatlp Congress is welcome.

I. Centralized vs. decentralized countries (from a tax viewpoint) a. The question arises as to whether, from a tax point of view, a state is centralized, decentralized, federal, or, at the opposite extreme, a confederation. In many countries, the answer to this question appears to be uncertain. It becomes more and more one of the most controversial issues in the constitutional doctrine391. Usually, a general distinction is made between centralized and federal states :

390 As regards tax aspects of the federalism issue, a general introduction of the most relevant questions may be found in F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 62-70. See also L. MEHL, P. BELTRAME, Techniques, politiques et institutions fiscales comparées, cited above, 508-523 ; V. THURONYI, Comparative Tax Law, cited above, 73-75 (with some developments on the US, the Canadian, and the Swiss systems) ; K. TIPKE, Die Steuerrechtsordnung, Cologne, Verlag Dr. Otto Schmidt, 1° Auflage, Vol.3, 1074-1135. 391 For instance, the current characterization of the Spanish state, as a federal or regionalized country, is seriously subject to discussion among scholars (see f.i. V. RUIZ ALMENDRAL, “Fiscal Federalism in Spain : The Assignment of Taxation Powers to the Autonomous Communities”, European Taxation, 2002, 467-468). In Belgium, while art. 1 of the Constitution expressly states that the Belgian state is a federal one, many legal writers criticize this formal declaration and say that the federal structure is not always reflected in the institutional rules organizing the regional levels of government and distributing the powers.

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- In centralized states, two significant levels of government exist : the central government and the local governments, the latter being usually under the central state’s administrative supervision392 ;

- In federal states, in addition to the central and local levels of government, there is a strong intermediate level of government in the form of autonomous or independent regions or states393.

Decentralization of taxation in a country must always be considered under three different aspects :

1) the power to legislate

2) the power to implement the tax394 (administrative authority)

3) the distribution of the revenue raised from the taxes (the right to receive revenues).

All kinds of combinations are conceivable with respect to these three fields of tax autonomy. For instance, the tax law making power may be assigned to one level of government, while implementation of the tax is another government’s responsibility. If an authority is competent to levy and collect a tax, it doesn’t imply that it will completely enjoy the yield of it : indeed, the revenue of the tax imposed by a well-determined government may be totally or partially allocated to another level of government, subject to the constitutional arrangements in force in the federal system.

Is it necessary or desirable to decentralize the tax law making power ? The question won’t be examined here because it goes far beyond the object of the research395.

Make nevertheless notice that all kinds of models are acceptable with respect to distribution of tax powers. In the facts, the federal structure of the state does not necessarily imply a great fiscal autonomy on behalf of the regional and local entities. For instance, nobody could contest that Germany is a federal state. However, the Länder’s power to legislate in tax matters is rather reduced. Thus, it is important to avoid making too easy categorisations in this regard : the constitutional reality is actually very complex and multiform396.

In many states, there exists a serious trend towards decentralization of the traditionally ‘centralized’ original state structure. As regards the power to legislate in tax matters, any decentralization process may occur through three ways, that is three models to make regions or local entities (provinces, municipalities) responsible for legislating in tax matters :

- the regional or local level of government is entitled to create and regulate its own taxes (fiscal autonomy in a pure sense)

- the regional or local level of government has the (potentially exclusive) power to legislate on all aspects of a specific category of tax (f.i. income tax, real estate tax, death duties, …), which had been initially created and regulated at the central level of government (complete derived fiscal autonomy)

- the regional or local level of government has the (potentially exclusive) power to legislate on certain aspects (subject of the tax, tax base, tax rate, tax procedure) of taxes initially created and regulated at the

392 In centralized states, intermediate levels of government can exist, but they were usually politically and fiscally unimportant. In principle, the power to legislate on the most important taxes rested with the central government. Local governments were generally not involved in their implementation or administration. Allocation of revenue to local governments was typically governed by a law on local finance. F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 63 and 68-69. However, local entities were usually entitled to (partially) finance themselves through surcharges on personal or corporate income tax, or through own taxes on real estate or on business activity. An evolution is nevertheless observed in many ‘centralized’ countries becoming more and more, in a progressive manner, decentralized, also from a tax point of view. This evolution has recently characterized The United Kingdom, Spain, Italy, Portugal or France. 393 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 63. 394 One of the characteristic features of the German institutional law is the rather limited legislative powers of the Länder in tax matters (the general rules with respect to the most important taxes are fixed by the central government). The federal aspect of the tax system essentially appears from the distribution of implementation powers : regional tax authorities administer major federal tax laws for the account of the federal Treasury, on the basis of art. 108 of the Basic Law. 395 The two available options for financially organizing a federal state structure are : autonomous power to tax for all decentralized levels of government vs. grants allocated by the central government to the local governments as a way of subsidizing them. It is usually suggested that the equivalence between taxing power and spending power is an indicator of the true degree of autonomy of local governments. F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 64-65. 396 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 63.

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central level of government397 ; in this case, the other elements of the tax remain under the tax sovereignty of the central government (partial derived fiscal autonomy).

b. What about European countries with respect to fiscal federalism ? As a first remark, we can observe a serious tendency in many of them towards the constitution of a federal (or strongly regionalized) state. Former centralized states are reinforcing more and more the so-called intermediate level of government : communities and regions in Belgium, autonomous communities in Spain, regions in Italy. Conversely, certain countries are less sensitive to the charm of this general decentralization tendency : we think about, for instance, the Netherlands, Sweden or Denmark.

b.1. Germany In Germany398, if one superficially reads art. 105 of the Basic law, one’s impression is that a great part of the tax law making power is theoretically shared between the Federal Government and the states governments. It was indeed the original aim of the Basic Law to provide for a large degree of autonomy for both main levels of government (Federation and Länder)399. The Constitutional arrangement implies a three-way split of powers between the Federation and the Länder : exclusive powers of the Federation, exclusive powers of the Länder and concurrent powers. It thus gives the first impression that the tax law making power is rather equally shared between the various levels of government. In practice, the first two categories of powers are of virtually no significance : all financially interesting fiscal matters fall into the third category400 (concurrent powers). As a result, parallelism of powers is limited by virtue of art. 72.2. of the Constitution stating that the state governments lose their lawmaking power when the Federal Government has legislated in a tax area. The Federation may legitimately legislate in order to maintain legal and economic unity, and especially the maintenance of uniformity of living conditions beyond the territory of a Land. Furthermore, the Federal government is given the power to legislate on all taxes, the revenue from which accrues to it. For the most important taxes, the law is therefore made at the federal level401 (f.i. personal and corporate income tax). The predominant position402 of the Federal Government with respect to tax legislation is balanced in the system by the important role played by Länder in the tax implementation process : indeed, taxes are mainly403 administrated at the Länder level of government (art. 108 of the Basic Law)404. Finally, apportionment of tax revenue among the various entities is dealt with in art. 106 and 107 of the Basic Law : the revenue deriving from the main taxes (f.i. personal income tax, corporate income tax, VAT) is normally allocated partly to the

397 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 63 and 65-66 : “In many cases, full legislative power for all elements of a tax is not vested in one particular level of government, but distributed over several levels of government. This is often the case when the revenue raised from a particular tax is shared by two or more levels of government. The most frequent model is one in which the central government retains control over the determination of the subjects of taxation, the tax base, and the procedural rules, but the power to fix rates is shared with other levels of government (…). In some cases, besides the power to set the rates, part of the legislative power with respect to the tax base also belongs to regional or local governments”. 398 J. LANG, K. TIPKE, Steuerrecht, cited above, 50-60, §3, Rz. 28-62 ; K. VOGEL, “Grundzüge des Finanzrechts des Grundgesetzes, ISENSEE, KIRCHHOF, Handbuch des Staatsrecht, Heidelberg, 1990, IV, 3 ; K. TIPKE, Die Steuerrechtsordnung, Cologne, Verlag Dr. Otto Schmidt, 1° Auflage, Vol.3, 1082 ; H.G. HENNEKE, Öffentliches Finanzwesen, Finanzverfassung, Eine Systematische Darstellung, Heidelberg, 2000. See also L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 2004, 344-346 ; D. BIRK, “La ripartizione della sovranità impositiva nello Stato federale : l’esempio della Repubblica Federale di Germania”, in A. DI PIETRO (ed.), Le Ragioni del diritto tributario in Europa, Proccedings of the Congress organized in Bologna in September 2003, text available on the internet site http://berliri.giuri.unibo.it/ ; J. WOELK, “La Germania. Il difficile equilibrio tra unitarietà, solidarietà e (maggiore) competizione”, in V. ATRIPALDI, R. BIFULCO, (ed.), Federalismi fiscali e costituzioni, Turin, G. Giappichelli Editore, 2001, 187-213 ; P. CATTOIR, Fédéralisme et solidarité financière. Etude comparative de six pays, Bruxelles, Editions du CRISP, 1998, 59-89. 399 Art. 104a(1) states that “The Federation and the Länder shall separately meet the expenditure resulting from the discharge of their respective tasks insofar as this Basic Law does not provide otherwise.”. 400 L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 2004, 345. 401 According to art. 105(2) of the Basic Law, “The Federation shall have concurrent power to legislate on all other taxes the revenue from which accrues to it wholly or in part or where the conditions provided for in paragraph (2) of Article 72 apply”. By virtue of art. 72(2), “ The Federation shall have the right to legislate on these matters if and to the extent that the establishment of equal living conditions throughout the federal territory or the maintenance of legal or economic unity renders federal regulation necessary in the national interest”. 402 Make notice that according to art. 105(3) of the German Basic Law, “Federal laws relating to taxes the yield of which accrues in whole or in part to the Länder or the communities (community associations) require the consent of the Bundesrat”. The Bundesrat is the parliamentary body representing, at the federal level, the Länder governments. 403 Exceptions are nevertheless provided for : see art. 108 of the Basic Law. 404 J. LANG, K. TIPKE, Steuerrecht, cited above, 59-60, §3, Rz. 60-62.

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federation and partly to the Länder405. All these provisions (title X of the Basic Law) set up what is called the financial Constitution of the German federal State (Finanzverfassung). The current financial arrangement with respect to fiscal federalism has been the subject of debate for a number of years in Germany. It is frequently suggested to reform the whole system and notably to redistribute powers to levy taxes. The relevant concept of tax, dealt with in these provisions, is the strict one, which is called Steuer in German law406. The other types of taxes, that is the other categories of Abgaben, fall outside the scope of the so-called Finanzverfassung (art. 105 and followings). As the scope of the Finanzverfassung is so limited to a strictly-defined concept of tax (Steuer), it is suggested, and even required, that this concept be clearly defined and distinguished from other types of Abgaben. This definition must be a constitutional one, that is to say the concept of tax must be defined from the specifically constitutional viewpoint. As seen under section 1.2. above, the German Basic Law does not define the notion of Steuer. This gives rise to interpretation problems with respect to separation of this concept with those of Gebühren and Beiträge (and also the so-called Sondernabgaben). What must be especially emphasized is the fact that the scope of articles 105, 106, 107 and 108 cannot be identified without a clear definition of the concept of Steuer. The concept of tax-Steuer is defined in §3 of the Abgabenordnung 1977 (AO). This definition is of a statutory nature and may not be considered as the absolute reference : as a rule, the constitutional concept of tax is an autonomous one and should be interpreted in an autonomous way. However, according to old rulings of the Federal Constitutional Court, the constitutional concept of Steuer must be characterized on the basis of the formal definition provided for in §1 of the Reichsabgabenordnung 1919 (RAO). Compliance of the latter statutory definition with the Constitution was nevertheless questioned, especially with respect to the so-called Lenkungssteuer (taxes the purpose of which is not exclusively to bring money to the Treasury, but also to influence the taxpayers’ behaviours or activities). The concept of tax-Steuer in the RAO 1919 only referred to the ‘fiscal’ purpose (financial aim) and did not mention all other potential functions of taxation. Did it mean that a levy pursuing other objectives than the financial ones could not be treated as tax from a financial point of view ? Or, on the other hand, was it indicated to suggest a kind of discrepancy between the statutory definition in the RAO and the appropriate constitutional view to the concept407. The second alternative seems to have been preferred. Indeed, the Steuer-definition was amended in 1977 (§3 of the Abgabenordnung AO) and now effectively takes account of the potential non-financial objectives that may be pursued by taxation408.

b.2. Spain409

The current Spanish State is known as the State of autonomous communities (Estado de las Autonomias)

410. Asymmetric411 features characterize the Spanish institutional system412, what makes its study particularly

405 One of the characteristic features of the German system lies in the sophisticated mechanisms of equalization provided for by the Constitution and by statutory laws. Complex rules deal with vertical and horizontal (re)distribution of the tax revenue among the various levels of government, all of them aiming at balancing inequalities (Ausgleich). L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 2004, 345 : “Certain tax revenue accrues solely to the Federation (e.g. customs duties and certain taxes on consumption), while the revenue from certain other taxes accrues solely to the Länder (e.g. property tax and inheritance tax). The financially most relevant tax revenue is that which is divided between the Federation and Länder, in particular the revenue from income tax, corporation tax and turnover tax. (…)”. As regards apportionment of tax revenue among others, the same authors note that “ a Land is entitled to the tax revenue raised on its territory. However, this results in an imbalance in the financial positions of the Länder, so that levelling takes place”. Make notice that the adjustment of the Finance Equalization Law (Finanzausgleichgesetz) in 1993 was subject to review proceedings before the Federal Constitutional Court and gave rise to a Court’s ruling striking down the applied arrangements. Following this decision, the Federal Government adopted the so-called Massstäbegesetz in the summer 2001, reforming the criteria for the apportionment among Länder of the turnover tax as well as determining the criteria for distributing the contributions of the Federation. See, among others, J. LANG, K. TIPKE, Steuerrecht, cited above, 55-57, §3, Rz. 38-47. 406 J. LANG, K. TIPKE, Steuerrecht, cited above, 40, §3, Rz. 1. 407 D. BIRK, Steuerrecht, 6° Ed., 2003, 168. 408 §3 of the AO provides that : “Steuern sind Geldleistungen, die nicht eine Gegenleistung für eine besondere Leistung darstellen und von einem öffentlich-rechtlichen Gemeinwesen zur Erzielung von Einnahmen allen auferlegt werden, bei denen der Tatbestand zutrifft, an den das Gesetz die Leistungspflicht knüpft; die Erzielung von Einnahmen kann Nebenzweck sein”. The last sentence was added in 1977 to take account of the various potential functions of taxation, other than the financial one. See J. LANG, K. TIPKE, Steuerrecht, cited above, 44-45, §3, Rz. 9-11. 409 See among others V. RUIZ ALMENDRAL, “Fiscal Federalism in Spain : The Assignment of Taxation Powers to the Autonomous Communities”, European Taxation, 2002, 467-475 ; J.M. QUERALT, C.S. SERRANO, G.C. OLLERO, J.M.T. LOPEZ, Curso de derecho financiero y tributario, cited above, 217-246 and 654-660. 410 L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 2004, 782-788.

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complex. In the following lines, we will restrict ourselves to very briefly and broadly describe the guiding principles of the taxing power distribution system. The assignment of taxation powers to the Autonomous Communities has recently been reformed in a substantial way. An important asymmetric character of the Spanish system lies in the fact that two communities were recognized ‘historic rights’, entailing a much greater level of authority with respect to fiscal matters (Basque Country and Navarra – ‘Foral regime’)413. As regards the other communities (‘common system’), the tendency has progressively been to make the assignment of competences, including tax powers, more homogeneous and to provide therefore the State of Autonomies with more stability. Apart from stating the principle of financial autonomy of the Communities, formerly confirmed by the Spanish Constitutional Court414, the Constitution establishes a list of resources that will constitute the Communities’ income (art. 157) : State taxes transferred totally or partially to them; surcharges on State taxes and other shares in State revenue ; own taxes, rates and special levies ; transfers from an inter-territorial clearing fund and other allocations to be charged to the General State Budget ; revenues accruing from their property and private law income ; the yield from credit operations. It is just a list ; details are provided for by organic (central) laws. Art. 157.3 empowers the state legislator to regulate, through an organic law, the distribution of all these financial resources among the Communities and the limits of the Communities’ financial powers over the resources. As a consequence, a set of laws have been introduced that greatly limit the financial autonomy of the Autonomous Communities. The Autonomous Communities Finance Act especially imposes severe limits on the creation of taxes415. Among them, the prohibition of double taxation416 prevents Communities from introducing taxes that are similar to taxes created by the central state and the municipalities (non bis in idem rule)417. This type of rules is frequent in federal financial systems (see also below for Belgium). It allows us to stress the particular relevance of defining the concept of tax in this context, for applying the rule at issue. Usually, this sort of rules only applies when the two terms of the comparison consist of taxes in the legal sense of the word. The Community is not allowed to levy a ‘tax’ that is similar to an existing state ‘tax’. If one of the two levies dealt with in the comparison process is not actually a tax in the formal aforementioned legal sense (see section 1.2. above), the prohibition rule won’t normally apply : there is double taxation only if there exists at least two “taxes”. Such a non bis in idem rule may justify that certain local entities, in certain countries, are more interested in using other types of levies than taxes for the financing of their activities. By

411 For the reasons of this asymmetric characters, see V. RUIZ ALMENDRAL, “Fiscal Federalism in Spain : The Assignment of Taxation Powers to the Autonomous Communities”, cited above, 468-469. It explains the key role played by political agreements in the system. 412 The Spanish Constitution has not established one devolution model for the whole, but instead a procedural framework allowing an optional autonomy system to be created. Freedom is the rule as regards creation of the ‘Communities’ (art. 143.1 of the Constitution). The Constitution does not actually assign authority to Communities, but offers them the possibility of assuming jurisdiction over a group of matters listed in the Constitution (art. 148 and 149 of the Constitution). According art. 149.3 of the Constitution, “Matters not expressly assigned to the State by virtue of the present Constitution may fall under the jurisdiction of the Autonomous Communities by virtue of their respective Statutes. Matters for which jurisdiction has not been assumed by the Statutes of Autonomy shall fall within the jurisdiction of the State, whose laws shall prevail, in case of conflict, over those of the Autonomous Communities regarding all matters over which exclusive jurisdiction has not been conferred upon the latter. State law shall, in all cases, be supplementary to that of the Autonomous Communities”. One relevant feature of the Constitutional design of the state is the strong role that the state plays in the distribution of authority (V. RUIZ ALMENDRAL, “Fiscal Federalism in Spain : The Assignment of Taxation Powers to the Autonomous Communities”, cited above, 468). 413 The Foral regime is characterized by an almost complete decentralization of the revenue responsibilities, and quite important devolution on expenditure responsibilities, including health and education. The majority of the taxes are ceded (impuestos concertados) to the autonomous government, that is responsible for tax administration and has autonomy (with some constraints that were eased in 1997) to set rates and bases. 414 See, for instance, decision 13/1992. 415 V. RUIZ ALMENDRAL, “Fiscal Federalism in Spain : The Assignment of Taxation Powers to the Autonomous Communities”, cited above, 472. 416 J.M. QUERALT, C.S. SERRANO, G.C. OLLERO, J.M.T. LOPEZ, Curso de derecho financiero y tributario, cited above, 225-226, with references to the case law determining the scope of this prohibition. 417 The state and the municipalities had previously established taxes on most of the imaginable sources of revenues, leaving so little tax room for Communities. The few Communities’ own taxes have essentially been green taxes, occupying the rare room that had not been yet used for taxation by the state or by municipalities.

