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123 Yale L.J. F. 1 (2013-2014)

handle is hein.journals/yljfor123 and id is 1 raw text is: 1 23 F 0 R U M A Brief Sur-Reply to Professors Graetz and Warren 1 6 M A Y 2 0 1 3 Ruth Mason and Michael Knoll Introduction We are grateful for the deep engagement by Michael Graetz and Alvin Warren with our article, What Is Tax Discrimination?, which appeared in the print edition of the Yale LawJournal,) and for this opportunity to respond to their comments.2 The Court ofJustice of the European Union (ECJ) is charged with deciding whether the laws of European Union (EU) member states violate the fundamental reedoms guaranteed by the Treaty on the Functioning of the European Union (TFEU): the fee movement of goods, capital, workers, and services, and the right to establish business across borders. The ECJ requently has held that tax discrimination violates these fundamental freedoms. Although the ECJ has been aggressive in finding that long-standing member-state tax practices violate the EU prohibition on tax discrimination, its failure to clearly articulate a guiding principle in tax cases has attracted extensive critical commentary. Accordingly, our goals in What Is Tax Discrimination? were to identify the principle behind the ECJ's interpretation of tax discrimination, to explain that principle in economic terms, and to describe how to apply that principle. In that article, we argued that the guiding principle behind the prohibition of tax discrimination is the prevention of protectionism (expressed negatively) or the promotion of competition (expressed affirmatively). In other words, the tax- nondiscrimination principle promotes a level playing field between similarly situated economic actors from different member states. We argued that in the direct tax context, the ECJ interprets the fundamental feedoms to require member states to refrain from using taxes to make it more difficult for cross-border actors than for domestic actors to compete for jobs or investments. Thus, we concluded that the ECJ's interpretation of the fundamental freedoms amounts to requiring what public finance economists call capital ownership neutrality (CON).' CON is the notion that tax policies should not distort the ownership of assets. (The labor analog of CON is the notion that tax policies should not provide workers from one state with a tax-induced advantage over workers from other member states in securing a job.) In their fifty-page response to our article, Graetz and Warren raise numerous objections. While we cannot answer all of their objections in these few pages, we will respond briefly to their most serious criticisms.5 Those criticisms can be divided into two broad categories: criticisms of our interpretation of tax nondiscrimination and criticisms of our proposed application of this interpretation. I. Our Interpretation of Tax Discrimination as Informed by Competitiveness 121 Yale L. J. 1014

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