In almost all Member States social security benefits are financed by a mix of social security contributions and taxes, albeit with great differences between the Member States regarding the share and the design of each of these methods of financing. As to the benefits, social benefits are traditionally defined by the various social security branches. But sometimes tax systems provide for certain advantages with a social goal, such as tax reductions for children or for disability. In all these cases Member States conduct their social policy partly through tax measures.
This article explores these interactions between social and tax policy from the perspective of Member States’ sovereignty. To which extent does European Union (EU) law limit the powers of Member States to decide for themselves which policy field (social or tax) is used to obtain social goals? And how can EU law be applied and interpreted to respect or to restore this sovereignty?
The article firstly outlines the basic features of EU social security coordination and EU personal income tax law. It then analyses how EU law and in particular case law of the Court of Justice deals with situations where these policy fields interact and how it impacts on Member States’ choices to integrate elements of social policy in their tax policy. Finally it draws some conclusions.EC Tax Review