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relying upon the non-tax nature of the levy, they try to escape the prohibition on ‘similar’ tax, even though the levy potentially assumes characteristics analogous to some pre-existent national tax. Anyway, fiscal federalism in Spain may be summarized as follows, as regards the Communities’ tax law making power : although Constitutional provisions guarantee Communities both the power to establish taxes and financial autonomy (art. 156.1), the limits imposed by the (central) institutional legislation have led to a system whereby taxation powers remain mostly in the state’s hands418. Since the beginning of the ‘State of Autonomies’ in Spain, intergovernmental transfers have played a far more important role than own taxes, which has resulted in the Communities’ financial dependence on the state419. In 1997 and 2002, reforms have aimed at giving the Communities more tax powers and thus more financial responsibility. Powers were optionally conferred upon communities to regulate some aspects of taxes originally created and regulated by the state (derived fiscal autonomy – see above for the concept). As a result, subject to option by the Communities, their taxation powers have substantially increased. b.3. Belgium

420

According to art. 1 of the Constitution, Belgium is a federal state. The institutional framework is a very complex one and would require a whole book to be accurately described421. We will limit here to very briefly explain the essential features of the tax law making power distribution between the central state and the federated bodies. The federal structure of Belgium is rather sui generis for the fact that the country has two types of federal areas that are geographically superposed on each other : three sub-entities conceptually based on the population, the culture and the language (Communities422) and three sub-entities built on a territorial basis (Regions423). This plurality of federated entities makes the Belgian system a very asymmetrical one. The Kingdom, the Communities and the Regions share state power in accordance with the principles of exclusivity, autonomy and equality. The division relates to both the formal and the substantive powers of the State. Within their individual territories, each entity (state, communities, regions) has exclusive and autonomous powers for the matters assigned to them by the Constitution and by institutional laws424. What about taxation ? The power to levy (own) taxes is formally granted by the Constitution to the Federation, the Communities, the Regions, the Provincial authorities and the municipalities (art. 170). For technical reasons, which we won’t develop here425, the taxing powers of the Communities cannot be implemented : the financing of this category of federated government is almost exclusively based on state transfers. The amounts of these transfers are determined according to criteria defined and explained in a law

418 V. RUIZ ALMENDRAL, “Fiscal Federalism in Spain : The Assignment of Taxation Powers to the Autonomous Communities”, cited above, 472. 419 V. RUIZ ALMENDRAL, “Fiscal Federalism in Spain : The Assignment of Taxation Powers to the Autonomous Communities”, cited above, 471. 420 M. BOURGEOIS, “L’autonomie fiscale des communautés et des régions après les accords du Lambermont”, in Revue Actualités du Droit (Belgique), 2001, 469-556 ; M. BOURGEOIS, “Fin de législature : le point sur l’autonomie fiscale des communautés et des régions après les accords du Lambermont”, in Revue de Comptabilité et de Fiscalité Pratiques, 2003, 209-277 ; P. PEETERS, “Fiscale en financiële aspecten van de vijfde Staatshervorming”, in A. ALEN (ed.), De vijfde Staatshervorming van 2001, Bruges, Die Keure, 2002, 205-240 ; E. WILLEMART, “Le financement des communautés et des régions”, in F. DELPEREE (ed.), Les lois spéciales et ordinaire du 13 juillet 2001, Bruxelles, Bruylant, 2002, 211-223. 421 For a general presentation, see L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 2004, 75-126. 422 The Flemish Community, the French Community and the German Community. 423 The Flemish Region, the Walloon Region and the Brussels-Capital Region. 424 In the Belgian system, exclusive powers are the principle. Parallel or concurrent powers are the exception. However, make notice that various institutional techniques are in place to safeguard the coordination and effective operation of the whole and the parts. 425 M. BOURGEOIS, “Fin de législature : le point sur l’autonomie fiscale des communautés et des régions après les accords du Lambermont”, in Revue de Comptabilité et de Fiscalité Pratiques, 2003, 242-244. In particular, taxing Brussels residents on the basis of their language is especially problematical, while there is no formal sub-nationality in Belgium.

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approved with a special – protective for all communities – majority426 (financing law of January 16, 1989, reformed in 1993 and 2001 – Loi spéciale de financement). Besides this technical problem with respect to the Communities’ taxing powers, the power of the Regions to levy their own taxes is subject to another important limitation. According to art. 170 Const., Federal legislation can determine exceptions to the federated governments’ powers in tax matters. As a consequence, the taxing powers of the Belgian Regions has been considerably limited. According to the special financing law of 1989 and an ordinary law of the same year (law of January 23, 1989), the Regions may not levy taxes in areas already subject to a federal tax : double taxation is prohibited and it results in the regional tax giving in before the state tax. As underlined above when describing the Spanish system, this prohibition rule would not prevent a tax levied at the federal level of government from coexisting with a rather similar fee (redevance) introduced at the regional level. This is, as seen above, a good reason to clearly delimit the concepts of tax and fee and to correct artificial and false qualifications, disguising levies in order to escape such radical prohibition rule. Anyway, as a consequence of this double taxation ban, as most of the imaginable sources of revenues are taxed by the Federal Government, little tax room was left for Regions. The few regional taxes introduced in the past years have predominantly had to do with environment (f.i. taxes on water, taxes on rubbish). In Belgium, the Federal Government collects and legislates in respect of most taxes levied and a substantial part of the revenues is remitted to the other levels of government, included the regions (see above for the communities). These federal government transfers have been and still remain the main source of the revenue of the Communities and Regions. They essentially consist of a share of VAT and personal income tax. Some taxing powers have been nevertheless assigned to the regions through the so-called technique of derived fiscal autonomy427. These particular tax prerogatives are organized by the 1989 Financing Law (Loi spéciale de financement). After the 2001 reform428 of the financial arrangements of the Communities and Regions, responsibilities of the Regions in tax matters, and especially derived tax powers, were significantly reinforced. They now enjoy leeway with respect to personal income tax, being entitled to introduce surcharges or to grant rebates. Vis-à-vis a series of taxes initially created and regulated at the federal level of government, the regional governments hold the exclusive power to legislate on their tax base, tax rate and exemptions (f.i. inheritance tax, registration taxes, property tax, tax on gaming and gambling, donation tax, road taxes, etc. : see art. 3 and 4 of the 1989 Financing Law). As a result, there exists a serious tendency towards more tax autonomy for the regional entities, although the process is of an essentially progressive nature. Make notice that the Federation remains exclusively competent with respect to corporation tax and VAT. b.4. France

429

France is a centralized state, the administration of which is nevertheless organized on decentralized and deconcentrated basis. Assuming that centralization means the distribution of taxation powers in space, the characterization of the French system depends on the aspect of taxation in consideration. Tax collection is centralized. The setting of rules on taxation is rather centralized as well even though this depends on the concept of tax used : if parafiscal taxes are included, the system seems to be less centralized. The benefit of taxes is rather not centralized since taxes do not necessarily flow through the general State budget. The loi organique relative aux lois de finances provides that “des impositions de toutes natures” are State budget revenue, meaning a contrario that some of them are not. The French Constitution provides for the principle

426 The statute organizing the financing of the Communities and the Regions is, in constitutional terms, a ‘special law’, that is a law requiring a two-thirds majority in each chamber of the federal parliament and a simple majority in each linguistic group in each chamber. The financial arrangements assume a certain degree of stability and security for the federated entities, the majority required to modify them being high and thus difficult to attain at the federal level of government. 427 As opposed to the concept of original fiscal autonomy, consisting of the power to levy one’s own taxes, which is very limited as seen above. 428 The so-called Lambermont-reform. 429 G. RUTH SUCHY, personal contribution to the eatlp WG. See M. BOUVIER, Les finances locales, Paris, L.G.D.J., 2002 ; J. GROSCLAUDE, P. MARCHESSOU, Droit fiscal général, Paris, Dalloz, 2003, 400-418. In Italian language, see A. D’ALOIA, “Contraddizioni e fragilità della décentralisation : le relazioni finanziarie tra stato e collettività locali in Francia”, in V. ATRIPALDI, R. BIFULCO, (ed.), Federalismi fiscali e costituzioni, Turin, G. Giappichelli Editore, 245-295.

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of free administration of the municipalities and other local or regional authorities (art. 72). However, according to art. 34 of the Constitution, the central legislator has the power to define taxes as well as the fundamental conditions in which local or regional governments are governed and financed. The Constitutional Council has ruled that the local authorities’ fiscal resources (as opposed to subsidies from the national budget) may not be as low as to jeopardize the free administration of municipalities430. The local governments have powers to set the rates of certain taxes that are deemed local revenue, to grant certain general taxation relieves if such a possibility is provided for by a national law and, depending on how taxes are defined, to chose between a tax or a price (fee) to finance certain public services (garbage collection in particular). Such an option requires to be exercised that the two relevant concepts (tax and fee) be clearly defined and distinguished. b.5. Italy

431

The Italian tax system is rather centralized, moving nevertheless towards decentralization, or even federalization. Art. 117(1) of the Constitution, combined with art. 119(2) – introduced after the 2001 constitutional reform – provides that Regions have power to tax and can introduce their own taxes432. The power to tax is shared between State and Regions which have both legislative powers. The State maintains the power to coordinate the two systems : state and regional. The Constitutional Court, in a recent case law, said that the regional power to tax cannot be exercised as long as the State does not provide for the required coordination. At the moment, except regions, the (other) local governments have no taxing power : they cannot set taxes, being only entitled to receive revenues deriving from local taxes imposed by the central government. b.6. The Netherlands

433

From a tax point of view, the Dutch State is very centralized. The most important local taxes, especially on real estate, are essentially regulated in national law. National statutes also regulate the other taxes that provinces and municipalities are allowed to levy, including the basic structure of those taxes. b7. Luxembourg

434

Because of its small size, the state of Luxembourg is not divided into provinces, departments or regions. The only form of territorial decentralization is the division into communes (municipalities). The power to tax is shared between state and municipalities which have both legislative powers. The State maintains the power to coordinate the two systems in so far that the communes may levy any tax they wish subject however to the approval of the levy by the government (via the Grand-Duc). The governmental approval is only required for the introduction of the tax. Once approved, there exists no authority for the government to repeal (force the repeal) of a municipal tax. II. Is there a different concept of tax between the central and the decentralized levels of government ? a. In many countries, the concept of tax is formally defined or developed by the case law. Centralized (federal) courts do generally guarantee a certain degree of uniformity in the case law related to fundamental institutional issues such as fiscal federalism. Common constitutional concepts, the concept of tax being usually one of them, are given an homogeneous construction. This is why, when studying the legal concept of tax, rulings from central high courts are frequently referred to (high constitutional court, high judicial court, high administrative court, high financial court). As a consequence, the way the judicial system is organized

430 Conseil constitutionnel, December 29, 1998, n° 98-405 DC ; December 27, 2002, n° 2002-464 DC. 431 C. SACCHETTO, M. BARASSI, L. DEL FEDERICO, personal contributions to the eatlp WG. 432 Art. 119(2) outlines the financial autonomy of Regions and local governments. It provides that : “Municipalities, provinces, metropolitan cities and regions have autonomous resources. They establish and implement their own taxes and revenues, in harmony with the Constitution and in accordance with the principles of coordination of the public finances and the taxation system. They receive a share of the proceeds of state taxes related to their territory”. 433 S. HEMELS, H. VORDING, personal contribution to the eatlp WG. 434 A. STEICHEN, personal contribution to the eatlp WG.

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within the states under review certainly influences the answer to the question as to whether there exists an homogeneous vs. different concept of tax between the central and the decentralized levels of government. In a federal context, it seems reasonably difficult to admit that different concepts of tax be developed at various levels of government. Such a free, and certainly anarchic, system would undoubtedly give rise to serious conflicts and to legal uncertainty. Institutional chaos could ensue. Indeed, in our view, the rules distributing the various responsibilities among all political entities certainly require a good common definition of - what is a regulatory measure in a large sense ;

- what is a tax ;

- what is a fee ;

- what is a fine or a penalty.

Federalism usually implies different legal systems with respect to

- the distribution of the regulatory power

- the distribution of the taxing power

- the distribution of the fees power ;

- the distribution of the spending power

- the distribution of the sanction or penal power.

As a matter of illustration, assume that local governments are exclusively competent in environment matters and, as a result, they are entitled to regulate this area of the law. Furthermore, institutional rules allow them to levy fees with respect to public services performed in the environment field. Suppose nevertheless that the central government remains exclusively responsible for levying taxes, included environment taxes. The lack of any homogeneous concept of tax at all levels of government could entail many difficulties such as the following ones : - The central government may be tempted to give a large extent to the concept of taxation and to characterize as taxes measures which actually and reasonably look like regulatory measures. This government would be as a consequence opposed the more restrained concept of tax used by local governments. However, the legitimate diversity in the way this concept is viewed at the different levels of government would be a serious obstacle to any (amicable or judicial) solution for this type of conflict. - Conversely, in the abovementioned illustration, the local governments will certainly develop their own large views about what regulatory measures are and then what fees are. For instance, in the local approach to the notion of fees, situations might be included in the concept, which could otherwise be reasonably considered as tax measures. The central government will say : it is a tax, it is therefore my responsibility. On the contrary, the local authorities rest on their view to the concept of fees to justify the legitimacy of their interventions. If you accept the plurality of concepts of tax, there are no reasons to make a well-determined concept prevail against the other ones. The Courts won’t have guidelines for choosing a concept instead of another et to make therefore a decision on disputes submitted to them. Then, conflicts of this sort are unavoidable in federal state structures. b. Interdependence between all levels of government is usual in federal countries. In tax matters, the following example may well illustrate such a statement. An important question frequently arises as to whether local taxes are deductible from the tax base determined by the central government or whether they can be credited against the amount of tax due to the central government435. Tax credits or tax deductions of this sort may seriously wipe out the tax revenue of the central government, especially when local governments increase their taxes.

435 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 68. The author notes that in Belgium, the regional, provincial, and local taxes on estimated rental income can be credited against the progressive personal income tax levied by the Central Government. It implies that the amount of tax due to the lower governments is deducted from the amount of tax due to the Central Government and only the balance

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Recently, the Belgian legislator has reformed the corporate income tax regime. Among others, it was decided that regional taxes are no longer deductible from the federal corporate income tax base436. As seen above, as regards the notion of regional taxes in Belgium, a distinction should be made between the regional taxes originally created and regulated by regions (own taxes) on the one hand, and the regional taxes first created and regulated by the central government, but then assigned (revenue and legislation) to the regional governments (transferred or ceded taxes). Only the former (own taxes) have become non deductible to the corporate income tax, the latter (ceded taxes) remaining totally deductible. Further, local437 taxes can still be deducted to the C.I.T. Even though it is not formally written in the law at issue, it is suggested, subject to discussion among scholars438, that regional fees are still deductible from the corporate income tax base. If this construction of the rule is confirmed in the future, the distinction between tax and fee will have a great impact on the amount of income tax legal entities must pay in Belgium. Anyway, it a good argument in favour of an homogeneous concept of tax for the whole Belgian legal order. III. Tax powers, fees powers, regulatory powers and spending powers : plurality of approaches to the division of powers within a federal or decentralized state III.1. Taxation and regulation of conducts a. As a rule, the tax instrument is used, not only to bring money to the Treasury, but also to realize objectives of an economic, social, environmental, …, nature. The several potential functions of taxation, and their admissibility for the definition of the concept of tax, have been analysed above under subsection 1.2. It goes without saying that taxation is frequently used to influence or orientate the taxpayers’ behaviours and activities. In a federal context, when regulatory powers or taxing powers are rather decentralized, this raises the issue as to whether the tax law making power can be used to legislate in areas where the taxing authority might otherwise not have the power to do so. In Germany, according to K. TIPKE439, the mere fact that a levy qualifies as a tax does not necessarily mean it is constitutionally authorized, if it is a backdoor way of expanding the regulatory authority of a particular level of government, thereby encroaching on the authority of another level440

The problem of the distinction between regulatory measures and taxation has given rise to many Courts’ rulings in the United States, being even the main object of litigation with respect to fiscal federalism441.

In Spain, the Constitutional Court has developed a functional principle (principio de instrumentalidad), which limits the taxing powers of the Communities on the basis of their material responsibilities, especially with respect to the use of the tax instrument for non-fiscal purposes442 (see also below under b.).

has to be paid. To prevent the regional and local governments from reducing the Central Government’s revenue by increasing their taxes, the Central Government has set a limit on the amount of tax that can be credited at 12,5 percent of the tax base. 436 New art. 198,5°, of the Belgian Income Tax Code. 437 Municipal and provincial taxes. 438 The text of the new law declares that, not only regional taxes have become non deductible, but also regional ‘rétributions’. However, it was explicitly declared during the parliamentary works that the regional ‘redevances’ (fees) will remain deductible to the corporate income tax. The courts have not yet clearly determined what the exact interpretation must be. 439 K. TIPKE, Die Steuerrechtsordnung, Cologne, Verlag Dr. Otto Schmidt, 1° Auflage, Vol.3, 1060-1061, extract cited and translated in English by V. THURONYI, Comparative Tax Law, cited above, 46. See for instance, BVerfGE 98, 83 ; BverfGE 98, 106. 440 A balance is to be found. See J. LANG, K. TIPKE, Steuerrecht, cited above, 54, §3, Rz. 36. About the so-called principle of Widerspruchsfreiheit, which may be applied in this context, see P. KIRCHHOF, “Die Widerspruchsfreiheit im Steuerrecht als Verfassungspflicht, in Steuer und Wirtschaft Zeitschrift, 2000, 316. 441 As V. THURONYI (Comparative Tax Law, cited above, 72) observes, the US Supreme Court has held that Congress could not disguise a regulatory measure as a tax and thereby extend its regulatory reach beyond that accorded to it under the Constitution. See L. TRIBE, American Constitutional Law, 2000, 843-846. Similar arguments have been frequently raised in Australia, although rarely accepted by the Courts (P.H. LANE, Lane’s Commentary on the Australian Constitution, 1997, 2°ed., 170-173. 442 J.M. QUERALT, C.S. SERRANO, G.C. OLLERO, J.M.T. LOPEZ, Curso de derecho financiero y tributario, cited above, 218-219. “Resulta, pues, que también la competencia normativa tributaria de las Comunidades Autònomas sòlo podrà ejercitarse respecto de su proprio àmbito material de competencias, por lo que parece obvio concluir que el àmbito material de competencias de las Comunidades Autònomas constituirà presupuesto de legitimidad de su actuaciòn normativa extrafiscal”.

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In Belgium, the tax law making power is shared on the grounds of a system of rules which must be distinguished from the distributing rules relating to regulatory powers. So, the fact that regions are exclusively competent in environment matters does not imply that the central government is prohibited from introducing green or environment taxes. As an illustration, in the past, the federal legislator had actually introduced the so-called ‘écotaxes’ in order to better protect the environment against polluting consumption goods. The purpose of these taxes was to influence the consumers’ and producers’ behaviours and to favour less-polluting consumption habits. As regards such a disconnected system of powers distribution, the Belgian Constitutional Court (Cour d’arbitrage) has developed a case law founded on the so-called principle of proportionality. One particular government can make use of its taxing powers and influence, through the non-fiscal functions of taxation, a competence area which doesn’t fall into its own regulatory responsibilities. By acting so, the taxing authority must nevertheless comply with the praetorian principle of proportionality, requiring that its tax measures do not encroach too much on the other governments’ material responsibilities. Taking account of the potential exercise of regulatory powers through taxation, the division of material responsibilities, which is based on an exclusivity precept, is therefore safeguarded to a certain extent. The question as to which content must be given to the proportionality rule and which consequences it implies, is however very difficult to solve in practice443. In Italy, the relation between the tax competence and the other – regulatory – competences is a controversial one, in respect of which there is still no definitive case law. Doctrinal opinions are opposed to this regard. According to a first opinion, the power to tax of Regions is more extended than the matters for which they are responsible. A material limitation (connection with regulatory responsibilities) would only exist with respect to levying of fees without a fiscal nature. According to a second opinion, the regional power to tax would be strictly linked to the matters in which regions have competence. For example, as regions are responsible for health, then they would have the power to establish taxes in this sector. b. When making a distinction, in federal countries, between the distribution of regulatory powers on the one hand, and of taxing powers on the other hand, it may be interesting to add a third element to the analyse and to consider the way the spending power is distributed among the various entities of the state. As a matter of principle, the Belgian system maintains a close relationship between the regulatory power and the spending power : when a well-determined level of government is exclusively competent for regulating a specific matter, it is also the only authority eligible for spending in this particular area of the law. Any reform affecting the sharing of spending powers would require that a special federal law be approved, that is a law adopted with a two-thirds majority in each chamber of the federal parliament and a simple majority in each linguistic group in each chamber. The strict connection between regulatory and spending powers does not nevertheless constitute a universally admitted principle of fiscal federalism. The classical example of (partial) disconnection between regulatory power and spending power is found in the United States system. The Canadian system is also illustrative444. According to art. 1, section 8, of the US Constitution, the Congress is empowered “to pay the Debts and provide for the common Defense and general Welfare of the United States”. Over the years, the notion of ‘general welfare’ has been interpreted very broadly by Congress and the courts, and now this clause effectively puts no constraints on government spending445. In the US, the spending power allows the federal government to allocate grants to the states in order to attain objectives contributing to the US general welfare. This power is essentially, but not exclusively, used in the social security and social assistance areas. The federal government has made use of the spending power to indirectly regulate conducts that it could not otherwise directly regulate. Indeed, the federal authority determines conditions for allocating the grants and restrict, as a result, the freedom of the states’ legislators. If they wish to enjoy the grants, they must submit to these subsidizing conditions. So, for instance, a state receiving federal funds for highways has been required to impose a 21-year-old drinking age in its territory446. As a rule, subject to exceptions,

443 Among others, see, Cour d’arbitrage April 23, 1992, n° 31/92, ‘Bingos’ case ; January 13, 1994, n° 2/94 and 3/94 ; February 2, 1995, n° 4/95, 6/95, 7/95, 8/95, 9/95 and 10/95, ‘Ecotaxes’ cases. Available on the internet site http://www.arbitrage.be. M. BOURGEOIS, “Fin de législature : le point sur l’autonomie fiscale des communautés et des régions après les accords du Lambermont”, in Revue de Comptabilité et de Fiscalité Pratiques, 2003, 231-235. 444 See, among other, P. CATTOIR, Fédéralisme et solidarité financière. Etude comparative de six pays, Bruxelles, Editions du CRISP, 1998, 94-95 (for the Canada) and . See also the old but still very relevant doctoral contribution from J. ANASTOPOULOS, Les aspects financiers du fédéralisme, Paris, L.G.D.J., 1979. 445 See, for instance, H.S. ROSEN, Public finance, 7°ed., McGraw-Hill Irwin Ed., 7-8. 446 Observation by Prof. W.J. BARKER in the Working Group.

