Judicial activism or protectionism in the Court’s dividend cases? The legacy of Avoir Fiscal[1]

Faiz Siddiqui graduated with a degree in Modern History from Brasenose College, Oxford. He then trained and qualified at Clifford Chance before working in the tax department of a number of leading law firms. Currently, he is reading for the MA in Taxation from the Institute of Advanced Legal Studies.

The concept of judicial activism is traditionally associated with the judiciary exceeding its powers and presuming to act as a legislator. In terms of the European Court of Justice’s (hereafter referred to as the ‘Court’) tax cases, the concept has special meaning as it also refers to the willingness of the Court to engage in a kind of jurisdictional federalism, which encroaches onto member states’ fiscal sovereignty and which does not follow any set pattern or formula. On the other hand, judicial protectionism may be understood as the Court properly fulfilling its role as the guardian of the Treaties and adhering to a set body of principles, which it applies thereafter in a consistent and coherent fashion. This paper will demonstrate, by reference to a cross-section of the Court’s dividend cases, that the Court has not exceeded its powers under the EU Treaty but rather developed a core set of principles in Avoir Fiscal[2], which were consistent with the then EEC Treaty and which it has subsequently applied with laudable consistency from both an origin and host state perspective. It is further submitted that although Avoir Fiscal was a host state case, its reasoning can be equally applied from an origin state perspective and that the evolution of the Court’s case law can itself be understood in terms of an application of the thinking in Avoir Fiscal. In order to understand the protectionist role of the Court in its dividend tax cases, one must first appreciate the fundamental distinction between inbound and outbound dividend tax cases and the correspondingly different obligations of residence and source states under EU law.