Harmonised rules, decentralised authorities

EU law frequently relies on harmonised rules that are applied by decentralised national authorities. Value Added Tax (VAT) provides a clear example of this phenomenon. The relevant legal framework here is Council Directive 2006/112/EC which establishes the common VAT system and lays down largely mandatory provisions determining, among others, which transactions are taxable, where they take place, and who is liable to pay. The application of these harmonised rules is carried out by the national tax authorities and courts of the 27 Member States, each operating within its own procedural system, legal culture and tradition.

This combination of harmonised rules supervised and enforced by decentralised authorities is a structural feature of the EU legal order. It is also the primary cause of what I refer to in my doctoral thesis as “administrative or judicial decision-making divergences”. This term describes situations where national administrative authorities or national courts in two or more Member States issue divergent decisions on how a harmonised rule should be applied to a cross-border situation. The phenomenon is certainly not unique to VAT: similar tensions arise wherever EU law relies on national administrations to implement common rules. Case law of the CJEU provides illustrative examples in the field of audiovisual media supervision, social security and excise duties.

Decision-making divergences in VAT

In the context of EU VAT law, divergences may result in double taxation or double non‑taxation. Both outcomes undermine EU law: Double taxation violates fundamental rights, while double non-taxation distorts the internal market. Recent case law of the CJEU shows that these outcomes are not hypothetical but an increasingly significant problem. Although scholars and the European Commission have proposed reforms, achieving legislative change in tax matters is difficult due to political constraints and the unanimity requirement.

My PhD thesis therefore adopts a different approach. Rather than proposing new rules or institutions, it examines how the adverse consequences of divergences can already be mitigated within the existing legal framework. By relying on the fundamental rights to property and to an effective remedy, and on core Union principles such as neutrality, sincere cooperation and effectiveness, I develop an enhanced interpretation of the existing VAT framework. These norms should provide the legal basis for preventing, settling, resolving and regularising decision-making divergences.

The key findings relate to clearer CJEU case law, better use of the preliminary ruling procedure, stronger administrative cooperation and mutual recognition of administrative decisions.

Clearer CJEU case law

The best kind of disagreement is of course the one that never arises in the first place. Divergences can actually be prevented through the case law of the CJEU which issues declaratory statements on the meaning and scope of EU law that produce effects in all 27 Member States. Such rulings have a harmonising effect on the application of VAT law throughout the Union. However, the case law of the CJEU in the field of VAT is too often unclear and even inconsistent. In several lines of VAT case law, the Court’s reasoning has created uncertainty and, at times, aggravated the risk of divergent views among Member States.

I argue that the Court should approach its role under the preliminary ruling procedure to ensure uniform application more carefully and treat clarity and objectivity as its priorities. It must engage in deductive legal reasoning, explain apparent inconsistencies and be prudent when formulating foundational precedents.

Further, I argued that the Court may incidentally even be required to deviate from the questions referred and address a divergence on its own motion. That requirement relates to cases where the CJEU has knowledge of widespread opposing views on the scope of EU VAT law among the Member States and where the silence of the Court could by some Member States be misunderstood as an implicit confirmation of one interpretation over another.

Better use of the preliminary ruling procedure

Improvements in the Court’s reasoning can prevent divergences to some extent. Yet, it is also clear that there are limits to prevention through CJEU case law, predominantly due to the inherent uncertainties that exist in the application of VAT law. This means that when divergences arise, resolution mechanisms are necessary. The CJEU itself has made clear – for example in its KrakVet Marek Batkojudgment –that the preliminary ruling procedure is the proper mechanism for resolving such divergences in the field of VAT.

This conclusion of the CJEU is not free from criticism. The aim of the preliminary ruling procedure is to ensure that every single national (last instance) court applies EU law correctly, so that ultimately uniformity is achieved. One might say that every national court must sweep its own doorstep so that the street is cleaned. This aim is also visible in the procedure’s design as a dialogue between a single national court and the CJEU.

The use of the procedure to resolve divergence works out differently. It focuses on the application of the same rule in two Member States and effectively requires that a case is brought before the CJEU not only to ensure the correct application by the referring court, but also by the authorities involved in another Member State. This discrepancy between the procedure’s principal function and its application as a cross-border dispute settlement mechanism effectively requires that the procedure is tweaked to resolve divergence.

Still, given the Court’s monopoly on the interpretation of EU law, preliminary rulings remain central to addressing divergences. Various recommendations can be made to increase the effectiveness of the procedure in that respect. The CJEU should issue case-specific judgments that leave national authorities little room to drift apart when confronted with a divergence that requires resolution.

Additionally, the fundamental right to an effective remedy requires that national courts do everything that lies within their power to bring divergences that cause double taxation quickly before the CJEU. This means that courts of last instance should be under an unconditional duty to refer, even if the question at issue amounts to an acte éclairé or acte clair. Moreover, the protection of fundamental rights requires even lower national courts to use their power to refer under article 267, second paragraph TFEU. Finally, national courts should review whether administrative authorities cooperated before imposing divergent decisions (see on administrative cooperation below).