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these federal interventions have not been considered as being unconstitutional for breach of the states’ own prerogatives447. In Germany448, there arose in practice a kind of mixed administration (Mischverwaltung), which often consisted of the federation allocating subsidies to a land and attaching conditions to them. In 1969, the Basic Law was amended to reflect this practice by incorporating a number of articles about the so-called joint tasks (art. 91a and 91b of the Constitution on the Gemeinschaftsaufgaben). In Spain, conditional transfers have a large relative weight in the financing of Autonomous Communities. According to the Constitutional Court’s rulings, transfers should be unconditional if their object is to pay for classes of matters that fall under the authority of the Communities. Otherwise, the spending power of the state would be intrusive, serving indirectly as a way of controlling the Communities’ activities449. Although this general principle has been stated in the case law, in practice this has been a continuous source of stress between the Communities and the state. The main claim of the Communities has been that the state puts conditions on the transfers of money that go far beyond its authority, thus intruding into the Communities’ powers450. In summary, through its tax power, a specific level of government may collect financial resources and, as a consequence of its potential spending power, it may influence law areas being under other governments’ responsibility. Such an indirect normative action is possible where the spending power and regulatory powers are not too closely connected in the constitutional framework relating to distribution of responsibilities within the federal system.

III.2. Does the power to levy ‘fees’ (with or without a fiscal nature) necessarily follow the matter to which it relates a. The English notion of “fee”, as a general concept, includes elements which are frequently distinguished in continental law countries. In particular, sub-distinctions are made between fees of a fiscal nature and non-fiscal fees. See above, under subsection 1.2., for all necessary details with respect to this way of categorizing the different types of levies. To summarize here the classical legal view, as a matter of principle, taxes should not include payments to the government for which the taxpayer receives something in return. However, in fact, there is a continuum, ranging from pure taxes where the taxpayer receives nothing, to fees for services whose value corresponds to what was previously paid by the government451. Intermediate positions exist along this continuum, involving situations in which a tax relationship is connected to approximate (theoretical, estimated, etc.) return to the benefit of the taxpayer. In Italy, the scholars and the courts are used to distinguishing the concepts of imposta (tax base determined according to a fact relating to the taxpayer’s personal situation such as residence, activities, personal property, transactions which he carries out ; contributing - or solidarity - approach to taxation), tassa (tax base determined according to a public service or a public good which individually benefit the taxpayer ; commutative approach to taxation) ; contributo (tax base determined according to public services or civil engineering performed to the benefit of the community as a whole, which indirectly benefit the taxpayer as a member of this community ; other commutative approach to taxation). A similar distinction is made in Spain between the sub-concepts of impuesto, tasa, and contribuciones especiales, under the more general concept of tributo. In both countries, these ‘tax’ concepts must be separated from non-fiscal types of commutative (compensating) levies, such as tariffs or public prices ( prezzi pubblici, precios publicos). In Germany, let’s think about the generic concept of Abgabe, under which sub-distinctions are made between the specific concepts of Steuer, Gebühr, and Beitrage. Levies compensating for specific services

447 As F. VANISTENDAEL observes (« Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 65), if the grants are subject to conditions set by the central government, the latter could choke off completely the autonomy of the local government by imposing strict conditions on these grants or by restricting their amounts. 448 L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 2004, 343. 449 Tribunal Constitucional, decision 13/1992. See J.M. QUERALT, C.S. SERRANO, G.C. OLLERO, J.M.T. LOPEZ, Curso de derecho financiero y tributario, cited above, 199. 450 V. RUIZ ALMENDRAL, “Fiscal Federalism in Spain : The Assignment of Taxation Powers to the Autonomous Communities”, cited above, 472. 451 V. THURONYI, Comparative Tax Law, cited above, 46.

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performed by the Government will be classified under the concepts of Gebühr or Beitrage452, instead of Steuer. As regards the so-called Gebühren, German authors have elaborated three legal categories : the Verwaltungsgebühr (administrative levies), the Benützungsgebühr (tax on the use of public goods or services), and the Verleihungsgebühr (concession taxes). In France, among the levies having a compensating character for government services, it is used to making a distinction between the taxe (being of a fiscal nature) and the redevance (which has no fiscal character). The difference between taxe and redevance is that the latter should be equivalent in value to the service rendered, while the former need not be453. The Luxembourg system makes a distinction between the taxes and redevances, on the one hand, and the impôts, on the other hand. Taxes and redevances are levied in respect of a service that is offered (whether or not actually used) by the person, whereas impôts refers to levies having no specific counterpart. Hence the proceeds from the impôts go into the budget, whilst the taxes and redevances are used to specifically finance the service offered to the person. The difference between taxes and redevances is that the payment of taxes is compulsory whereas it is voluntary in case of redevances : in the first case, payment has to be made even if the service is not actually being used, while in the second case, payment only arises if the service is actually being used. So, when considering the concept of tax, it is especially relevant to identify the nature of the so-called commutative levies, that is levies compensating for services performed by the government to the benefit of the (tax)payer. Such a compensation relationship may be strictly, specifically and exactly determined and calculated. It might also be assessed in a lighter and more approximate way. What is important is the fact that there exists a link between what is paid by the (tax)payer and what is received or benefited from the government (in return). Politically speaking, commutative taxation, and other types of levies based on the idea of exchange, have recently be favoured to the detriment of the so-called contributing taxation (with redistributive effects : strict concept of tax – Steuer, impôt, impuesto, imposta). Two elements account for this phenomenon : the Welfare State is contested about everywhere, on the one hand, and fiscal federalism has further developed in many countries, on the other hand. Studying local taxation in a large sense may help us to better understand the concept of tax, considered as commutative (exchange, return, compensating…) relationship. At the local level, it is indeed easier to compare the local public services (nature, quality, cost) with the charges being levied to finance them (narrower relation). Furthermore, many benefits are allocated by local governments at the beneficiaries’ request. So, the legal nature of levies compensating for these non compulsory government services is more often questioned at this level of government. Then, it goes without saying that indivisible government services are usually performed by the central government, while divisible services are more easily decentralized. Consequently, as the concept of tax issue frequently arises with respect to the financing of divisible services (see above under section 1.2.), it is more likely to occur in relation to local government activities. Finally, as a matter of facts, we can observe in the tax systems of many countries that the so-called commutative taxes454 are usually local taxes455. b. In the German federal state, most Steuer were introduced and regulated by the federal government (Bund), while the Länder and local authorities have generally been more inclined to levy Gebühren and

452 With respect to Gebühren and Beiträge, it is suggested to use the expressions of Kausalabgaben or Gegenleistungsabgaben. The expression of Vorzugslasten is also used. 453 V. THURONYI, Comparative Tax Law, cited above, 48. 454 Taxes the payment of which is related to and approximately compensates for previously enjoyed government benefits or interventions. 455 In some centralized countries, the principle of legality (see below) has been treated as an obstacle to tax decentralization. The taxpayer’s representation required for taxation is usually guaranteed at the level of the national parliament. Assigning legislative power to local authorities in tax matters has often been considered as violating the principle of ‘non taxation without representation’ for lack of sufficient democratic representation (of taxpayers-electors) at this level. Where the local institutions are well and democratically organized by the Constitution or constitutional principles, such a strict approach to the principle of democratic representation in tax matters appears to be less convincing. Anyway, as regards the so-called commutative taxes, the principle of legality is usually subject to more flexible interpretation, even in countries adhering to the strict interpretation of the ‘non taxation without representation’ precept. For Italy, see for instance FEDELE, “Art. 23”, in G. BRANCA (ed.) Commentario della Costituzione, , Rapporti civili, Art. 22 e 23, Bologna-Roma, 1978, 128 and 132.

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Beiträge to finance their activities456. As seen above, the articles 105, 106, 107 and 108 of the German Constitution respectively regulate the legislative powers, the apportionment of tax revenue, the financial equalization arrangements, and the administrative powers, with respect to taxation. The relevant concept of tax, dealt with in these provisions, is the strict one, which is called Steuer in German law. The other types of taxes, that is the other categories of Abgaben, fall outside the scope of the so-called Finanzverfassung (art. 105 and followings). As the scope of the Finanzverfassung is so limited to a strictly-defined concept of tax (Steuer), it is suggested, and even required, that this concept be clearly defined and distinguished from other types of Abgaben (for the concept of Steuer, see section 1.2. above ; see also our brief comment under 1.3.c.I above). As regards the so-called Gebühren and Beiträge – Gegenleistungsabgaben – and the Sondernabgaben457, there is no explicit and specific provisions in the Constitution regulating and distributing the power to levy them458. So, as regards the distribution of competences with respect to them, scholars459 consider that the power to levy Gebühren follows the matters to which they relate (environment, health, education, energy, …) and thus is adjusted according to the distribution legal system related to these regulatory responsibilities. Therefore, for instance, who’s responsible for environment may collect fees (Gebühren) on polluters. The general – non tax (nicht Steuer) - distribution of legislative prerogatives is dealt with under Title VII of the German Basic Law. In Belgium, according to art. 2 of the Special Law organizing the Financing of the Communities and the Regions (Loi spéciale de financement, January 16, 1989), the non-fiscal receipts connected with the Communities’ and Regions’ own regulatory powers will benefit the governments concerned. On the basis of this provision, it is suggested that each level of government is exclusively responsible for the setting of fees (redevance, rétribution) linked to their respective spheres of activities. In the Netherlands, fees and duties are mostly levied by municipalities, not because of any principle, but because municipalities have very limited tax jurisdiction. These municipal fees and duties (for specific services rendered by the community) are meant to reflect costs made. The level of these fees is not allowed to exceed the municipality’s costs of rendering those services460. The Luxembourg municipalities (communes), not only rely on ‘impôts’ to finance their operations, but also on ‘taxes and ‘redevances’. The Constitution does not define the specific duties of the communes, but leaves this task to an act of Parliament. Such an act of Parliament has given exclusive authority to municipalities to deal with all and any such matters that are of “communal interest”, i.e. that are in the interest of those persons residing or working in the respective communes. In order to finance its duties, the commune may levy such retributions as it deems fit (subject to the supervision control by government cited above)461. IV. Economic and monetary union within the whole state All EU countries have a market economy. At the national level, an economic and monetary union must certainly be preserved. The economic union concern has to do with the necessity to guarantee462 :

456 L. DEL FEDERICO, Tasse, tributi paracommutativi e prezzi pubblici, Turin, G. Giappichelli ed., 2000, 241. 457 From a structural point of view, Sondernabgaben are very similar to Steuer. However, the constitutional rules respectively regulating the power to levy them are different. So, it is here especially important to make a clear distinction between the two concepts. See section 1.2. above. See also D. BIRK, Steuerrecht, 6° Ed., 2003, 112 and follow ; J. LANG, K. TIPKE, Steuerrecht, cited above, 48-49, §3, Rz 21. 458 As a matter of exception, art. 74 (1) 22 of the German Constitution deals with the power to collect charges for the use of public highways by vehicles and the allocation of revenue. 459 F. KIRCHHOF, Die Höhe der Gebühr, Berlin, 1981, 37 ; P. KIRCHHOF, Staatlichen Einnahmen, in ISENSEE, KIRCHHOF, Handbuch des Staatsrecht, Heidelberg, 1990, 179 ; K. TIPKE, Die Steuerrechtsordnung, Cologne, Verlag Dr. Otto Schmidt, 1° Auflage, Vol.3, 1066 ; K. VOGEL, Grundzüge des Finanzrechts des Grundgesetzes, in ISENSEE, KIRCHHOF, Handbuch des Staatsrecht, Heidelberg, 1990, IV, §87 ; R. WENDT, Die Gebühr als Lenkungs mittel, 33. See also L. DEL FEDERICO, Tasse, tributi paracommutativi e prezzi pubblici, Turin, G. Giappichelli ed., 2000, 246. 460 S. HEMELS, H. VORDING, personal contribution to the eatlp WG. 461 A. STEICHEN, personal contribution to the eatlp WG. 462 M. BOURGEOIS, “Fin de législature : le point sur l’autonomie fiscale des communautés et des régions après les accords du Lambermont”, in Revue de Comptabilité et de Fiscalité Pratiques, 2003, 221-224 ; G. BROUHNS, “L’union économique et l’unité monétaire : un principe juridique aux facettes multiples”, in X. DELGRANGE (éd.), L’union économique et l’unité monétaire en Belgique, Bruges, Editions La Charte, 1993, 35-59. See also all doctrinal contributions about the concept of economic and monetary union at the European level.

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* The free movement of persons, goods, services, and capital, within the whole national territory. As a result, internal customs duties and taxes having an equivalent effect should be prohibited and a common external customs legal system is to be introduced463. Then, all (fiscal) levies having an impact on such internal economic movements should normally be centralized.

* The freedom of trade and industry. All kinds of levies significantly influencing this fundamental freedom should normally be maintained within the central state’s prerogatives.

* The freedom of competition.

* A certain level of convergence of the prices of goods and services and of the costs of input ;

* More generally, a minimum degree of coordination, harmonization or standardization of the economic policy. Then, the monetary union implies currency unity, free circulation of it, and a uniform monetary policy464. From the tax viewpoint, the economic and monetary union essentially means two things : - The tax law making power should primarily be distributed, by taking account of this consideration. Taxes influencing the state’s economic cohesion will normally be assigned to the central level of government. For instance, customs duties are usually levied by the central government, so that flows of goods between regions are not obstructed465.

- The first-line protection, consisting of all distribution rules explicitly reserving well-determined tax categories for the central government, is not always sufficient to safeguard in an efficient way the so-called economic and monetary union. So, a second-line protection is generally available. Even though the regional or local governments are allowed to legislate with respect to specific categories of taxes, they may not act in such a way that taxes affecting interregional commerce unduly impede such commerce. The tax law making power must therefore be exercised in compliance with the general requirements deriving from the economic and monetary union consideration, subject to the courts’ control466. In Belgium, the Constitutional Court (Cour d’arbitrage) has developed a case law in a praetorian way, requiring systematic compliance with the principle of economic and monetary union when a federated level of government makes use of its tax powers. Such a principle is one of the most significant limits affecting the tax law making power of the federated governments467. In the United States, constitutional clauses prohibit the states from obstructing interstate commerce by restrictions in the tax laws. Art. I, §9, of the US Constitution provides that “No Tax or Duty shall be laid on Articles exported from any State. As explained by V. THURONYI468, in the U.S. Shoe case, the Supreme Court had to decide whether a harbour maintenance tax (HMT) was really a tax within the meaning of the Export Clause. The Court found that the HMT would be constitutional if it were a ‘user fee’, i.e. a ‘charge designed as compensation for Government-supplied services, facilities, or benefits’469. The HMT was levied at a rate of 0.125 percent of the value of cargo passing through U.S. ports ; its proceeds were deposited in the Harbour Maintenance Trust Fund and used for harbour maintenance and development projects. The Court found that the HMT could not be considered a user fee because it bore no relation to the extent of port use, being based on the value of the cargo. This illustration clearly shows that the characterization of a levy as a tax is relevant for the implementation of the US Constitution : for instance, it determines the scope of the constitutional prohibition for the states to tax (interstate) exports.

463 The power to legislate in this area is now the European Union’s task. 464 For countries belonging to the Euro zone, the monetary policy is now determined and implemented at the European level. 465 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 64. 466 This national approach to the economic union concern is very similar to the way the European economic union is guaranteed in the (direct) tax field : as a matter of principle, tax sovereignty for the Member States, subject to strict control by the European Court of Justice in order to safeguard the fundamental freedoms of movement (goods, services, persons, capital, and free competition). 467 For the first decision in this regard, see, Cour d’arbitrage, February 25, 1988, n° 47. M. BOURGEOIS, “Fin de législature : le point sur l’autonomie fiscale des communautés et des régions après les accords du Lambermont”, in Revue de Comptabilité et de Fiscalité Pratiques, 2003, 221-224 and 230-231. 468 V. THURONYI, Comparative Tax Law, cited above, 50. 469 523 United States Supreme Court Reports, 323.

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In Spain, according to art. 157.2. of the Constitution470, the Autonomous Communities may under no circumstances introduce measures to raise taxes on property located outside their territory or likely to hinder the free movement of goods or services. Interestingly, the Spanish text uses the term tributo (‘medidas tributarias’) to determine the scope of this constitutional provision, that is the general concept of tax (impuestos, tasas, contribuciones especiales), instead of the strict one (impuesto) (see, for these distinctions, section 1.2. above). The so-called precios publicos are nevertheless not included within the general concept of tributo in Spain. It is therefore important to make a clear distinction between the notion of public price (precios publicos) and that of tax, especially as regards the so-called tasas in the Spanish order (the former being similar to the latter under certain aspects). In Italy, some constitutional provisions have respect to the safeguard of an economic and monetary union, which may be invoked against taxes threatening it. According to art. 120(1) of the Constitution, “Regions may not charge import or export duties, nor duties on transit between regions, nor adopt provisions which may hinder in any way the free movements of persons and goods between regions, nor limit the right to work in any part of the national territory”. Art. 120(2) provides for a substitution clause allowing the central government to intervene to act as a substitute whenever, among others, such substitution is required in order to safeguard the legal or economic unity of the nation. Further, art. 117 assigns to the State the competence for the monetary policy, although it goes without saying that both State and local governments are limited in their sovereignty by the European Law.

470 “Las Comunidades Autónomas no podrán en ningún caso adoptar medidas tributarias sobre bienes situados fuera de su territorio o que supongan obstáculo para la libre circulación de mercancías o servicios”.

