Introduction
Article 110 of the Treaty on the Functioning of the European Union (TFEU) establishes a fundamental principle concerning internal taxation within the European Union. The article prohibits Member States from applying discriminatory tax regimes to products originating from other Member States. This prohibition extends to both direct and indirect taxation, aiming to safeguard the free movement of goods across national borders. The core concept of Article 110 involves ensuring that internal taxes do not unfairly disadvantage goods from other Member States when compared with similar domestic products. This principle requires that any internal taxes imposed by a Member State be applied in a manner that does not favor domestic production over imports from other Member States. Article 110 operates through two distinct but related clauses, each addressing a different form of potential tax discrimination. These clauses are designed to prevent both overt and more subtle forms of protectionism achieved through internal taxation policies. The aim is to facilitate a common market where competition is not distorted by national tax measures.
Political and Historical Context of Article 110
Article 110's origins trace back to the Treaty of Rome, signed in 1957, which established the European Economic Community (EEC). This treaty emerged in the aftermath of the Second World War, as European nations sought to foster lasting peace and economic cooperation. The formation of a common market, characterized by free movement of goods, people, and services, was regarded as a means to achieve this stability. The inclusion of Article 110, or its precursor in earlier treaties, was intended to ensure a level playing field for all member states. The intent was that no single nation could unfairly privilege its domestic producers through taxation policies. The article is set within a broader context of initiatives aimed at the elimination of barriers to trade, such as customs duties and quotas. The initial treaty provisions were further refined in subsequent treaties such as the 1992 Treaty of the European Union, which solidified the principle of free movement as a foundation of the EU, then the European Community. The purpose of Article 110 was to prevent protectionist measures from being applied to goods from other member states once these goods crossed the border of any given member state.
Legislative Intention Behind Article 110
The legislative intention behind Article 110 was to prevent the use of internal taxation as a disguised form of protectionism. This intention was grounded in the goal of establishing a fully functional single market. This single market would allow the unfettered movement of goods between Member States. The drafters of the treaty provisions aimed to ensure that the rules governing this movement of goods would have the force of law behind them. This principle would mean that Member States, and also EU institutions, would need to act within the constitutional charter set out in the treaty. Article 110(1), specifically, was created to prohibit discriminatory tax practices, either directly or indirectly, against similar imported products. Article 110(2) was meant to prohibit internal taxation that applies unequal tax rates to domestic and imported goods which, although not similar, are in competition with each other. The core purpose was to eliminate any measures that could potentially hinder trade, be they tariffs or any other tax imposed. The legislative aim was not simply to remove tariffs, but to ensure that all taxation practices remained fair and equal in effect.
Application of Article 110(1): Direct and Indirect Discrimination
Article 110(1) focuses on prohibiting tax discrimination against "similar" imported products. The Court of Justice of the European Union (CJEU) has interpreted this clause to cover both direct and indirect forms of discrimination. Direct discrimination occurs when a Member State applies different tax rates based solely on the origin of the goods. For instance, if a Member State imposed a higher tax on imported cars compared to domestically produced cars, this would constitute direct discrimination, and be in breach of Article 110(1). Indirect discrimination, however, is more subtle and arises when a Member State establishes tax criteria that, while not explicitly targeting imports, disproportionately burden them in practice. An example would be a tax based on a product's size which, given the makeup of the market, results in imported products being taxed more heavily. A key consideration is that any criteria used to determine taxation should not result in an imbalance that favors domestic production. The practical effect of taxation must not be that imported goods are more heavily taxed, even if this is not the intention. Such measures are in breach of Article 110(1) unless a state can show objective justification.
Application of Article 110(2): Protection of Competing Products
Article 110(2) extends the scope of protection beyond "similar" goods to include those that are in "competition" with each other. The determination of whether products are in competition is made through the perspective of the consumer. If two products are viewed as interchangeable by consumers, and a change in the price of one leads to a shift in demand towards the other, they are deemed to be in competition. This clause addresses situations where a Member State might impose higher taxes on imported products that compete with its domestic production, even if those products are not strictly similar. For example, if a Member State imposes a higher tax on imported alcoholic beverages that compete with domestically produced wine, this would be a breach of Article 110(2), unless such tax rates are equalized to ensure no protectionist bias exists. The tax rate would have to be reviewed and altered so that protectionism is removed, and tax rates reflect the objective differences between the competing products. This section of Article 110 was created to counteract indirect protectionism that might take effect if Member States could simply tax any imported products, which, although not ‘similar’, were nevertheless in competition.
Case Law and Enforcement of Article 110
The enforcement of Article 110 relies heavily on the jurisprudence of the CJEU. Early cases established the principle that treaty provisions have "direct effect". This means that individuals can invoke these provisions in national courts when Member States are in breach. The CJEU has consistently held that Article 110 is directly effective. Numerous cases have clarified the meanings of "similar" and "competing" products. In Commission v Italy (7/68), the Court determined that goods are characterized as ‘products which can be valued in money and which are capable, as such, of forming the subject of commercial transaction’. In Hansen v Hauptzollamt Flensburg (148/77), the Court emphasized that direct discrimination is prohibited, regardless of the specific tax rate. In Humblot v Directeur des Services Fiscaux (112/84), the CJEU addressed indirect discrimination, noting that a tax system which has a discriminatory impact will not be permissible. Keck and Mithouard (C-267/91 & C-268/91) is also important as it shows that the Court sometimes had to restore faith in its ability to enforce EU law. This case law has created a body of interpretation that provides a framework for national courts and legislatures. These interpretations clarify the scope and requirements of Article 110. This framework ensures consistency in application. Where a Member State is found to be in breach of Article 110, it is required to take action. Such action can include equalizing taxes on similar goods, or removing protectionist measures on competing goods.
Conclusion
Article 110 of the TFEU is central to the maintenance of the free movement of goods within the European Union. This article serves as a bulwark against tax policies that might act as disguised barriers to trade. The article functions through two key clauses, designed to prevent both direct and indirect forms of tax discrimination against goods originating from other Member States. The CJEU has played a role in this, interpreting the scope and meaning of the terms in the articles. The rulings of the Court have given the article direct effect, making it enforceable in national courts. It was shown in Van Gend en Loos v Nederlandse Administratie der Belastingen (26/62), that EU law was directly applicable within member states. This means individuals can challenge national laws that violate this principle. While difficulties have been found in differentiating similar and competing goods, the legal framework provided by Article 110, alongside the case law, has ensured that free movement is not unduly hampered by taxation measures. The interplay between Article 110 and other provisions related to the free movement of goods, such as Article 30 TFEU, also demonstrates the EU's commitment to eliminating all forms of protectionism. This commitment ensures a level playing field for all participants in the internal market, making this article a necessary part of free movement.
