123 Yale L.J. F. [i] (2013-2014)

handle is hein.journals/yljfor123 and id is 1 raw text is: 

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F  0  R U  M

A   Brief Sur-Reply to Professors Graetz and

1  6    M A  Y   2  0  1 3
Ruth Mason  and Michael Knoll


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

I. Our Interpretation of Tax Discrimination as Informed by Competitiveness

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