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1.3. d. Specific constitutional principles of taxation and the justification of those principles. Under this subsection, we get into the core of the research. The question as to whether the concept of tax should be legally defined first depends on specific principles being applicable to rules, actions or payments that are or may be tax-labelled. Indeed, in the constitutional framework, rules provide for particular arrangements (specific legislative or implementing procedures, specific protections for taxpayers, well-determined limits to the law-making power) with respect to taxation. They are usually justified by some specific characters associated to the tax phenomenon. It is suggested that these constitutional tax-principles result from the political history of the states concerned. Taxation assumes significant importance in the fundamental texts as a consequence of historic revolts or reactions against absolute power, independence wars, liberal vs. social (and even socialist) approaches to the state structure and government’s purposes (social constitutions of Portugal or Italy for instance), federal construction (see above under subsection 1.3.c.), etc. Anyway, from a strictly legal point of view, the approach to the issue must be extremely cautious. As regards for instance the taxpayers’ fundamental safeguards, if there is no specific tax protection formally provided for in the Constitution, it does not imply that taxpayers are more subject to the reign of the arbitrary in the state concerned. Limits are set to the tax law making power of the government in order to protect the taxpayers’ freedom and equality and to realize tax fairness in a large sense. Their content and effectiveness closely depend on the way the Constitution is interpreted and applied by the executive authorities on the one hand, and especially by the courts on the other hand. Judicial activism, as is the case in Germany for example, may give all its substance to the constitutional treatment of the government’s tax law making power. For an interventionist court, explicit tax principles must not necessarily exist to make available a taxpayers’ protective case law. The ability-to-pay precept in Germany has been essentially developed on the basis of the general (non-tax) principle of equality (see above under subsection 1.3.a.). As seen above, there is however no specific ability-to-pay provision in the German Basic Law. The Bundesverfassungsgericht case law with respect to ability to pay goes certainly further than the Italian case law with respect to the same principle, although the taxpayers’ ability-to-pay protection is explicitly provided for in the Italian Constitution. It is thus absolutely crucial to go through and beyond the veil of appearances. If the Constitution of a state contains a lot of provisions about taxation, it doesn’t automatically imply that the taxpayer is better protected against the taxing authorities than in countries with non-tax coloured constitutions. The nature of the relation between the taxpayers on the one hand, and the tax legislative and executive powers on the other hand, is essentially dependant upon the way - the courts view their role within the legal order and - the way the same courts interpret, cautiously or boldly, the Constitution. In addition, ethical considerations may play a part in the determination of the content of the tax relation. Regardless of the rule of law mechanisms, taxing authorities may develop a kind of auto-regulation on the basis of own democratic views and on ethical considerations implying that… unfair behaviours or activities, that are not formally prohibited by the Constitution, won’t nevertheless occur. The government’s ethics considerably varies from one country to another. The need for law (constitutional) principles, enforceable before courts, is also varying as a consequence. Subject to discussion, it does not seem that The Netherlands tax law is significantly less fair than other national tax laws. However, it must be recalled that there is no constitutionality review of tax statutes in the Netherlands. The impact of the specific constitutional tax principles (principle of legality, f.i.) is therefore limited and, in the facts, the tax legislator is only subject to self-regulation. Political considerations (no re-election for a government that would too frequently and systematically violate the Constitution) and ethical concerns favour a certain degree of compliance with the constitutional precepts. To summarize, from a legal point of view, scholars, and especially specialists in comparative tax law, should develop a very cautious approach to the tax principles at issue : - In countries where the constitutional text explicitly contains law principles applicable in tax matters, we cannot decisively conclude that taxes are subject in the facts to distinct legal treatment : f.i. a specific principle of equality in tax matters won’t necessarily be construed in a different way as the general equality principle applied to other areas of the law.

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- On the other hand, the lack of specific tax principles in the constitutional framework does not preclude interpretation of the general law principles (applicable to all areas of the law) in a specific way with respect to taxation. In the latter case, the relevance of the concept of tax issue more results from an interpretation process, instead of deriving from specific tax provisions set forth in the constitution.

I. The principle of legality in tax matters471

- other tax principles related to formal justice with respect to taxation

I.1. “No taxation without representation”. Hardly anybody could ignore this principle which constitutes one of the most fundamental precepts with respect to the legislative process in tax matters. This is usually the first constitutional rule dealt with when specifically talking about taxation. The consequence of the taxpayers’ representation requirement is the so-called principle of legality of tax law : any tax must have a firm basis in statutes approved by the parliament, that is the state organ where electors and thus taxpayers are politically represented. As a result, regulations may not constitute a sufficient legal basis for taxing natural and legal persons connected, in a way or another, to the legal order. Statutes voted by elected assemblies should be the major legal source in tax law472. This type of rule is considered as an essential component of the rule of law in the constitutional framework of most countries. I.2. Why is this rule so important ? To be sure, historic considerations may help us to answer such a question. In many democratic countries, parliamentary governments have developed as a result of taxpayers’ opposition against arbitrary taxation. The principle of ‘no taxation without representation’ has emerged as a reaction against monarchs’ absolute power to raise tax revenues.

This is particularly obvious when looking at the British political history. Rather interestingly, although there is no written constitution in the United Kingdom (see above under 1.3.a.), the principle of legality is formalized (and written) in the UK constitutional law, through the famous historical charters granted by kings in the past : Magna Carta in 1215, Petition of Rights473 in 1628 and the Bill of Rights in 1689. In Britain again, during the seventeenth century, the House of Commons, the elected lower house, was therefore recognized as having the exclusive right to initiate revenue laws. When analysing the sources of the American Revolution, tax events appear to have played a fundamental role in the road towards political independence and emergence of the United States of America. Anti-British actions essentially began as a protest against Britain applying taxes to the American colonies without the consent of their elected legislatures474. There exists a close relation between the evolution of democratic ideas and the assignment of the power to tax to the parliamentary – i.e. representative - branch of government. The historic roots of the principle of legality for taxation are thus well-established.

471 From a comparative law viewpoint, see L. MEHL, P. BELTRAME, Techniques, politiques et institutions fiscales comparées, cited above, 488-491 ; V. THURONYI, Comparative Tax Law, cited above, 70-72 ; K. TIPKE, Die Steuerrechtsordnung, Cologne, Verlag Dr. Otto Schmidt, 2° Auflage, Vol.1, 120-136 ; K. TIPKE, “El derecho tributario constitucional en Europa”, Revista Euroamericana de Estudios Tributarios, May-august 2000, 13-15 ; F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 16-19. For Germany (Gesetzmässigkeit der Besteuerung – Vorbehalt des Gesetzes), J. LANG, K. TIPKE, Steuerrecht, Cologne, Verlag Dr. Otto Schmidt, 2002, 97-100. For Luxembourg, A. STEICHEN, Manuel de droit fiscal, Ed. Saint-Paul, 2004, T.1., 428-449. For France, M. BOUVIER, Introduction au droit fiscal général et à la théorie de l’impôt, Paris, L.G.D.J., 4° edition, 2001, 42-47 ; P.M. GAUDEMET, J. MOLINIER, Finances publiques, Paris, Montchrestien, 1997, vol. 2, 11-22 ; J.J. BIENVENU, T. LAMBERT, Droit fiscal, Paris, PUF, 3° ed., 2003, 30-39 ; C. DAVID, O. FOUQUET, B. PLAGNET, P.-F. RACINE, Les grands arrêts de la jurisprudence fiscale, Paris, Dalloz, 2003, 4d ed., 3-25 and 156-176. For Belgium, J. COUTURIER, B. PEETERS, Belgisch Belastingrecht in Hoofdlijnen, Anvers, Maklu, 2004, 35 ; E. WILLEMART, Les limites constitutionnelles du pouvoir fiscal, Bruxelles, Bruylant, 1999, 91-164. For Spain, J.M. QUERALT, C.S. SERRANO, G.C. OLLERO, J.M.T. LOPEZ, Curso de derecho financiero y tributario, Madrid, Tecnos, 2003, 118-122. 472 For a discussion about the real sources of the contemporary tax law and the evolution towards de facto pluralism of the fiscal sources, see V. VARNEROT, “Entre essentialisme et existentialisme de la théorie des sources : les sources non formelles du droit fiscal”, in D. GUTMANN (ed.), L’impôt, Archives de philosophie du droit, Vol. 46, Dalloz, 139-195. 473 “No man be compelled to make or to yield one gift, loan, benevolence, tax or such like charge, without common consent by act of Parliament”. 474 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 16.

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I.3. The nature of this specific type of state resources, that is taxation in the strict legal sense, justifies the legality rule. The ratio legis of the principle of legality is based on well-determined characteristics usually connected to the concept of taxation and used to define it. Among government financial resources, a particular category of income may be isolated and, as a result of its particular features, this type of income is subject to a stricter (parliamentary) legislative procedure. -The compulsory aspect of taxation Taxes are required from taxpayers without their individual consent. It substantially differentiates the fiscal income from contracts and contractual prices. The former are ‘imposed’ to the citizens, while the latter must be agreed upon by the debtors before being required from them. To mitigate the coercive feature of this type of state income, the ‘no taxation without representation’ guideline allows to substitute collective consent for the lack of individual consent475. When some levy is voluntary to a certain extent, the need for collective consent is less obvious. The more compulsory a levy, the more necessary the parliament’s involvement in the legislative process with respect to this levy. - The lack of individual return for the levy Traditionally, such a characteristic is mentioned in the definition of the concept of tax and constitutes one of its basic elements. No individual return to the benefit of the taxpayer, that would be proportionate to the extent of the levy, implies a great encroachment on the private property and personal rights and liberties. The taxpayer is more affected or personally damaged than in the case of proportionate exchange relationships (between state and citizens). As a result of such an (a priori) unbalanced encroachment on their rights and wealth, taxpayers deserve to be protected against abuses and guaranteed that they can have more than a look on the legislative tax process. - The financial budgetary purpose of taxation Tax is an encroachment on the taxpayers’ rights and liberties. However, any taxing power may not be prohibited as a consequence of the government needing financial resources to realize its various tasks and activities. So, it is opted for a system in which tax is admitted, subject to formal or procedural conditions having respect to the normative process for approving and modifying tax laws. The principle of legality is the best way to safeguard the tax law making power of the state (necessary to finance its activities) on the one hand, and the necessity not to let the citizens-taxpayers at the mercy of the executive (likely to abuse and to act arbitrarily) : compulsory levies may be established and collected from the citizens-taxpayers, but such a government ‘violent’ action should be based on decisions directly made by elected representatives. I.4. In most countries, a constitutional provision requires that no tax can be levied except under authority of a law476. The rule at issue offers a essentially formal guarantee in terms of fiscal justice. It calls for the indirect consent of taxpayers to levies imposed to them. On the other hand, it does not guarantee material justice, that is fair criteria of distribution of charges within the community. Indeed, a tax system approved in compliance with the legality requirement may turn out to be unfair from a philosophical or political point of view, taking account of substantial justice guidelines (formal vs. material justice of taxation). The principle is fundamentally the same in all countries. The text, the modalities and the consequences may nevertheless vary from one country to another. Make notice that, in some countries, the principle of ‘no taxation without representation’ is fixed in the Constitution, not only with respect to central taxation, but also as regards regional and local taxation. See for instance art. 170 of the Belgian Constitution, the second, third and fourth paragraphs of which respectively establish the legality principle for communitarian and regional, provincial, and municipal taxation.

475 B. PEETERS, «Het onderscheid tussen socialezekerheidsbijdragen en belastingen : een vergelijkend overzicht van de belgische en de europese jurisprudentie», in X., Liber amicorum Luc Hinnekens, Bruxelles, Bruylant, 2002, (373-406) 376. 476 In Austria, art. 18(5) Bundesverfassungsgesetz ; Belgium, art. 170 Constitution (Grondwet) ; Denmark, § 43 Grundlov ; Finland, § 81 Constitution ; France, art. 34 of the 1958 Constitution to combine with art. 14 of the Declaration of 1789 ; Greece, art. 78 Constitution ; Italy, art. 23 Costituzione ; Luxembourg, art. 99 Constitution ; The Netherlands, art. 104 Grondwet ; Portugal, art. 103(2) Constitution ; Spain, art. 31 and 133 Constitution ; Sweden, chapter 8, section 3, oh the Instrument of Government

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In certain countries, as a matter of exception, there is no tax principle of legality specifically provided for. This constitutional precept is nevertheless derived from other constitutional provisions477. So, in Germany478, the so-called Gesetzmässigkeit der Besteuerung or Gesetzesvorbehalt rests on the combination of two other constitutional provisions : the formal guarantee of personal freedom, which cannot be restricted except by law approved in conformity with the Constitution (art. 2(1) Basic Law) and the need for legal basis for any act of administration, including any administrative act of tax assessment and collection (art. 20(3) Basic Law). The Bundesverfassungsgericht has also relied upon the Rule of Law principle to justify such a requirement (Rechtsstaatsprinzip). Scholars supplement the justification of the legality requirement with a reference to art. 14 of the Basic Law by virtue of which “Property and the rights of inheritance are guaranteed. Their content and limits are determined by the laws” and expropriation “may take place only by or pursuant to law which provides for kind and extent of the compensation”. Taxation is a greater encroachment on personal property rights than expropriation (with compensation). So, the legality requirement, that applies with respect to expropriation, is a fortiori justified as regards taxation. Statutory provisions (in the Abgabenordnung) explicitly confirm this ‘no taxation without representation’ precept. Interestingly for the research on the concept of tax, §3 of the Abgabenordnung, that defines the concept of Steuer, refers to the principle of legality as an element of this definition. However, in a logical perspective, the Gesetzmassigkeit der Besteuerung is more a question of (constitutional) legitimacy of a tax, than an element of its definition. This principle is nevertheless so important that it has been considered convenient to integrate it within the definition of the concept of tax. I.5. Which levies are aimed at by the principle of legality a) In many constitutions, the legality requirement is based on the concept of tax. As a result, the scope of this rule could be limited according to this concept. This potentially requires a good definition of what a tax is and what is not a tax, being instead fee, social contribution, price, etc. In a logical reasoning, the strict principle of legality will apply to payments labelled as taxes, while other types of state income won’t be subject to this constitutional rule. In the facts, it is difficult to identify, among various approaches to the concept of tax, the one which must be chosen for determining the scope of the tax principle of legality. Sometimes, the courts opt for a large concept of tax for the purpose of extending the scope of the ‘no taxation without representation’ rule. Such a case law favours a larger (formal) democratic protection for the citizens-taxpayers.

For instance, the Luxembourg479 Constitution explicitly refers to the word “tax” (impôt). The principle of legality at state and local levels applies to any compulsory payment which is used for financing the State or the local authorities through the entity’s budget. Hence the principle should only apply to taxes in the very strict sense (impôt) in compliance with the text. However, the case law also applies this rule to mandatory payments that are levied in exchange for a service that is being offered (‘taxe’), if the revenue, rather than financing the specific running costs of the service, is used to finance the entity’s budget in general. The reason for this is that the ‘taxe’ is viewed in such a case as a disguised ‘impôt’. The question often arises as to whether the famous social (security) contributions (collected in many countries apart from traditional taxes) are subject to the legality rule and should therefore be necessarily introduced and regulated through an act of parliament. It occurs that the parliament responsibility for social contributions derives from another constitutional rule than the one providing for the legality requirement in tax matters (see below under section 1.3.e.). In Luxembourg480 again, the social security is financed by way of special contributions (‘cotisation’). The Constitution (art. 11,§5) states that ‘The law organizes the social security’. Hence, in an indirect way, the principle of legality also applies here. In the Netherlands481, the text of art. 104 uses two concepts :

477 This is, among others, the case in Switzerland. 478 K. TIPKE, Die Steuerrechtsordnung, Cologne, Verlag Dr. Otto Schmidt, 2° Auflage, Vol.1, 125-127 with references to decisions by the German Constitutional Court. 479 A. STEICHEN, personal contribution to the eatlp WG. 480 A. STEICHEN, personal contribution to the eatlp WG. 481 S. HEMELS, H. VORDING, personal contribution to the eatlp WG. As seen above under subsection 1.3.a., there is no constitutionality review of legislation in the Netherlands. As a matter of principle, courts cannot use constitutional

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- taxes (‘belastingen’) of the central government (‘Rijk’). This includes all levies that carry the name of a ‘belasting’, that have been accepted in the parliamentary legislative process, and whose revenues go to the central level of government. Excluded are : social security contributions, local taxes and fees, non-tax central government levies. - other levies (‘andere heffingen’) of the central government. These are revenues that are not labelled ‘tax’482. These other levies do not include social security contributions, as these do not flow to the central government but to social insurance institutions483. The text of art. 170 of the Belgian Constitution uses the term ‘tax’ (‘impôt’, ‘belasting’) to delimit the scope of the principle of legality. Art. 173 nonetheless extends the legality requirement to the so-called ‘rétributions’ (‘retributie’) (see below under subsection 1.3.e.). As regards the aforementioned countries, the ratio legis of the principle of legality, that is the basic philosophy of the constitutional framework, implies that all compulsory (without individual consent) levies imposed to citizens should benefit from the guarantees provided for with respect to taxation (no taxation without representation, annuality, equality, …). The system should be locked and the government should be prevented from creating levies that would not be treated as taxes in order to escape the constitutional guarantee rules. Indeed, by introducing compulsory levies not qualifying as taxes (‘parafiscalité’), the government may be tempted to circumvent the specific constraints derived from the constitution for taxation. The question as to social security contributions must be included within the scope of the legality requirement is to be answered by referring to that underlying philosophy. As regards fees, the question is more complex to deal with. The compulsory character of this type of levies may turn out to be less evident, requiring therefore less guarantee against arbitrary. The fact that a link exists between what is paid and what is received in exchange attenuates the encroaching impact of such payments. However, from a comparative law viewpoint, sub-distinctions are made among fee payments in order to isolate those still showing real compulsory or coercive features (requiring thus the same guarantees as taxes in the strict traditional sense). The way the conceptual divisions are made considerably varies from one country to another. One alternative consists of extending the concept of tax to these (compulsory) fees, the principle of legality remaining therefore a specific tax principle. Another possibility, ending up in the same result, consists of extending, not the concept of tax, but instead the scope of the legality requirement to levies other than taxes in the legal sense (see point b just below). The existence of such an alternative creates a great deal of confusion with respect to the definition of the concept of tax in the states concerned. It further makes the comparison between countries an extremely difficult exercise. b) Some constitutions determine the scope of the principle of legality by referring to a kind of expression that is not exactly the concept of tax as such.

