The HOT Proposal and Primary EU Law – An Examination and Suggestions to Address Possible Validity Concerns

As part of the September 2023 package, the European Commission published a proposal for a council directive establishing a Head Office Tax system for micro, small and medium-sized enterprises (HOT-proposal). Under these rules, eligible companies would be able to file the corporate tax return for their EU permanent establishments pursuant to the tax base rules of the head office state, while applying the tax rate of the source state. This is a significant simplification. Problematically, though, the current proposal includes some poorly founded and inconsistent exclusions of companies from being able to benefit from this genuine advantage. This matters, because it can impose a substantial disadvantage on certain taxpayers, without there being a compelling reason for doing so. Alerted by these considerations, the article conducts an analysis of the proposal under primary EU law and outlines ways to overcome the identified tensions. While being focused on a concrete issue, the article casts ahead a more conceptual problem that deserves more attention in literature. How easily can the European Court of Justice take the defence of taxpayers´ economic rights in the course of (factually irreversible) secondary EU direct tax law?