In the case of double non-taxation, where there is typically no actor that either has the incentive or opportunity to pursue resolution, the story is different. My thesis shows that resolution of divergences resulting in double non-taxation must be attained through a coordinated use of the infringement procedure, emphasising its function not as a top-down enforcement mechanism but rather as a tool to protect uniformity.

Stronger administrative cooperation

My research has shown that even though the effectiveness of resolution through the preliminary ruling procedure and infringement procedure can be improved, scenarios may still arise that fit uneasily with the fundamental right to an effective remedy. Also, not every dispute between states should end up in Luxembourg. Sometimes the Member States themselves can and must settle the divergence at an early stage.

Reference should in this respect be made to Regulation 904/2010 concerning administrative cooperation in the field of VAT. The regulation confers powers on tax authorities to request an exchange of information, spontaneously exchange information and be present at the offices of their counterparts in other Member States. The CJEU currently conceives that regulation mainly as an instrument that authorities can use at their own discretion, specifically to combat fraud and ensure the collection of VAT on their respective territories.

This conception is however short-sighted. The principle of sincere cooperation, VAT neutrality, effective VAT collection as well as the fundamental rights to an effective remedy require that tax authorities use the powers attributed to them to ensure settlement of divergences to the greatest extent possible. This means specifically that authorities must exchange the factual elements and legal arguments underlying their respective decisions and genuinely consider each other’s positions.

It should be added, however, that certain factors reduce the likelihood that divergences causing double non-taxation can in fact be settled through administrative cooperation. The lack of any incentive and opportunity to settle divergences for the actors involved in double non-taxation, as well as the lack of awareness that no VAT was collected in another Member State, pose limitations to the effectiveness of administrative cooperation.

In cases of double non-taxation, the VAT Committee – an advisory body that deals with question of EU VAT law to ensure uniform application – further has an important role to play as it enables national authorities to discuss a case under the watchful eye of the Commission and, where appropriate, put the possibility of infringement procedures on the agenda.

Mutual recognition of administrative decisions

Perhaps the most novel element of my thesis is the exploration of mutual recognition of administrative decisions as a means to settle divergences between Member States. The Court of Justice has rejected any such obligation to address divergences causing double taxation and instead stressed the importance of the preliminary ruling procedure. However, even when the preliminary ruling procedure is tweaked into a mechanism to resolve disputes between states, the path to the CJEU sometimes remains burdensome, uncertain or even ineffective.

In cases of double taxation, mutual recognition may be the only mechanism capable of protecting fundamental rights. This would mean that an administrative decision could be held binding when it gives rise to a reasonable expectation in the mind of a prudent and well‑informed trader, provided that the taxable person acted in accordance with the decision and did not challenge it. Inspiration can be drawn from the field of social security law where the CJEU developed such a form of mutual recognition of social security certificates after which that line of case law was codified in EU statutory law.

The bigger picture

My research shows that the challenges posed by divergent decision-making in VAT – particularly double taxation – can be addressed more effectively within the framework that already exists. This requires national administrations and EU institutions to take seriously their duty to address jurisdictional conflicts, by using fundamental rights as a guiding standard. Shifting responsibility away from taxpayers and toward the authorities and the Union may perhaps, finally, place the legislative ideas of the Commission and academics back on the agenda.

Addressing double non-taxation is more complex. Meaningful progress is possible through bilateral cooperation, discussion within the VAT Committee and coordinated infringement procedures. Yet these steps alone will not eliminate the problem entirely; lasting improvement in cases of double non-taxation will ultimately require legislative change.

The broader lesson reaches beyond VAT itself. Where harmonised EU rules are applied by multiple national authorities, uniform outcomes depend on a shared willingness to cooperate at every level: between administrative authorities when interpreting and applying EU law, between national courts and the CJEU through the judicial dialogue of the preliminary ruling procedure; and between the European Commission and the Member States when monitoring compliance and addressing structural divergences.

These different levels of cooperation should be anchored in fundamental Union norms – sincere cooperation, neutrality, effectiveness and the protection of rights – which together provide the tools needed to ensure that the objectives of EU law are realised as fully as possible even if legislative change remains difficult.

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Posted by Mathijs Klemm

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About the author

Mathijs Klemm holds a PhD in EU tax law from Maastricht University, where he also teaches courses on indirect taxation. He works as a Value Added Tax specialist and legal advisor at the Dutch Tax Authorities. His research focuses on procedural and administrative law in the context of EU Value Added Tax. On 6 November 2025, he successfully defended his PhD thesis titled “We Can Work It Out – A study into an improved interpretation of current EU law to address VAT double (non‑)taxation caused by divergent national decisions”.