- In France484, for instance, the legality requirement applies to the so-called “impositions de toutes natures”, which is an expression allowing interpretation leeway for the courts. For this purpose, tax includes all levies that do not qualify for another concept (negative definition of the concept of ‘impositions de toutes natures’). These other concepts – other types of levies – are the fees (‘redevances’) due in consideration of a good or a service received, the social security contributions (‘cotisations’), the ‘taxes parafiscales’485 distinguished according to their beneficiary and the aim pursued, and private law prices. Such a definition by default of the concept of “impositions de toutes natures” leads to a growing cleavage between the doctrinal definition of tax

provisions to strike down unconstitutional tax legislation. See also about art. 104 in the Dutch system in relation to the concept of tax issue, Rapport van de Commissie ter bestudering van het begrip ‘belastingen’, in Geschriften van de Vereniging voor Belastingwetenschap, n° 184, Kluwer, Deventer, 1990. 482 As will be seen under subsection 1.3.e., the distinction between ‘belastingen’ and ‘andere heffingen’ is relevant as the first set of levies needs formal parliamentary consent, while decisions on the second type of levies (especially on yearly changes in rates, ceilings, etc.) can be delegated to the Minister of Finance. 483 C.A.J.M. KORTMANN, Constitutioneel recht, Deventer, Kluwer, 2001, 193-194 ; VAN DER POT, DONNER, Handboek van het Nederlandse Staatsrecht, Deventer, W.E.J. Tjeenk Willink, 2001, 660-661. Make notice that in political decision-making, social contributions are treated as taxes (S. HEMELS, H. VORDING, personal contribution to the eatlp WG). 484 G. RUTH SUCHY, personal contribution to the eatlp WG. 485 By virtue of the new 2001Organic Budget Law, the French legislator has decided to progressively abolish the specific category of the so-called ‘taxes parafiscales’

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(levy required, without individual return, in order to finance common public expenditures) and the positive law as it stands486. What about social security contributions in France with respect to the principle of legality in tax matters487 ? The French law considers that there are two types of levies to the immediate benefit of social security funds : social security contributions and social contributions. Ideally, there should be a link between social security contributions and the right to receive social protection, which would allow to distinguish them from the so-called impositions de toutes natures. In practice though, this criterion is fairly hazardous. Social contributions are qualified as taxes, the most known being the Cotisation sociale généralisée (CSG) and the Contribution pour le remboursement de la dette sociale (CRDS), which gave rise to the European Court of Justice cases. Such a characterization implies that they have to be established through the same constitutional procedure as all other taxes. On the other hand, social security contributions are not subject to the traditional rule of legality, being not considered as impositions de toutes natures. However, they are based on law, i.e. the law provides that they exist as well as the principles according to which they are levied (f.i. type of basis, debtors). Acts of government ultimately determine the amount of these contributions (i.e. rate, limits of age, definitions). These regulatory acts are subject to specific procedural requirements, such as prior agreement between employers’ and workers’ unions488. - In the Italian489 legal order, according to art. 23 of the Constitution, “Nobody may be forced to perform personal service or payment without legal provision”. The rule of ‘no taxation without representation’ is based on this provision. It requires that no obligation of a personal or financial nature, included taxes, be imposed to any person except through an act of parliament. The Italian Constitution uses a generic expression – ‘prestazione imposta’ – that has a wider scope than the concept of tax as such. Indeed, the notion of tax exists in the Italian system. The word ‘imposta’ refers to a strict approach to taxation, while the concept of ‘tributo’ is a generic one including all various kinds of levies of a fiscal nature (imposta, tassa, contributo). Though, the scope of the principle of legality is not delimited on the grounds of these legal concepts. Reference is made on a more general expression aiming at all types of obligations assuming financial nature. As a result, the concept of “prestazione imposta” includes every kinds of taxes (included tasse, contributi, … See subsection 1.2. for these distinctions). All kinds of compulsory patrimonial contributions are subject to the legality principle. There is no doubt that the rule also applies to social contributions, which may be considered as compulsory levies and therefore as ‘prestazione imposta’. By relying on the non-tax aspect of the expression of prestazione imposta490, on the basis of which the principle of legality is based, the Italian Constitutional Court has included into the scope of this rule non-tax counterparts or fees. For instance, when the telephone service (‘essential’ public service) was performed by the state under monopoly statute, tariffs were considered to be subject to the legality requirement, as a

486 J.J. BIENVENU and T. LAMBERT (Droit fiscal, cited above, 31) criticize this method of defining the concept of tax, in particular the so-called ‘impositions de toutes natures’, in a negative manner : “Mais il faut surtout insister sur la technique de qualification qui consiste à procéder négativement par voie d’élimination, une imposition et une imposition d’une certaine nature se définissant par les caractères qu’elles n’ont pas en commun avec un prélèvement non fiscal et une imposition d’une autre nature, ce qui conduit souvent à induire de l’accessoire le principal. On constate que le Conseil constitutionnel a poursuivi une politique de clarification par élimination ; lorsqu’un prélèvement innomé ne correspond ni à la définition d’une taxe parafiscale, ni à celle de la définition des redevances pour services rendus, il devra nécessairement se trouver rangé dans la catégorie des impositions de toutes natures. Mais cette dernière n’a pas pour autant gagné en précision ; en effet, le résultat est que les contours de la taxe et de l’impôt perdent leur netteté à tel point que le Conseil constitutionnel se trouve dans l’incapacité de définir les éléments de qualification”. The authors take the example of the case law about the fiscal nature of the cotisation sociale généralisée : the Constitutional Court has classified it under the category of taxes of all kinds (impositions de toutes natures), but the reasoning does not clarify the criteria on the basis of which this characterization is opted for (Conseil constitutionnel, December 28, 1990, n° 90-285 DC). 487 G. RUTH SUCHY, personal contribution to the eatlp WG. 488 There is some debate as to whether there is an agreement that is only extended by an act of government, or whether this agreement is a preparatory act to the act of government itself. 489 C. SACCHETTO, M. BARASSI, L. DEL FEDERICO, personal contributions to the eatlp group. 490 On this expression, see A. FEDELE, La riserva di legge, in AMATUCCI, Trattato di diritto tributario, Vol. I, t. I, Padova, 1994, 157.

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consequence of authoritative features characterizing their determination491. Rules providing for sanctions have also been treated as included within the generic expression of prestazioni imposte492 Part of the Italian doctrine493 criticizes the way the concept of tax has been traditionally elaborated in Italy with the generic concept of tributo, subdividing into the specific concepts of imposta, tassa and contributo. According such scholars, the definition of legal concepts should be relevant, that is it must be connected to the usefulness for interpreting legal rules referring to this concept. Then, abstract conceptual elaborations, as they appear in the traditional doctrine, do not closely correspond to the concepts set forth in the relevant rules. Indeed, the two most important principles applying to taxation – i.e. the principle of legality and the principle of ability-to-pay – do not formally and explicitly talk about the so-called tributo, imposta, tassa or contributo. A good example is the aforementioned art. 23 Const. that refers to the expression of prestazione imposta (imposed performance). As a result, the traditional doctrinal categories are of no use for interpreting the principle of legality of taxation and the notion of prestazione imposta must be separately construed and commented. In this regard, F. TESAURO, for instance, suggests an approach to the concept of tax which would be based on plurality of concepts, the content of which would depend on the underlying applicable rule (rule referring to the notion of tax). - In Spain, art. 31.3 of the Constitution provides for that “Personal or property contributions for public purposes may only be imposed in accordance with the law494. By referring to the expression of ‘prestaciones personales o patrimoniales de caracter publico’, the text may not be interpreted as limiting its scope to taxation (prestaciones tributaries). It extends to many types of non-tax payments, such as prices for industrial public services, social security contributions, etc. 495 I.6. What are the fundamental consequences of the principle of legality in tax matters ? a) As a rule, the legislature must establish the rules relating to all taxes imposed within the legal order. The question arises as to whether delegation is permitted, maybe under well-determined limits. In other words, to which extent does the tax have a firm basis in law and are there legitimate exceptions to the principle ? There are essentially two extremes496 between which a great variety of situations appear in the countries under review497. The absolute non-delegation option is not very practical, as regards tax efficiency considerations. On the other hand, to permit delegations in the same way as in any other legislative areas would wipe out the specificity of this legality principle for taxation. The guarantee would no longer be stronger than the normal democratic guarantees conferred upon in other areas of the law. Finally, intermediate positions imply a more rationalized subdivision of responsibilities between the legislative and executive levels of government.

491 Corte costituzionale, April 9, 1969, n° 72. G. FALSITTA, Manuale di diritto tributario. Parte generale, Cedam, 2003, 4° ed., 128 ; F. TESAURO, Istituzioni di diritto tributario, Vol. 1 General part, 7° ed., UTET, 17. 492 A. FANTOZZI, Corso di diritto tributario, UTET, 2003, 17. Rules organizing administrative sanctions will be subject to art. 23 Const. However, criminal sanctions will nevertheless fall into the scope of art. 25 Const. relating to criminal law. 493 See for instance, F. TESAURO, Istituzioni di diritto tributario, Vol. 1 General part, 7° ed., UTET, 9-11. 494 “Sòlo podran establecerse prestaciones personales o patrimoniales de caracter publico con arreglo a la ley”. 495 J.M. QUERALT, C.S. SERRANO, G.C. OLLERO, J.M.T. LOPEZ, Curso de derecho financiero y tributario, Madrid, Tecnos, 2003, 121 : “… las prestaciones patrimoniales no pueden identificarse simplemente con las prestaciones tributaries, sino que se extienden, cada vez con mayor intensidad, a un campo muy variado de prestaciones diversas, tales como precios de servicios publicos industrials, cotizaciones a la Seguridad Social, pago de prestaciones farmaceuticas, etc.”. 496 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 17. 497 The historic process that has led to the current formulation of art. 170 §1er of the Belgian Constitution well illustrates the original intention with respect to delegation from the legislature to the executive in tax matters. Before the independence of Belgium, while the territory was part of the Netherlands Kingdom, the Dutch Grondwet provided that taxes should be levied “pursuant to” Act of Parliament (“uit kracht van een wet”). The way the text was labelled was considered as indirectly allowing large delegations to the benefit of the executive. To avoid such a situation, it was decided in 1831 to change the formulation in the new Belgian Constitution and to provide that taxes must levied by an act of parliament (“par une loi” “door een wet”), which textually reinforces the exclusivity of the parliament in tax matters. The old formula – “uit kracht van een wet” – has been maintained as such in the Dutch Constitution. It doesn’t necessarily imply that the approaches to the delegation issue are substantially different in both countries. What essentially differentiates The Netherlands from Belgium is that in the former there is no constitutionality review procedure, while in the latter there is. In Belgium, the principle of legality of taxation has even become a taxpayers’ fundamental right under control of the Constitutional Court.

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So, for a tax to have a firm basis in law, its essential elements must be set forth in an enabling law. Such elements would include, among others, definitions of taxpayers, taxable events or objects of taxation, tax bases, tax rates, and basic rules for administration and tax litigation498. Sometimes, the constitutional text explicitly clarifies the elements of the tax law which must be directly fixed in the parliamentary statutes499. In other countries, it has been the courts’ responsibility to enumerate the ‘essential elements of the tax claim’ that must be necessarily fixed by representative assemblies. Incidental (ancillary) rules with respect to taxation may generally be delegated to the executive (power to execute the law, included tax laws). Under exceptional circumstances, subject to limits provided for by the Constitution, the law or the case law, a larger delegation of tax powers to the executive is admissible (f.i. special powers decrees or emergency decrees). The delegation issue well illustrates the tension existing among the criteria defining the concept of tax : * compulsory aspect and lack of individual return calling for taxpayers’ protection against absolute power and arbitrary government actions : strict principle of legality in tax matters * financial function of taxation (bringing money to the treasury) and need for efficiency in the tax collection process, while the state institutions cannot survive without money : exceptions to the strict principle of legality with legitimate delegations, implying the weighing and balancing of the requirements ensuing from the principles of self-government and efficiency. The question frequently arises as to which elements must be considered as essential for the determination of the amount of tax due, being therefore under the Parliament’s exclusive responsibility. There is hardly any discussion about the core of the tax claim, that is the object of taxation (taxable event), the tax base and the taxable subjects. In some countries, the delegation of the power to set rates in tax matters is not viewed as a serious violation of the principle of legality500, while in other legal systems such a delegation is refused in a more absolute way. As regards procedural aspects, the views are rather different from one country to another. It is frequently suggested that the scope of the principle should extend to the basic norms concerning the process of tax assessment and compliance monitoring, to the extent that they might have an impact upon the final tax to be paid or upon the basic individual rights or guarantees501 Finally, in some constitutions, it is formally and explicitly stated that exemption and tax cuts must be the result of parliamentary decisions : for instance, according to art. 172 of the Belgian Constitution, “No exemption or reduction of taxes can be established except by a law”502. - In Belgium503, the Constitutional Court (Cour d’arbitrage) has treated the principle of legality (art. 170 Const.) as the source of a fundamental right on behalf of taxpayers504. As seen under subsection 1.3.a., until recently, the Court’s power to control (central and regional) legislation was limited. It could only check violations of the constitutional distribution of powers between the central government and the regional governments, of the freedom of education, as well as infringement of the general principle of equality and non-discrimination. Challenging statutes (or regional legislation) on the basis of violation of other constitutional provisions was not theoretically possible. However, the Cour d’arbitrage has developed a case law allowing indirect control of compliance with constitutional fundamental freedoms. The reasoning is

498 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 17. 499 For instance, art. 78 of the Greek Constitution establishes the minimum content of the legality requirement. See also art. 34 of the French Constitution (“La loi fixe les règles concernant : … - l’assiette, le taux et les modalités de recouvrement des impositions de toutes natures”) ; art. 103(2) of the Portuguese Constitution. 500 In France, for instance, according to the Constitutional Council, the art. 34 (principle of legality in tax matters) does not prevent the legislature from delegating to administrative authorities the power to set rates. The delegation must nevertheless provide for limits within which this power may be exercised. Moreover, although local governments have no power to legislate in tax matters (being not considered as parliament in the legality requirement context), the French law allows these local governments to set certain tax rates with a certain margin of appreciation. 501 A.J. MENENDEZ, Justifying Taxes. Some Elements for a General Theory of Democratic Tax Law, Kluwer Academic Publishers, 2001, 305. 502 See also, among others, art. 133(3) of the Spanish Constitution, art. 101(2) of the Luxembourg Constitution. 503 J. VANDE LANOTTE, G. GOEDERTIER, Overzicht Publiek Recht, Bruges, Die Keure, 2003, 1088-1091 504 The first essential rulings drafting this fundamental right view to the principle of legality in taxation are : Cour d’arbitrage, September 13, 1995, n° 64/95 ; April 17, 1997, n° 21/97.

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founded on the link that may be established between breaches of fundamental rights on the one hand, and a violation of the constitutional principle of equality and non-discrimination. When the authority infringes one’s fundamental rights, it places this person-victim in a discriminatory situation in comparison with the other persons the rights of whom are safeguarded. As regards the principle of legality in taxation, according to the Belgian Court, taxpayers liable for taxes not complying with this principle (f.i. because introduced by the executive, even though on the basis of delegation) are discriminated against in comparison with taxpayers having to pay taxes legitimately approved by the Parliament. In the Court’s case law, the ‘no taxation without representation’ principle constitutes thus a fundamental right, that is to say the right to participate – indirectly, i.e. as elector – in the tax law making process. Taxpayers, who are subject to taxes levied by the executive, are deprived of this fundamental guarantee and therefore discriminated against. Such an infringement of the Constitution has to do with the principle of equality and falls as a consequence under the constitutionality review power of the Cour d’arbitrage. As a matter of principle, no justification may be admitted and the levy can be purely and simply struck down by the Court. This case law seems thus to be very protective of the taxpayers’ interests. The reasoning must nevertheless be qualified, by taking account of all decisions having validated delegations under well-determined conditions. Over the years, the Constitutional Court seems to show more flexibility with respect to delegations in tax matters. Conditions for derogating the principle of legality are less strictly appreciated. The recent decision of December 1, 2004 (n° 195/2004) gives a good synthesis of the delegation issue in tax matter as it is now allowed to a limited extent in the Belgian legal order. Legitimacy of delegation to the executive (of the power to determine an essential element of the tax) depends on essentially three conditions505 :

1) impossibility for the legislator to establish itself all essential elements of the tax because of constraints linked to the parliamentary procedure

2) the content of the delegation is explicit and unequivocal 3) the tax measure approved by the executive must be submitted to the legislature within a short time and confirmed by it ; if the decrees are not confirmed by the Parliament, they become null and void.

From 2003 onwards, the reviewing power of the Belgian Cour d’arbitrage has been extended to a series of constitutional fundamental rights, as well as to tax principles provided for in the Constitution. As a result, the Court may now directly control the compliance of taxes with the principle of legality set forth in art. 170 Const. Artificial constructions, that is indirect control of legality through equality, is no longer necessary. In the facts, more and more decisions are made by the Belgian Constitutional Court, in which compliance with the principle of legality is examined. Various legal arrangements were subject to the Court’s review on this basis, such as the tax amnesty law506, the current general anti-abuse provision (art. 344 §1 of the Income Tax Code)507, or delegations in the VAT area508. - In France, the Constitutional Council found that the specification of the date of entry into force of a tax rule could not be totally delegated to the executive509. The same Court had also to rule about a television fee and decided that it had the nature of an extra-budgetary fee (taxe parafiscale). Since the organic budget law of 1959 required any taxe parafiscale to be approved annually by parliament, the Constitutional Court found that this procedure had to be followed by the Radio-television française (which collected the levy). It was therefore illegal for this fee to be imposed administratively without parliamentary approval510. - In Italy, according to the Constitutional Court as well as scholars, the principle of legality (riserva di legge) concerns the most important elements of the tax. The statute must establish who are the taxpayers, which is the taxable event (presupposto), and what is the maximum tax rate. Interestingly, in the Italian view, only the

505 “Puisque la matière fiscale est une compétence que la Constitution réserve à la loi, toute délégation qui porte sur la détermination d’un des éléments essentiels de l’impôt est, en principe, inconstitutionnelle. Toutefois, lorsque le législateur se trouve dans l’impossibilité d’établir lui-même tous les éléments essentiels d’un impôt parce que le respect de la procédure parlementaire ne lui permettrait pas de réaliser un objectif d’intérêt général, il peut être admis qu’il habilite le Roi à le faire, pourvu qu’il détermine explicitement et sans équivoque l’objet de cette habilitation et que les mesures prises par le Roi soient examinées par le pouvoir législatif dans un délai relativement court, fixé dans la loi d’habilitation, et qu’en l’absence de confirmation, les arrêtés adoptés soient privés d’effets”. 506 Cour d’arbitrage, April 20, 2005, n° 72/2005 (validity) (see http://www.arbitrage.be). 507 Cour d’arbitrage, March 16, 2005, n° 60/2005 (validity), February 2, 2005, n° 26/2005 (validity), November 24, 2004, n° 188/2004 (validity). 508 Cour d’arbitrage, March 16, 2005, n° 57/2005 (non-validity). 509 Conseil constitutionnel, decision of December 29, 1986, 223 DC. 510 V. THURONYI, Comparative Tax Law, cited above, 49. The author notes as a policy matter, this decision can be justified on the basis that it is appropriate as a matter of democratic governance to take a broad view of the kind of levy requiring Parliamentary approval.

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maximum rate must be fixed by statute. The executive may be allowed to determine the rate without exceeding the maximum fixed by statute. In other countries, the legality requirement turns out to be stricter with respect to determination of tax rates. The legislature should not only fix the maximum rate ; it must establish a well-determined tax rate without letting any margin to the executive in this respect. It well illustrates the fact that approaches to the legality rules consequences may substantially vary from one country to another. - The Spanish Court held that art. 31 of the Constitution requires that essential elements of a tax be determined by law. However, the constitution should be interpreted flexibly and the Court allowed, for instance, the legislature to delegate to the executive such a matter as adjustment for inflation511. The principle of legality in Spain (‘reserva de ley’) is a relative one. - According to art. 78(4) of the Greek Constitution, “The object of taxation, the rate of the tax, the exemptions from taxation and other concessions and the awarding of pensions cannot be made subject to delegated legislative authority”. This provision explicitly emphasizes the prohibition on delegation in tax matters, which is implicitly derived from the tax principle of legality in other countries. As a matter of interpretation, an explicit constitutional provision leaves less leeway for derogatory interpretation and for ‘exceptional’ delegations. b) In many countries, one particular consequence has been derived from the principle of the legality of taxation. As a matter of rule, the tax administration is strictly bound by legal texts on taxes and may not conclude any agreement on tax liability with taxpayers512 It must be emphasized that this rule prohibiting agreements between the taxing administrative authorities and the taxpayers is also derived, in some countries, from the specific nature of the tax law. By reason of the particular importance of the financial objective connected to taxation, that is the financing of the governments’ activities and therefore the functioning and even the existence of the state, laws relating to taxation have regard to public order (as well as criminal law). As a result, these laws may never be derogated through agreements between administrative authorities and taxpayers. The rule would further be of an absolute nature. It is a good example of legal consequences deriving from a reference to the functional aspect of the definition of the concept of tax. These two approaches to the prohibition on agreements between administration and taxpayers in tax matters are not contradictory and should conveniently be combined in order to consolidate the rule and to delimit its actual impact513.

The ‘agreements’ issue has been subject to discussion for some years, as a result of the introduction of legal certainty promotion mechanisms, such as binding rulings available under (normally) well-determined conditions.

c) The principle of legality has been construed as implying that tax laws should be interpreted strictly (principle of strict interpretation in tax matters). Otherwise, the judge would be making the law, instead of the legislator514.

d) As a consequence of the legality requirement, the tax authorities must levy the tax under the statute provisions and may hence not waive their entitlement515. Actually, the tax administration is not only entitled to tax : it is forced to apply the tax law taken as a whole516. No options (for taxation) or exceptions may be admitted, except when provided for by the law. In relation to the afore-mentioned prohibition on agreements,

511 Tribunal constitucional, December 11, 1992. 512 K. TIPKE, Die Steuerrechtsordnung, Cologne, Verlag Dr. Otto Schmidt, 2° Auflage, Vol.1, 132-136 (with comparative law elements). 513 Such agreements are nevertheless permitted in many countries, e.g. the US (closing agreements), such countries also tending to allow plea bargaining in criminal law (V. THURONYI, Comparative Tax Law, cited above, 71, note 46). 514 V. THURONYI, Comparative Tax Law, cited above, 71. 515 It is usually admitted in the states under review that the taxing authorities may waive accessories of the tax, such as interest payments. 516 K. TIPKE, Die Steuerrechtsordnung, Cologne, Verlag Dr. Otto Schmidt, 2° Auflage, Vol.1, 131.

