Volume 39 (2011) / Issue 3

Otto Marres, 'The Principle of Territoriality and Cross-Border Loss Compensation' (2011) 39 Intertax, Issue 3, pp. 112–125


Member States are free to define their income tax base. They may in principle disregard foreign-sourced income, resulting in the impossibility of cross-border loss compensation. The European Court of Justice (ECJ) has accepted the principle of territoriality as a criterion for the division of the authority to tax, but its understanding of the concept of territoriality seems to differ from the current understanding of that concept in international tax law. Moreover, the ECJ does not accept all consequences of the application of territoriality, in particular, regarding the taxation of individuals (e.g., the Renneberg case). For individuals, the non-discrimination principle seems to override the recognition of sovereign assumption of fiscal jurisdiction. This raises questions such as how to apply the Schumacker criterion in loss situations and whether the ECJ's reasoning in De Groot extends to deduction of losses.

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ISSN: 0165-2826
ID: TAXI2011011