ECJ case law on direct taxation has been very important in the development of
the international dimension of direct tax systems of EU Member States. Through
the application of the non-discrimination principle and the requirements of the
fundamental freedoms, some of the basic structures of the implementation of
income tax systems have been revised to accommodate to the needs of the single
market. However, the requirements of the EU single market are fundamentally
incompatible with the assumptions that have served to build the criteria under
which modern income tax systems have been developed (worldwide income taxation,
residence vs source, unlimited vs limited tax liability, credit vs exemption,
tax treaties).
The Court tried to reconcile the requirements of both systems (EU Law and
income taxation) in the Schumacker case, which can be considered a landmark
modern case, despite the fact that it simply implicitly introduced some of the
latest developments of ECJ case law on direct taxation. Since then, the Court has
been moving to a broader consideration of the fundamental freedoms and then
reconsidered them under the need of a certain reequilibrium between the rights
derived from EU Law and the recognition of the financial interest of EU Member
States.
By doing so, the ECJ used the interpretation of EU Law to refine some of the
basic trends of cross border income taxation, both referred to limited and unlimited
tax liability requirements and to the measures devoted to alleviate the negative
aspects derived from the interaction of the exercise of the tax jurisdiction by
two or more EU Member States simultaneously.