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it is suggested that the principle of legality contributes to limit the administrative discretion to determine whether to grant a tax privilege or advantage. With respect to the principle of legality issue, the question often arises as to which legal value should be given to the so-called administrative doctrine (all kinds of interpretations of tax law suggested by the tax administrations, such as circulars, instructions, etc.). We won’t examine here this fundamental issue. The views considerably vary from one country to another. The principle of legality rule must be balanced with the legal certainty concern, which turns out to deserve at least equivalent protection. In France, for instance, a specific rule has been developed according to which the taxpayer may rely upon formal interpretation of the tax law by the tax authorities, be it illegal (among others, art. L.80 of the Livre des procédures fiscales). Make notice that this legal certainty rule is not available for levies other than taxes (taxes parafiscales for instance)517. e) The taxpayer who has been assessed erroneously, even though in conformity with his tax return, may overturn his assessment in court. f) The tax authorities have to review the tax return solely in view of applicable laws, meaning that their duty is not to maximise the revenue for the state. Hence, if the return is erroneous and if a correct application of the law would lead to a reduction of the tax liability versus what has been declared, the tax authorities have to assess the lower amount of tax resulting from the tax laws518. I.7. Certain constitutions provide for other specific rules that contribute to realize a kind of formal justice (formal safeguards) in tax matters : a) From the principle of legality, some countries have derived the principle of annuality

519. Accordingly, tax laws must be confirmed annually : the Parliament must every year consent to the government’s levying taxes in accordance with existing statutes for the next budgetary year (which does not mean that all tax laws have to be completely voted by parliaments each year520). As a matter of illustration, according to art. 100 of the Luxembourg Constitution, “State taxes are voted upon annually. The laws that enact them expire at the end of the calendar year unless they have been renewed by then”. The question arises as to whether such a principle is to be characterized as a tax precept or as a budgetary law principle. In a comparative approach to the issue, there is no definitive answer to this question. Anyway, the participation of the citizens in the tax law making process is structured around two different basic moments. First, the enactment of specific tax statutes, that define the tax base and the criteria according to which the tax burden is to be allocated. Second, the approval of the periodic (generally annual) budget act, which symbolises the connection at a systemic level between taxation and expenditure (materialized in the printed document of the Budget) and which reinforces the original consent of law-making institutions to a new one referred to the concrete connection between the two hands of public finance521.

517 C. DAVID, O. FOUQUET, B. PLAGNET, P.-F. RACINE, Les grands arrêts de la jurisprudence fiscale, Paris, Dalloz, 2003, 4d ed., 11. 518 However, this consequence is not observed in the facts. On the one hand, administrative means are limited and it would be impossible to deeply review the tax situation of every taxpayers. As a result, tax reviews are rationally not an obligation of the tax authorities, and selectivity is unavoidable. Tax reviews may therefore be undertaken according to expediency considerations. On the other hand, mentalities are not easily changed within the civil servants community. Tax authorities can, but generally do not, reduce high tax payments, even though erroneously assessed. In our view, this way of acting infringes the principle of legality of taxation. It goes without saying that tax administrations are not easily likely to act as tax counsels. 519 Among others, see for Belgium, art. 171 Constitution ; France, art. 47 Constitution and the organic budget law of 1959 and 2001 ; Luxembourg, art. 100 In the United States, the Constitution requires congressional consent for any spending of public money (art. I, §9), but does not require annual consent for taxation. Accordingly, if Congress withheld its consent to public spending, the Government would have to stop spending, but the liability of citizens to pay taxes would remain unaffected (F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 18). 520 F. VANISTENDAEL, « Legal Framework for Taxation », in V. THURONYI (ed.), Tax Law Design and Drafting, cited above, 18. 521 A.J. MENENDEZ, Justifying Taxes. Some Elements for a General Theory of Democratic Tax Law, Kluwer Academic Publishers, 2001, 307-308. In a normative perspective, A.J. MENENDEZ suggests two things : “First, that the selection of

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By focusing here on the principle of annuality, we would like to isolate another law principle which often specifically refer to the category of levies labelled as taxes. In some countries, by differentiating taxes and fees, the scope of the constitutional principle of annuality is therefore clarified : taxation is subject to annual parliamentary approval process, while fees are exempted from this requirement. For instance, in Belgium, art. 174, setting forth this principle, only refers to taxes (impôt, belasting) collected to the benefit of the state, the communities or the regions. However, the annuality rule does not apply to the so-called ‘rétributions’ dealt with under art. 173 of the Belgian Constitution522 (see below under 1.3.e.). b) According to art. 1§7 of the US Constitution, the procedure for enactment of tax legislation sets forth a special requirement : such legislation must indeed originate in the House of Representatives. In France, the organic budget law (which is a type of law with higher rank than ordinary laws523) imposes procedures that must be followed in enacting specifically tax legislation. I.8. Does the expression of ‘non taxation without representation’ mean that direct democracy is unacceptable in tax matters ? As a rule, referendum is excluded in tax matters and, more generally, in public finance areas. Explicit exclusions are provided for in the Italian Constitution (art. 75(2) : “No such referenda are allowed for tax or budget laws, amnesties, pardons, or ratification of international treaties”) or in the Danish Constitution (§42 (§) of the Grundlov)524. In other countries, although there is no explicit exclusion as such, referendum in tax matters won’t be admitted. The list of countries permitting tax referenda is very limited and appears to be exceptional : it is for instance the case of Switzerland or the US. I.9. In relation to the principle of legality in tax matters, art. 81(3) of the Italian Constitution provides for an interesting rule of budgetary law, that is constitutes a specific principle referring to the concept of tax : “In the budget law, no new taxes or expenditures may be adopted”. 1.10. Conclusion In many countries, the principle of legality is the main constitutional rule in respect of which the concept of tax issue is dealt with before (constitutional) courts. The tax law making power must comply with the Constitution and in democracies, constitutions generally imposes stricter prerogatives to parliaments with respect to introduction of taxes. In many countries, the constitutional validity of many levies may be contested before courts on the grounds of incompatibility with the rules specifically relating to the tax law making process. The impact of this type of litigation might have serious consequences on the taxpayers’ liabilities and consequently on the governments’ budgets. For instance, in Belgium, recently, a door has been opened to contest many delegations from the legislature to the executive in the VAT area. A great part of the VAT legal system could be significantly disturbed as a consequence, subject to future potential decisions by the Belgian Constitutional Court. As observed above, the principle of legality in tax matters has the nature of a formal guarantee to the benefit of taxpayers. In other words, it doesn’t normally organize any substantial fairness in the tax law system, but only implies that taxpayers are not let totally outside the tax law making process. A.J. MENENDEZ525 correctly writes that “The engine of a complex liberal theory of democratic tax law is the participation of individuals in the making of tax norms. The most compelling argument to assert that somebody is obliged to pay a tax is to show that people are taxing themselves. To put it in more specific terms, legitimacy is to be derived from the right to participate on equal terms in the process of deliberation and decision-making of tax norms. If this right is honoured, not only would taxes have been decided according to a procedure that treats

tax bases and the quantification and allocation of the obligation should be trusted to ordinary tax statutes, that are in a better position to redeem their claim to legitimacy due to their deliberative pedigree. Second, that statutes themselves can trust some functions of fine-tuning to the Budget Act, so that it is possible to improve with its help the discharge of basic functions of redistribution and management and steering of the economy”. 522 J. COUTURIER, B. PEETERS, Belgisch Belastingrecht in Hoofdlijnen, Anvers, Maklu, 2004, 29. 523 V. THURONYI, Comparative Tax Law, cited above, 72 : “France is one of the few countries with the concept of laws of different rank (Brazil and Romania being two others). In France, organic laws, specifically provided for in art. 46 of the Constitution, provide a framework in various areas and typically must be passed with a supermajority or under special procedures”. 524 See also, in a less explicit way, art. 167(3) of the Portuguese Constitution. 525 A.J. MENENDEZ, Justifying Taxes. Some Elements for a General Theory of Democratic Tax Law, Kluwer Academic Publishers, 2001, 304.

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all taxpayers with equal concern, but it is possible to argue that there is a better than average chance that the outcome is substantially correct”. However, in the facts, the ideal of self-government, through implementation of the tax principle of legality, has to face difficulties with respect to the limited legitimacy potential of representative institutions. This calls actually for the use of institutional imagination in order to find ways of complementing the legitimacy credit derived from participation526. To be legitimate the tax system also needs principles related to substantive correctness. Specific tax principles of this sort will be briefly examined under the following points of this subsection. II. Ability-to-Pay and other Tax Principles related to Material Justice with respect to Taxation

II1. Ability-to Pay Principle

a. Among the European national countries, a triple distinction can be made as regards this principle of substantial justice in tax matters :

- In many countries, ability-to-pay is discussed at a political level. There exists nevertheless no legal protection to this regard. In other words, the legislature is not legally – constitutionally - forced to draft its tax system in compliance with the ability-to-pay concern. It is the situation in Belgium527, The Netherlands528, Sweden529 or Luxembourg530.

- In certain countries, although there is no specific ability-to-pay precept in the Constitution, the case law has developed a binding principle of this sort on the grounds of other constitutional provisions (such as, for instance, the principle of equality). This is certainly the case in Germany. The case law of the Bundesverfassungsgericht and the legal doctrine has been deeply commented above under subsection 1.3.a.(III.5.).

- Finally, in some national constitutions, the ability-to-pay principle is formally and explicitly guaranteed.

We know that art. 13 of the French Declaration of the rights of Men and the Citizen makes part of the so-called bloc de constitutionnalité and assumes constitutional value as such. It provides that “the common contribution, necessary for the maintenance of the public forces and for the cost of administration, should be equally distributed among all the citizens in proportion to their means (‘facultés contributives’)”531. In Spain532, art. 31.1. provides that “Everyone shall contribute to the sustenance of public expenditures according to their economic capacity through a just tax system based on the principles of equality and progressive taxation which in no case shall be of a confiscatory scope”. Art. 4(5) of the Greek Constitution declares that “Greek citizens shall, without discrimination, contribute towards sharing the burden of public expenditure according to their ability”. In Italy, the taxpayers’ ability-to-pay is formally mentioned and protected on the basis of art. 53 of the Constitution. b. The Italian533 Constitution (art. 53) provides for a specific protection of taxpayers’ ability-to-pay534.

526 A.J. MENENDEZ, Justifying Taxes. Some Elements for a General Theory of Democratic Tax Law, Kluwer Academic Publishers, 2001, 304. 527 Even though sometimes, in a very marginal way, a kind of ability-to-pay constraint has been relied upon by the case law, without specific text providing for it. Such a case law nevertheless assumes an exceptional character. 528 S. HEMELS, H. VORDING, personal contribution to the eatlp WG. 529 M. DAHLBERG, personal contribution to the eatlp WG. 530 A. STEICHEN, personal contribution to the eatlp WG. 531 This art. 13 of the French Declaration is frequently used to challenge tax laws before courts. It seems to be considered as a kind of link between other general principles, such as the protection of the property or the protection of family, and tax law. Such a ‘linking’ approach has already been commented above under subsection 1.3.a.(III.5.). 532 For an essential doctrinal contribution to the principle of ability-to-pay in Spain, see P.M. HERRERA MOLINA, Capacidad Economica y Sistema Fiscal, Madrid, 1998. See also J.M. QUERALT, C.S. SERRANO, G.C. OLLERO, J.M.T. LOPEZ, Curso de derecho financiero y tributario, cited above, 113-117. 533 L. DEL FEDERICO, personal contribution to the eatlp WG. For an essential doctrinal contribution to the principle of ability-to-pay in Italy, see F. MOSCHETTI, Il principio della capacità contributiva, Padoue, 1973. 534 “Tutti sono tenuti a concorrere alle spese pubbliche in ragione della loro capacità contributiva”.

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This provision fundamentally limits the government’s power to tax under control of the Constitutional Court : 1) art. 53 requires that a functional relationship be established between public revenue and government spending ("participation to public expenditure") and 2) allows that the way in which public charges are distributed among taxpayers be controlled by the Constitutional Court (according to the ability-to-pay standard). The so-called ‘tasse’ (see above under subsection 1.2.) seem to violate this constitutional principle. They are indeed justified by the idea of exchange between a divisible service performed by the government and a sum of money required from the beneficiary of this public service. Such a justification for the tax doesn’t seem to fit in with the solidarity-based interpretation of the Italian constitutional ability-to-pay principle. The Constitutional Court535 has decided that some kinds of taxes could be justified by another principle than the ability-to-pay standard. A ‘distributive justice principle’ implies that the cost of certain types of government interventions be specifically borne by those who caused it. In other words, some public costs should not be borne by the whole community, as they are related in a certain way to specific persons. Such argument may be accepted where government services are of a divisible and individual nature. In the whole legal system, these levies constitute an exception. In any case, the solidarity-based constitutional framework and all fundamental rights should be protected against a disproportionate use of commutative taxation. In Italy, the ability-to-pay principle has to do with the way in which charges relating to government expenditures are distributed among citizens. It is usually interpreted as a principle of solidarity within the community. However, a certain number of authors adopt a larger interpretation of the constitutional precept. According to them, art. 53 Const. would require an equal and rational distribution of public charges among citizens. If we follow this reasoning, economic ability-to-pay would remain the basic justification for charging taxpayers. Other criteria would nevertheless be (exceptionally) justified and constitutionally legitimized provided they are equal and rational : - contributing (solidarity, redistributing) taxation purpose is to finance general spending, especially indivisible government services ; ‘imposte’ ; the equal and rational tax distribution is based on each one’s economic ability-to-pay ; - commutative taxation purpose has to do with the taxpayers’ liability for specific items of public expenditure or compensation for enjoyed government benefits ; ‘tasse’ and ‘contributi’ ; the equal and rational tax distribution is based on a justification departing from the ability-to pay concern. Other equal and rational distribution criteria could be elaborated according to the context and as a result of new ideas and political objectives : let’s think about the ‘polluter-payer’ principle for instance. Commutative taxes are valid, that is they don’t violate the constitutional ability-to-pay principle, when the link between government service on the one hand and taxpayer’s liability or benefit on the other hand clearly results from the rules defining the tax base. Where otherwise such a relation (enjoyed benefit-responsibility for the cost/charge) ‘justifies’ the tax without clearly appearing in the tax base, constitutional validity will depend on compliance with the ability-to-pay principle. So, if the tax base only refers to the taxpayers’ personal economic activity - turnover, employment…-, the tax will be subject to solidarity-based constitutional ability-to-pay principle, even though the tax at play aims a financing specific public infrastructure. In practice, there must be an actual legal relation between the amount of the ‘tassa’ and related government services’ cost or market value. The solidarity-based ability-to-pay principle should automatically be applied where costs or equivalence principles are not formally complied with. The ability-to-pay principle is very much commented in the Italian legal doctrine as a consequence of its formal mention in the Constitution. We have deeply examined under subsection 1.3.a. the ability-to-pay requirement as it appears and is applied in the German legal order. It is an illustration of a case law rule playing a fundamental role in the legal system without having, in Germany, any formal basis in the Grundgesetz536. What is the legal value added by a specific and explicit constitutional ability-to-pay principle in comparison with the potential ability-to-pay protection resulting from the general (non-tax) constitutional framework ? In Italy, many authors think that there is no value added. It is also argued that the ability-to-pay protection would still exist in the Italian law if art. 53 Const. was inexistent. Indeed, art. 53 providing for

535 See above subsection 1.3.a., III, III6 (‘Equality, Ability-to-Pay and Benefit-Principle’) with references to decisions of the Italian Constitutional Court. 536 As seen under section 1.3.a., ability-to-pay is not formally mentioned in the German Constitution, but is derived from a series of other constitutional provisions, the main one being the principle of equality.

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ability-to-pay guarantee is generally considered as an implementation of the general (non-tax) solidarity provisions set forth in art. 2 and 3 of the Constitution. II2. Progressivity of Taxation In some countries, the principle of progressive taxation has been inserted into the constitution. In addition to legitimating progressive levies from a constitutional viewpoint, such a reference in the text itself of the fundamental charter may assume a legally-binding character with respect to the tax-law making process. As a result, the legislator may be considered as being, not only entitled, but required to build a tax system based on the idea of progressivity. When the progressivity of the tax system is dealt with in the Constitution, it specifically refers to the type of levies labelled as ‘tax’ and therefore requires a good and clear definition of what a tax is in the legal order. Two interesting illustrations are found in the Italian and Spanish constitutions. In Italy, according to art. 53(2) of the Constitution, “The tax system (‘sistema tributario’) has to conform to the principle of progression”. Thus, the Italian constitutional framework provides for a specific principle of progressivity. It is generally interpreted by scholars and the Constitutional Court as implying that the whole system must show a progressive feature. It is not required that each tax, taken individually, be progressive. Then, according to the Constitutional Court, the principle of progressivity may be complied with when only one tax, i.e. income tax, assumes a progressive nature. Indeed, income tax is so important that it colours the whole system537. According to Italian scholars, the principle of progressivity may influence the way the concept of tax is viewed and defined. Indeed, as a result of this constitutional rule, it is argued that the objective of taxation would not only be to bring money to the Treasury, but also to redistribute income and wealth among the citizens. Anyway, the progressivity precept confirms the solidarity foundation on which the Italian Constitution is built. In Spain538, the principle of progressivity is set forth in art. 31(1) of the Constitution : “Everyone shall contribute to the public expenditure in proportion to his financial means, through a just and progressive system of taxation based on principles of equality, which shall in no case be confiscatory in character”. The progressivity requirement is further reinforced by art. 40(1) providing that “The public authorities shall promote favourable conditions for social and economic progress and for a more equitable distribution of personal and regional income within the framework of a policy of economic stability”. In a decision of March 2 and 18, 2000, the Tribunal Supremo has ruled that this rule has to do with the whole tax system and some – not all – singular taxes539. The same aforementioned art. 31(1) of the Spanish Constitution contains itself the limit set to the progressive impact of the tax system. Indeed, it explicitly prohibits the so-called confiscatory taxation (this subject has been deeply commented above under subsection 1.3.b., III). The Portuguese Constitution mentions the progressivity requirement with respect to only the income tax. According to art. 104(1), “Personal income tax shall seek to reduce inequality and shall be a single, progressive tax that takes account of family needs and income”. The progressive approach to taxation fits in with the social state view which is expressed in many constitutions. In countries where progressivity is not formally mentioned as such in the constitutional text, it seems nevertheless to be justified on the grounds of this social approach to the constitutional framework. In France540, progressivity of taxation is considered as being consistent with the principles of equality before public charges and of ability-to-pay, that are formally set forth in the French bloc de constitutionnalité.

537 F. TESAURO, Istituzioni di diritto tributario, Turin, UTET, Vol.1, 2002, 70-71. 538 J.M. QUERALT, C.S. SERRANO, G.C. OLLERO, J.M.T. LOPEZ, Curso de derecho financiero y tributario, cited above, 111-112. 539 “Esta afecta al sistema tributario y a algunos impuestos – no a todos –“. 540 G. RUTH SUCHY, personal contribution to the eatlp WG. See among others M. BOUVIER, Introduction au droit fiscal général et à la théorie de l’impôt, Paris, L.G.D.J., 2001, 54.

