As one of the steps the Court uses to evaluate the existence of discrimination in relation to the exercise of the fundamental freedoms, comparability is an important question for anyone operating within the scope of the jurisdiction of the European Union. What makes it even more important in the context of direct taxation, is the way direct taxation is harmonised in the European Union. In the absence of positive harmonisation, negative harmonisation, which occurs through the Court finding national legislation incompatible with, for example, the fundamental freedoms, has an important role in enabling market integration in direct tax matters.
This study looks at the steps the Court employs in determining comparability in cases related to dividend taxation. Accordingly, the fundamental freedoms discussed are the freedom of establishment and the free movement of capital. We start by looking at what the concept of comparability means, since in reality, we cannot expect any cases to be comparable in every aspect.
In its analysis of comparability, the Court first looks at whether the member state being accused of discriminatory measures has exercised its taxing powers in respect of the income in question. If the answer is no, the cases cannot be deemed comparable. If the answer is yes, the Court will move on to the next step.
In the second step, the Court will determine whether the taxpayers compared in the case are subject to tax in the same way in respect of the income in question. If the answer is yes, the cases should be treated comparably in every other aspect as well (i.e. discriminatory measures cannot be applied). If the answer is no, the Court will move on to the final distinguishing step.
If the two other questions have not clarified whether the situations in question are objectively comparable, the Court will analyse the situation in light of the aim of the national legislation. If the aim is relevant for the situations of both of the taxpayers equally, the taxpayers should be regarded as being comparable.
