The Market Distortion Provisions as a Legal Basis for Tax Harmonisation in EU Law

Tucked away in the EU Treaties is an unused legal basis for EU secondary law, art.116 TFEU, which together with art.117 TFEU, are the market distortion provisions. It is an open question whether art.116 TFEU will ever be utilised as a legal basis, given it has remained fully dormant since the foundation of the Communities. Textually, art.116 TFEU is abstract, given that it simply states that if ‘a difference between the provisions laid down by law, regulation or administrative action in Member States is distorting the conditions of competition in the internal market and that the resultant distortion needs to be eliminated’, then directives through the ordinary legislative procedure may follow. It is thus textually neutral as regards the policy, field, or area in which it may be used. The Commission has openly stated that it keen to utilise art.116 TFEU as a legal basis to pursue tax harmonisation; whilst many Member States are contentious about seeing it put to use as a legal basis for tax harmonisation, given that decision-making in the Council would be through the qualified majority voting procedure. Utilising art.116 TFEU for tax harmonisation could potentially lead to Union-wide reforms of taxation. This article analyses the nature, scope, use, and limits of the market distortion provisions, examining both their opportunities and boundaries, in particular, through exploration of the provision through the lens of tax harmonisation. It concludes by arguing that the utilisation of art.116 TFEU as a legal basis for tax harmonisation would be an incorrect legal basis, with art.113 TFEU and art.115 TFEU being more appropriate legal bases, depending on the type of tax harmonisation being considered.