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Certain decisions of the Conseil constitutionnel have been construed as implying the need for personal income taxation to be globally progressive541. Make nevertheless notice that the question is in France very open to debate. II3. Equality in Tax Matters In some countries, the constitution contains, usually besides a general equality rule, a specific equal treatment provision with respect to taxation. - In Belgium, art. 172 of the Constitution provides for the following specific tax rule : “No privileges with regard to taxes can be established. No exemption or reduction of taxes can be established except by a law »542; - Art 101 of the Luxembourg Constitution is very much the same as art. 172 of the Belgian Constitution543 ; - In France544, art. 13 of the Declaration of the Rights of Men and the Citizen declares : “A common contribution is essential for the maintenance of the public forces and for the cost of administration. This should be equally distributed among all the citizens in proportion to their means”. - In Italy545, universality of taxation and equal tax treatment is specifically derived from art. 53 of the Constitution, stating that “Everyone shall contribute to public expenditure in proportion to his capacity (capacità contributiva)546”. - In Spain547, the general equality clause is completed, as regards taxation, by art. 31 : “Everyone shall contribute to the public expenditure in proportion to his financial means, through a just and progressive system of taxation based on principles of equality, which shall in no case be confiscatory in character”548.

541 For example, Conseil constitutionnel, June 21, 1993, n° 93-320 DC : “Considérant que le principe d'égalité devant les charges publiques ne fait pas obstacle à ce que le législateur, dans l'exercice des compétences qu'il tient de l'article 34 de la Constitution, rende déductible un impôt de l'assiette d'un autre impôt, dès lors qu'en allégeant ainsi la charge pesant sur les contribuables, il n'entraîne pas de rupture caractérisée de l'égalité entre ceux-ci ; qu'en l'espèce, la déduction opérée par la loi, qui est au demeurant partielle et limitée dans son montant par un mécanisme de plafonnement, ne remet pas en cause le caractère progressif du montant de l'imposition globale du revenu des personnes physiques ; qu'elle ne saurait, par suite, être regardée comme contraire à l'article 13 de la Déclaration de 1789”. 542 On the principle of equality in Belgium, see S. VAN CROMBRUGGE, « Belgium », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 51-73 ; WILLEMART, E., Les limites constitutionnelles du pouvoir fiscal, Bruxelles, Bruylant, 1999, 274 p. 167-250. 543 According A. STEICHEN (personal contribution to the eatlp WG), the specific provision in tax matters was not aimed at introducing any specificity in approach to equality and taxation (in comparison with other areas of the law). Its sole purpose was to reinforce the general principle of equality for tax matters. The provision has essentially remained unchanged since the first version of the Constitution in 1868 (which itself has drawn upon the 1789 French Declaration of Men and the Citizen). Its purpose was to restate that the general principle of equality prohibits that certain people may claim an exemption from tax as a result of their statute, religion or profession. 544 According to G. RUTH SUCHY (personal contribution to the eatlp WG), one could think that this specific principle provided for in art. 13 of the Declaration is limited to taxes. However, in some decisions, the Conseil constitutionnel appears to have linked the traditional general principle of equality before public burdens to this text (decision of December 21, 1999, n° 99-422 DC), even though this principle is certainly not limited to tax matters, nor to the area of levies. Anyway, some authors think that there might be different tests for whether the principle may be set aside in view of a specific aim pursued by the legislator, f.i. reducing pollution (B. CASTAGNEDE, “Le contrôle constitutionnel d’égalité fiscale”, in Petites affiches, May 1st, 2001, n° 86, 4). On the principle of equality in France, see also P. MARCHESSOU, “France”, in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 75-88 ; C. DAVID, O. FOUQUET, B. PLAGNET, P.-F. RACINE, Les grands arrêts de la jurisprudence fiscale, Paris, Dalloz, 2003, 4d ed., 134-142. See also the very interesting contribution of L. FONBAUSTIER, “Réflexions critiques sur un principe à texture ouverte : l’égalité devant l’impôt”, in D. GUTMANN (ed.), L’impôt, in Archives de philosophie du droit n° 46, Paris, Dalloz, 2002, 79-102. 545 On the principle of equality in Italy, see A. DI PIETRO, “Italy”, in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 115-124. 546 In Italy, equality in tax matters means that people with equal ability to pay has to equally contribute to government expenditure. But, if the ability to pay is different, the contribution to government expenditures must also be different. It is up to the legislator to decide whether two situations are equal or different. In this decision, the legislator is free. The only limit to its freedom has respect to reasonableness. 547 On the principle of equality in Spain, see T. ROSEMBUJ, « Spain », in G.T.K. MEUSSEN (ed.), The principle of Equality in European Taxation, cited above, 157-163 with interesting developments about the links between the equality rule in taxation and the principle of ability-to-pay and the principle of progressiveness, both formally written in the Constitution.

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Under subsection 1.3.a., we tried to demonstrate that the equality issue has nothing to do with the way the rule is formally drawn up in the Constitution (general non-tax principle vs. specific tax rule). What is important in our view is the way the principle of equality (general or specific) is applied by the courts in tax matters. In countries where the equality rule is not specifically formalized with respect to taxation, the (constitutional) Courts may develop a case law which turns out to be very protective for the taxpayers. This is for instance the case in Germany. The German case law goes rather further than the equality case law in countries provided with a specific tax equality rule (Italy, Belgium, …).

Anyway, equality in tax matters has been deeply commented under subsection 1.3.a., III. II4. Non-retroactivity The constitution of a few countries specifically prohibit retroactivity of legislation in tax matters. The Swedish Constitution (the so-called Instrument of Government), in addition to the ban on retroactive effect of criminal legislation, explicitly prohibits tax law with retroactive effect549. According to art. 103(3) of the Portuguese Constitution, “No one shall be compelled to pay any tax (…) that are retroactive in effect (…). Art 78(2) of the Greek Constitution provides that “Taxes or any other financial burdens cannot be imposed by law with retroactive effect which extends beyond the financial year previous to the one during which the tax shall be levied”. This provision explicitly extends its effects to other types of financial levies than taxes in the strict legal sense. The impact of the non-retroactivity requirement in tax matters has been examined under subsection 1.3.a., V550. II5. Principles of a Programmatic nature Some constitutions go very far in the way they deal with taxation, even drafting a kind of socialist constitutional framework. A good illustration may be found in the Portuguese Constitution. The financial framework is dealt with in the articles 101 (“The structure of the financial system shall be determined by the law in such a way as to guarantee (…) that the financial resources necessary for economic and social development are provided »), 103 (« The fiscal system shall be directed towards meeting the financial requirements of the State and other public bodies, and the fair distribution of incomes and wealth »), 104.1 (« Personal income tax shall seek to reduce inequality and shall be a single, progressive tax that takes account of family needs and income »), 104.3 (« Property taxation must contribute to equality between citizens »), 104.4 (« Consumption taxes shall seek to adjust consumption to the changing requirements for economic development and social justice, and those taxes shall be weighted against luxury items »).

548 In the Spanish legal order, the choice of the legal basis for equality requirement may influence the availability of constitutional remedies. Under art. 53 of the Spanish Constitution, the writ of amparo is available to challenge legislation that violates certain constitutional rights, such as the right to equal protection under art. 14. The Spanish Constitutional Court has held, however, that a number of challenges based on unequal treatment in tax legislation were properly founded not on article 14, but rather on article 31 (establishing principles of equality in taxation) and hence could not be brought under the writ of amparo (Tribunal Constitucional, February 15, 1993). 549 Unless the Swedish Riksdag (parliament) finds that special reasons warrant such legislation and provided that the government or a Riksdag committee had already presented a proposal to the relevant effect or announced such a proposal on the date of the legislation’s entry into force. Furthermore, a general exception to the ban on tax legislation with retroactive effect is made for the case that the Riksdag considers “retroactive effect is warranted on special grounds connected with war, the threat of war, or a grave economic crisis (see, art. 2(10) of the Swedish Instrument of Government). L. PRAKKE, C. KORTMANN, Constitutional Law of 15 EU Member States, cited above, 852. 550 Make notice that in Italy the non-retroactivity rule in tax matters is derived from the aforementioned specific principle of ability-to-pay (art. 53 Const.). According to the Constitutional Court, tax legislation may not be retroactive to the extent retroactivity means taxation of a non present ability to pay. The principle of non-retroactivity was included in the Taxpayer’s Bill of Rights of 2000. This Bill of Rights assumes a statutory, and not constitutional, value.

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It goes without saying that all these provisions give a concrete content to the social state and solidarity principles that underlie the Portuguese constitutional framework. It is very difficult to isolate the actual legal effect that these declarations may have. In particular, it is uneasy to determine to what extent the tax law making power of the legislator is restricted on the grounds of such provisions. As observed by TIPKE and LANG551, these very social and egalitarian constitutional provisions have not precluded the Portuguese government from establishing a kind of tax haven in Madeira ! Anyway, no Portuguese Professors have contributed to the eatlp research on the concept of tax. It would nevertheless be very interesting to hear from them about the actual impact of these social provisions on the drafting of tax laws. II6. Other specific Tax Principles : illustrations - According to art. 20 of the Italian Constitution, “For associations or institutions, their religious character or religious or confessional aims do not justify special limitations or fiscal burdens regarding their establishment, legal capacity, or activities”. - Art. 14 of the Italian Constitution guarantees that home be inviolable : it allows controls and inspections, among others, for fiscal purposes. - From the articles 13 and 14 of the French 1789 Declaration, the Constitutional Council has derived the so-called principle of necessity of the tax

552. The need for taxation implicitly justifies special legal arrangements with respect to tax inspections and fight against fraud. It results that fraud and non-payment of taxes could never be justified on the grounds of individual freedom. A balance should nevertheless be found between the two types of values.

551 Steuerrecht, cited above, 2002, 43. 552 M. BOUVIER, Introduction au droit fiscal général et à la théorie de l’impôt, Paris, L.G.D.J., 2001, 52.

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1.3. e. Specific constitutional principles concerning the other types of financing of government action Do constitutions of EATLP countries explicitly mention other types of financing government action (fees, social security contributions, …) ? If so, what is the legal justification of such a mention? The issue is relevant because the notion of tax is often characterized by contrast with other types of government income: tax vs. fees, tax vs. social security contributions, tax vs. fine, tax vs. price. To answer the two aforementioned questions, a series of distinctions could be made. The comment will be very brief, taking account of what has already been said above (under subsections 1.3.a., 1.3.b., 1.3.c. and 1.3.d.). a. As seen under subsection 1.3.a., most constitutions contain general (non-tax) provisions having a (direct or indirect) influence on the way the concept of tax is viewed. These rules determine conditions under which taxation may be considered as being legitimate or, on the contrary, prohibited. So, we have deeply analyzed constitutional principles such as solidarity, social state, equality and non-discrimination. Fundamental rights have also been examined, as they can influence the way governments draft the rules organizing the financing of their activities. Many ‘general’ rules of this sort have as well an impact on the definition, recognition and justification of other types of levies. For an illustration of it, see our comment under subsection 1.3.a., III, III.6. (Equality, Ability-to-Pay and Benefit-Principle). Coexistence of benefit-based levies with an ability-to-pay rule turns out to be difficult from a legal point of view. The general constitutional framework in some federal countries (f.i. Germany, Belgium) has also an influence on the distribution of the law-making power with respect to levies other than taxes. For a comment on this fundamental issue, see above subsection 1.3.c., III2 (Does the power to levy ‘fees’ (with or without a fiscal nature) necessarily follow the matter to which it relates). b. In some countries, the financial provisions set forth in the Constitution do refer to some large expressions including types of levies other than taxes in the strict legal sense. A good illustration may be found in the Italian legal order. The art. 23 of the Constitution provides for a legality principle with respect to the so-called prestazioni imposte. It has been observed above that this expression has a wider scope than the concept of tax as such. It includes every types of compulsory patrimonial contributions. As a result of such a generic label, art. 23 is open to a very large interpretation, even including within the scope of the ‘no taxation without representation’ rule many fees such as telephone tariffs under state monopoly. Then, there is no doubt that the legality rule also applies in Italy to social contributions, which might certainly be considered as compulsory levies and therefore as ‘prestazione imposta’. For a comment on this rule, see above under subsection 1.3.d., I.5. When you wish to extend the scope of taxpayers’ guarantees to other levies than taxes in the strict sense, alternative options are available, from a legal technique viewpoint : - One consists of extending the definition of the concept of tax to the extent necessary to include categories of levies that are not traditionally labelled as taxes. You create a generic category ‘tax’ that goes ahead a strict concept of tax and that covers levies scholars are used to distinguishing553. See our comment above under subsection 1.3.d., I.5., a)554. - Another way towards reinforcement of (tax)payers guarantees lies in the use of generic (non-tax coloured) expressions such as the aforementioned ‘prestazione imposta’. If you delimit the scope of a protection rule by using a generic expression of this sort, it is more easy to include within the safeguarded area levies which are not usually labelled as taxes.

553 In this regard, see the very interesting proposals suggested in 1990 by the Commissie ter bestudering van het begrip ‘belastingen’ (Geschriften van de Vereniging voor Belastingwetenschappen, n° 184, Kluwer, Deventer) about the Dutch system. 554 We have already noted that “in the facts, it is difficult to identify, among various approaches to the concept of tax, the one which must be chosen for determining the scope of the tax principle of legality. Sometimes, the courts opt for an large concept of tax for the purpose of extending the scope of the ‘no taxation without representation’ rule. Such a case law favours a larger (formal) democratic protection for the citizens-taxpayers”.

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See our comment above under subsection 1.3.d., I.5., b). - An ultimate alternative, ending up in much the same result, consists of explicitly providing for (protection) rules applying to ‘other levies than taxes’. Reference to the concept of tax is maintained in the constitutional text, but it is completed with provisions having respect to other categories of levies. c. A good illustration of the last abovementioned option may be found in the Dutch and Belgian legal orders. - In the Netherlands, art. 104 of the Constitution is labelled as follows :

“Taxes imposed by the State shall be levied pursuant to Act of Parliament. Other levies imposed by the State shall be regulated by Act of Parliament”.

Art. 104 of the Dutch Constitution is the basis for the principle of legality with respect to the government’s financial income. As a result of this provision, intervention of the electors’ representative assemblies (Parliament) is not only required in tax matters, but also in the larger area of the so-called other levies (‘andere heffingen’). However, the Constitution does not give criteria to distinguish ‘taxes’ from ‘other levies’. The issue is a controversial one in the Netherlands. The distinction between the two categories of financial resources (taxes vs other levies) is relevant as regards the intensity of the legality requirement. State taxes must be levied by force of law, while other levies of the state are only regulated by law. Interpreters of the rule are making a distinction. For taxes, the statute must set forth all essential rules with respect to the fiscal levy and no delegation is admitted as a matter of principle. As regards other levies, an act of parliament may legitimately delegate to the executive the power to determine the rule, included the essential ones, related to the non-tax levy. The involvement of the Parliament in the definition of the other levies may thus be of a formal nature. Other financing instruments which are not taxes or other levies and which do exist (like social security premiums) are not mentioned in the Grondwet. They are therefore regulated outside the Constitution. Let’s nevertheless remind that laws cannot be tested against the Dutch Constitution. - In Belgium, we already know that the notion of tax is formally mentioned in art. 170 of the Constitution (see above under subsection 1.3.d.). In addition, art. 173 of the Belgian Constitution provides for specific arrangements with respect to the so-called ‘rétributions’ (‘retributie’ in Dutch). According to art. 173 Const. : “Except for the provinces, polders and drainage systems, and those cases formally excepted by the laws, the decrees and rules described in Article 134, no retribution (“rétribution-retributie) may be imposed upon citizens, apart as tax for the benefit of the State, the community, the region, the urban entity, the federation of communes or the commune555”. What the term ‘rétribution’ means in this constitutional context is very controversial. Indeed, there exists so many interpretations of this concept as there are authors having studied and commented the article 173 of the Constitution. Scholars usually assert that this provision is aimed at locking the system established by art. 170 of the Constitution (see above under subsection 1.3.d.). Indeed, art. 170 provides for a principle of legality in tax matters. To a certain extent, certainly subject to discussion, the purpose of art. 173 would be to prevent governments from levying charges similar to taxes, though non-tax characterized, in order to escape control by the parliamentary assemblies. It is suggested that the concept of ‘rétribution’ has to do with fees within the strict meaning of the term. According to this opinion, the rétribution would be defined as a levy collected by the government in return for public benefits directly and specifically enjoyed by the citizen-payer (‘rétribution-redevance’, ‘vergoedingsretributie’). Some authors argue that the rétribution-concept would only regard services 555 This is a free English translation of art. 173 which is labelled in French as follows : “Hors les provinces, les polders et wateringues et les cas formellement exceptés par la loi, le décret et les règles visées à l’article 134, aucune rétribution ne peut être exigée des citoyens qu’à titre d’impôt au profit de l’Etat, de la communauté, de la région, de l’agglomération, de la fédération de communes ou de la commune”.

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performed by the government under legal or de facto monopolistic statute556. By defining the constitutional notion of ‘rétribution’ as fees in the strict sense, scholars and case law isolate a non-tax category of levies which would be the object of a formal reference in the Constitution. The legal interest of the distinction between impôt, rétribution (‘fee’ approach) and price essentially relates to the principle of legality : - taxes are subject to a strict principle of legality in tax matters : as a matter of principle, no delegation to the executive is admissible as regards all elements determining the tax debt ; - prices would never be subject to any legality requirement ; - rétributions-fees would instead fall into the scope of the constitutional principle of legality. With respect to rétributions-fees, according to many scholars and the case law, the principle of legality in fees matters would be less strict than for taxation. Delegations to the executive would therefore be easily admitted and legitimated than in tax matters. Such an interpretation is nevertheless open to debate. Other legal consequences are usually derived from the distinction between impôt and rétribution in the Belgian legal order : f.i., the principle of annuality (see above under subsection 1.3.d.) only applies to taxes ; the power to impose fines by default in payment would only be connected to the power to tax ; the judicial procedure regime would be different according to the legal characterization of the levy, … Besides the abovementioned definition of the term ‘rétribution’ in art. 173 Const., some authors have suggested a second alternative definition for the same concept. Rétribution would also mean tax-rétribution (‘rétribution fiscale’, ‘belastingretributie’). The tax-rétribution is a specific category of taxes collected to the benefit of public (or even private) bodies other than the traditional sovereign authorities (state, regions, municipalities, …). The particular quality of the beneficiaries (departure from the beneficiaries’ norm provided for in art. 170) would allow to isolate a specific category of taxes (tax-rétributions), the fiscal nature of which would be certain. Both meanings of the word rétribution would coexist in the same provision : so, one interpretation doesn’t exclude the other, what is rather curious from a legal technique viewpoint. Critics have been expressed against this doctrinal construction of the constitutional concept of rétribution and such uncertainty justifies the high number of various and heterogeneous views to the issue in the Belgian doctrine557. d. Social security contributions. Much has already been said about social contributions under subsections 1.3.a. and 1.3.d. In general, social security contributions are not separately mentioned and regulated in the constitutions of eatlp countries. As a consequence, in many of them, they are considered to be outside the financial framework drafted by the constitution, which is curious if one takes account of the quantitative importance of these levies. Further, their compulsory nature is obvious in many systems. Sometimes, two techniques are used to reinforce the parliamentary control on the levying of these contributions and to limit therefore the room for manoeuvre let to the executive. and the risk of arbitrary : - In some constitutions, a legality requirement is explicitly provided for with respect to social security in general. It is then easy to extend the scope of this rule to arrangements concerning the financing of the social security scheme, i.e. rules organizing the social contributions (premiums) system (see above, for France, under subsection 1.3.d., I.5.)

556 J.J. COUTURIER, B. PEETERS, Belgisch Belastingrecht, Anvers, Maklu, 2004, 28-29. Such an additional specification would allow to make a distinction between the fee and the price and to subject both categories to different rules. 557 PEETERS, B., «De begrippen belasting, last en retributie in de artikelen 110 en 113 van de Grondwet», in Rechtskundig Weekblad, 1987-88, 241-252 ; KIRKPATRICK, J., GLINEUR, P., «La distinction entre l’impôt et la “rétribution” régie par l’article 113 de la Constitution», in X., Présence du droit public et des droits de l’homme. Mélanges offerts à J. Velu, Bruxelles, Bruylant, 1992, 547-579 ; ANDERSEN, R., «La notion de ‘redevances’, spécialement au regard de l’art.113 de la Constitution», in X., Liber Amicorum Prof. E.M. Krings, Bruxelles, Story-Scientia, 1991, 941-951 ; REDANT, C., «Wat te verstaan onder het begrip ‘retributie’. Een analyse van wetgeving, rechtspraak en rechtsleer in het licht van de Gronwet», in Tijdschrift voor Fiscaal Recht, 2003, 95-107 ; V. SEPULCHRE, "Impôt, rétribution et redevance - Conséquences pratiques d'une distinction fondamentale", in Revue Générale de Fiscalité, 2005, 14-28.

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- By giving a larger interpretation to the concept of tax (or to similar concepts such as rétribution in Belgium, or prestazione imposta in Italy), scholars and case law may extend the scope (by way of interpretation) of the legality rule in tax matters to social security contributions. This approach to the issue justifies that in many countries, that have chosen to finance social security through separate social contributions instead of through general budget, the nature of social security contributions is very open to debate. More and more scholars put in evidence all similar features characterizing both types of levies (tax vs. social contribution), emphasizing the potentially ‘fiscal’ nature of such contributions. In political decision-making and in the economic doctrine, social contributions are usually treated as taxes ; the opposite view of the law (that distinguishes two different types of levies) is less and less justified.

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1.4. Secondary consequences of the distinction between taxes and the other modi of financing government expenditure. (this part will follow soon)

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1.5. General conclusion

Bruno Peeters

The preceding study offers a comparative overview of the concept of tax in the different EU member states. From a normative point of view the question is whether the comparative approach could be helpful to give content to the concept of tax that is not limited by time, place or political system. According to William Barker (see 1.0.a.) the normative approach indicates that the concept of tax is not static and that it should develop in response to change. A definition of tax that will be good for all times and places cannot be found because as societies change, so too do their aims and purposes. The concept of tax should be viewed at least in part from the perspective of the aims and purposes of a world that is increasingly aspiring to capitalist, democratic values. In this setting, tax is one of the primary tools for obtaining social equity. The definition of societal equity in the allocation of wealth and the role of taxes in ameliorating economic hardship by redistributing the burden of taxes from those with less to those with more has been a major political item for at least the last one hundred years. In the same line of thought, Henk Vording also shows that the concept of tax is not static (see 1.0.a). He illustrates how two radically different points of view on the role of the state in society and the economy (libertarianism and utilitarianism) generate alternative perspectives on the concept of taxation. In the libertarian thinking taxation is basically expropriation. In the utilitarian thought taxation is simply a contribution to a commonly agreed goal of the citizens and is basically nothing different from a voluntary exchange. The mainstream economic analysis of taxation, being based on welfare theory, has strong roots in utilitarianism. Taxes are the price that citizens pay to obtain the public goods and services they prefer. Assuming on the one hand that regulation can be used as near-substitutes of taxes558 and on the other hand that taxation can be more efficient than regulation, for example because it saves on transaction costs, Vording tackles the question why one would try to restrict the use of taxation, as the more efficient way of cost-sharing, giving rise to less efficient regulation. He mentions three reasons to restrain the state’s power to tax: 1. the fact that the tax instrument allows a political majority to overrule individual preferences; 2. the problem that preference measurement through the voting process seems to be particularly difficult in tax legislation, due to fiscal illusion and a voter bias towards tax expenditures rather than explicit government expenditures; 3. the additional observation that tax legislation is subject to particularly high distributive and steering ambitions, articulated by interest groups with conflicting aims and unequal organisational power. On the other hand, he also argued that ‘private property rights’ as such are not a convincing reason to restrain the state’s power to tax. Reference made to art. 1 of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms, one could argue that the individual right to hold and enjoy property is recognized in principle, but overruled by the state’s right to tax. Starting from these considerations Vording reflects on the possible boundaries of a concept of tax. Without making an attempt at a formal definition, he pleads for a broad concept of tax in order to clarify all cases where the state uses its legislative power to overrule citizens’ voluntary exchange decisions. The fact that the state has chosen the road of general charges instead of voluntary exchange should be sufficient to trigger the label ‘tax’. It does not matter whether or not the state itself collects (or intends to collect) revenues. From a more legal point of view, G. Suchy emphasizes that taxation is not only an issue of finance, but a complex relationship requiring a balance between on the one hand the public prerogative to claim a payment and to obtain compliance from all potential tax payers and on the other hand the protection of individual rights, such as property, individual freedom, privacy and the equal treatment between the subjects of the law. After a brief inventory of the different sources of funds obtained by the government to finance its expenditure (see 1.1.) the notion of tax and the different types of taxes were discussed in subsection 1.2. In his comparative law overview Marco Barassi comes to the conclusion that the notion of tax seems not to differ very significantly from country to country. Tax is the typical compulsory contribution and the most important one. The main function performed by taxes is an economic and basic one for every State, namely raising revenue to cover government expenses. Tax is an essential instrument of every State because every

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E.g. tax funded free education can be replaced by a set of rules that (a) requires schools to accept all applicants and (b) requires all parents, or their employers, to pay school fees according to e.g. a standard of ability-to-pay.

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State needs to apportion government expenses among its citizens. On the other hand the framework with respect to compulsory contributions different from taxes seems to be more complex. When government expenditures are financed not with taxes but with levies required to the person that is in a close relationship with the government’s activity, difficulties arises. Barassi concludes that a levy falling in the area of compulsory contributions, must comply with the constitutional guaranties. The distinction between the fiscal and extra fiscal area is on the borders thin. The fiscal area requires the existence of compulsion and government activity. In section 1.3 of the report different legal rules which explicitly of implicitly refer to a legal concept of tax are identified. Since these rules refer to the concept of tax, the latter is from one point of view an element of the former. Consequently, the notion of tax must be defined in order to apply those rules properly. From another point of view, the way in which those rules are interpreted in the different EU Member States, could help to define the concept of tax. The comparative law analysis of the constitutional (see: general) framework of the different EU member states (see 1.3.a) pointed out that in general, constitutions neither directly impose, nor directly recommend any specific financing means for the State and its political subdivisions. The choice how to finance government expenditure is therefore up to the Legislative body. As a matter of principle, that body may choose between a tax or a price according to political and economic reasons. However, the issue turned out to be more complex when looking thoroughly at the whole constitutional framework. In many constitutions the concept of solidarity or other related concepts (e.g. social state, human dignity, social democracy etc.) have been introduced in one way or another. Frequently these concepts turned out to be an important legal question. In particular, with regard to the financing of government action, a fundamental constitutional concept of solidarity may provide relevance of social equity concerns and promote a special category of financial resources. Indeed, “tax”, within the traditional sense, is compulsory (no prior consent by the taxpayer) with no individual return for this payment to the direct benefit of the taxpayer. The latter condition (no individual return) allows introduction into the financing system the idea of a sacrifice in opposition to a typically private law-coloured ‘do ut des’ relationship. So, the traditional concept of tax acts to give a concrete expression to constitutionally required “solidarity.” However, if such an underlying principle appeared to be legally-binding (for the government), it would be very difficult to determine its concrete consequences. Solidarity includes at least two aspects: inter-individual solidarity within the whole state and inter-community solidarity where the state is federalized or regionalized. To a large extent, its content is abstract and subjective, dependant on political judgment. Effective constitutionality review of the government’s financing decisions would require the court(s) defining what the national solidarity should be. According to M. Bourgeois the solidarity requirement should be specified or materialized further by more concrete provisions in the Constitution in order to be legally binding (f.i. specific ability-to-pay protection, specific economic and social rights the core of which should be guaranteed, etc.). The principle of equality is also very important in tax matters. In some countries, the rule was closely related to the citizens’ ability-to-pay protection with respect to taxation. As a matter of principle, any taxpayer should be charged according to one’s economic capacity to finance the government activities. However, legislators are normally entitled to depart from this standard and to pursue policy objectives through tax instruments. In countries where judicial review is effective, any functional use of taxation should be strictly justified and may be tested and struck down when the means are not appropriate and proportionate to the pursued policy aims. Levies based on the equivalence or benefit principles are especially admitted in countries where “ability-to-pay” guarantee is of a fundamental (constitutional) nature. Circumstances may exist in which it is fair, from a constitutional viewpoint, to charge the persons benefiting certain government services or being liable for specific government costs. However, some proportional relationship between the incurred expenditure and the required contribution should clearly appear. Otherwise, the levy could be considered illegitimate. Further, in some systems, the equivalence principle, as the basis of the financing scheme, may be prohibited with respect to what is viewed as essential government services, generally in the light of the values guaranteed in the Constitution (f.i. free education, health, culture, etc.). In view of what proceeds, M. Bourgeois stresses the importance of defining precisely the concept of tax. In particular, the functional aspects of taxation clearly determine the way the tax legislation should be tested against the equality, non-discrimination and ability-to-pay rules. Is the tax essentially a redistributive or solidarity instrument? Is it also legitimately aimed at realizing some objectives of an economic, social or environmental nature? Or, conversely, should its purpose be, as a matter of principle, to finance the

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Treasury. According to the answers given to those questions, comparability, as well as appropriateness and proportionality with respect to the equality requirement will be differently appreciated. Aside of the right to an equal treatment, national constitutions formally guarantee a series of other fundamental rights. Many of them, especially the so-called social, economic and cultural rights, require some positive action from the government These actions cost a lot and must therefore be financed. Taxation as a compulsory levy without individual return, gives significant protection to low-income persons, guaranteeing enjoyment of these rights, regardless of any ability to pay for it. It breaks any potential link between what you exactly pay to the Treasury and the safety or security, in a large sense, you receive from the government. It allows universal freedom, universal human dignity enjoyment and factual equality, that is the general fundamental objectives of the modern liberal social states. M. Bourgeois concludes as follows: while the theoretical foundation of the concept of tax lies in the supply of public goods and well-determined private goods, the principle of the social state, provided for and developed in many constitutions, precludes the consideration of the concept of tax as a kind of price. Indeed, our contemporaneous approach to human dignity requires us to let citizens benefit from certain public goods or services, regardless of personal contribution to the financing of them. The extent to which taxation, as a specific type of government income, is required in this context has nevertheless not been so much discussed in the countries under review. Normally, serious discussion should happen in courts and, as a consequence, in the legal scholarship that comments on courts’ decisions. However, the issue has essentially been of a political nature; the judiciary has refrained from infringing on the legislature’s prerogatives to manoeuvre. Many social rights were treated as ‘programmatic’ provisions. Accordingly, they are not enforceable as such in courts. Being essentially guidelines for government policy, these rights are only of immediate significance to the general public after they have been realized in legislation. The challenge for the future is to create conditions for a better protection for the citizen by letting him go to court in order to enforce some of these rights. It is also suggested that all provisions explicitly requiring free-of-charge public services should be enforced as such by the courts (e.g. free-of-charge education). Legal aids constitutionally secured for the indigent (as that term is interpreted) may potentially be claimed before a court. It is argued that it wouldn’t be a great violation of the legislator’s prerogative to let the judges determine the scope of the term indigent and enforce the relevant constitutional provisions with respect thereto. Moreover, one of the greatest critical issues is the standstill construction of certain constitutional social rights. According to the standstill approach to fundamental rights implying indeterminate positive action from the government (no direct effect), the legislator is prohibited from diminishing the level of protection currently in force. It is allowed to better protect, or to preserve the current arrangements; it is not however permitted to go backward and to put substantial restrictions to any level of (social, economic, environmental) protection attained in the past. According to M. Bourgeois, standstill construction may have an indirect impact on the government’s financing options. For instance, if the government changes the way certain fundamental services are financed and substitutes fees for taxes, it may be considered as violating any standstill provision, especially for poorer people, depending on the public service at play. According to M. Bourgeois it would be totally hypothetical and perhaps impractical to go further with these reasoning. It is impossible to go to court and complain against insufficient taxes being provided for in the budget. Fundamental rights may not be successfully relied upon in order to criticize the global budgetary options of the government with respect to the general tax level. Government interventionism is subject to political choice and it is up to the voters to influence it and to determinate the global balance between individual risk and social collective protection. Beside the above mentioned fundamental rights, the right to own property is also mentioned in the national constitutions, usually in relation to the government’s expropriation power. The relationship between the right to own property on the one hand and the state’s power to expropriate and to tax on the other hand is subject to discussion (see 1.3.b). It is generally asserted that expropriation and taxation are two distinct issues that must be treated and analyzed separately. Although both institutions assume a compulsory character, taxes are paid without compensation, while legitimate expropriations entail a right to (full) compensation to the benefit of the expropriated citizens. In the constitutional texts, the power to tax is never expressly formulated or presented as an exception to the compensating safeguards with respect to the power to expropriate.

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In principle, governments are free to determine the level of the taxes they levy. It is very unusual to find explicit constitutional provisions fixing some quantitative limits on the amount of taxation that may legitimately be collected (f.i. under the form of a maximum percentage). Nevertheless, the Spanish Constitution (art. 31) declares that the system of taxation shall in no case be confiscatory in character. Subject to interpretation of the term ‘confiscatory’, this provision may be considered as an explicit protection against excessive taxes. In addition, some more indirect limiting provisions may be found in other constitutions. For instance, the German Basic Law, art. 106, relating to apportionment of the tax revenue between the central and the federal and local entities, provide that the requirements of the federation and of the Länder in respect of budget coverage shall be coordinated in such a way that overburdening of taxpayers is precluded. In most cases, however, any prohibition of excessive taxes is normally based on non-tax provisions, especially those relating to fundamental rights. In particular, the right to property plays an important part in limiting confiscatory taxes. Also, other considerations may be relied upon in order to limit the tax law making power in this way: for example, the principles of ability to pay (see above under 1.3.a. and under 1.3.d.), protection of a minimum of existence (see above under 1.3.a.), and the freedom to choose one’s occupation or to exercise an activity or a business (excessive tax may be interpreted as preventing this freedom from being effective). These doctrines have presented the question as to whether the potential social function assigned to the property, in some constitutions, could be invoked in order to give taxpayers a protection against excessive or confiscatory taxes. The answer seems to be negative in the countries under review. In his paper M. Bourgeois comes to the following statements:

- no potentially applicable prohibition on excessive taxes has ever prevented governments from imposing progressive taxes;

- in many countries, legal rules have been introduced, dealing with an upper limit with respect to the combination of various taxes (in particular, income tax and wealth tax); this kind of restriction generally consists of a legally-binding formal percentage. Such limitations are of a statutory (no constitutional) nature.

- where an anti-confiscation rule formally exists, practicability problems frequently arise with respect to taxation. The confiscatory character of the tax system usually does not result from one isolated tax, but from a combination of various taxes.

- protection against confiscatory taxation appears to be less useful as globalization develops and entails tax competition situation between states of between local entities within states. Tax competition seems to result in a decrease of the tax pressure

- the prohibition on confiscatory taxation is also dependant on how the concept of tax an its functions are defined. If the purpose is not exclusively financial, but also to influence the taxpayers’ behaviour, very high tax rates could be constitutionally admissible.

Beside the general constitutional principles that influence the way governments finance their activities (see 1.3.a), there exist also constitutional rules that specifically govern taxation (see 1.3.d). The distinction between general constitutional principles and specific constitutional tax principles does not always seem appropriate. For instance regarding the way the equality rule is applied in the EU Member States it appears that the equality issue has nothing to do with the way the rule is formally drawn up in the Constitution. If the Constitution of a state contains a lot of provisions about taxation, it does not automatically imply that the taxpayer is better protected against the taxing authorities than in countries with non-tax coloured constitutions. The protection of the taxpayers’ fundamental safeguards does not depend from the fact specific tax protection is formally provided for in the Constitution. Indeed, the lack of specific tax principles in the constitutional framework does not preclude interpretation of the general law principles (applicable to all areas of the law) in a specific way with respect to taxation. The content and the effectiveness of these general fundamental safeguards therefore depend on the way the Constitution is interpreted and applied by the executive authorities on the one hand and especially by the courts on the other hand. In many constitutions the principle of legality (‘No taxation without representation’) is based on the concept of tax. As a result, the scope of this rule could be limited according to this concept. In the facts, it seemed to be difficult to identify, among various approaches to the concept of tax, the one which must be chosen for determining the scope of the tax principle of legality. Sometimes the courts opt for a large concept of tax for the purpose of extending the scope of the above mentioned principle of legality. Such a case law favours a larger (formal) democratic protection for the taxpayers. The ratio legis of the principle of legality implies that all compulsory levies (without individual consent) imposed to citizens should benefit from the guarantees

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provided for with respect to taxation (no taxation without representation, annuality, equality etc.). As regards fees, the question is more complex to deal with. The compulsory character of this type of levies may turn out to be less evident, requiring therefore fewer guarantees against arbitrary government action. However, form a comparative law viewpoint; sub-distinctions are made among fee payments in order to isolate those still showing real compulsory or coercive features. The way these conceptual divisions are made considerably varies from one country to another. It makes the comparison between countries an extremely difficult exercise. In some countries other specific principles than the principle of legality, are mentioned in the Constitution: e.g. the ability-to-pay principle; the principle of progressive taxation, a specific equal treatment provision with respect to taxation and some principles of a programmatic nature. All these specific tax oriented provisions suppose a clear concept of tax. In some countries the scope of the taxpayers’ guarantees are extended to other levies than taxes in the strict sens. M. Bourgeois recognizes three different legal techniques to achieve that goal. First one can extend the definition of the concept of tax to the extent necessary to include categories of levies that are not traditionnaly labelled as taxes.Secondly one can use generic (non-tax coloured) expressions (e.g. the Italian expression ‘prestatiozione imposta’) and finally one can explicitly provide for rules applying to ‘other levies than taxes’. In the latter case reference tot the concept of tax is maintained in the constitutional text, but it is completed with provisions having respect to other categories of levies. As the social security contributions concerns, the comparative law analysis showed that in general those contributions are not separately mentioned and regulated in the constitutions of the EATLP countries. As a consequence, in many of those countries, these contributions are considered to be outside the financial framework drafted by the constitution. This is curious given the quantitative importance of these levies and the compulsory nature those contributions have in many systems. In order to reinforce the parliamentary control on these contributions, some constitutions explicitely foresee a legality requirement. In other countries scholars and case law give a larger interpretation to the concept of tax in order to extend the scope of the legality rul in tax matters tot social security contributions. Frequently this approach is in those countries open to debate. Special attention is also given to the question whether a relationship exists between the interest of defining the concept of tax and the way the tax power is divided within the countries under review (1.3.c). In many states, a serious trend exists towards decentralization of the traditionally ‘centralized’ original state structure. This decentralization of taxation has three different aspects: the power to legislate, the power to implement the tax legislation and the distribution of the received tax revenues. As regards the power to legislate in tax matters, there are in general three pattern to make regions or local entities responsible: 1) the regional or local level of government is entitled to create and regulate its own taxes (pure fiscal autonomy) ; 2) the regional or local level of government has the (potentially exclusive) power to legislate on all aspects of a specific category of tax, which was initial the exclusive competence of the central level (complete derived fiscal autonomy) and 3) the regional or local level of government has the (potentially exclusive) power to legislate on certain aspects of taxes initially created and regulated at the central level (partial derived fiscal autonomy). The question is whether there is a different concept of tax between the central and the decentralized levels of government? According to M. Bourgeois it seems reasonably difficult in a federal context to admit that different concepts of tax be developed at various levels of government. The rules distributing the various responsibilities among all political entities certainly require a good common definition of what is a regulatory measure sensu lato, what is a tax, what is a fee and what is a fine or a penalty. Otherwise it is not feasible to distribute in a proper way the regulatory power, the taxing power, the fees power and the sanction or penal power.

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LIST OF ANNEXES

1. Questionnaire concerning 1.3. and 1.4. (M. Bourgeois) 2. Dutch answers (H. Vording en S. Hemels) 3. French answers (G. Suchy) 4. Italian answers (L. Del Federico) 5. Italian answers (C. Sacchetto and M. Barassi) 6. Italian answers (G. Fransoni) 7. Luxemburg answers (A. Steichen) 8. Swedish answers (M. Dahlberg) 9. Brazilian report (M. A. Greco) 10. The concept of tax and the principle of cohesion (C. Sacchetto) (text will follow soon)