Interpretation of EU tax directives and the impact on the national laws of EU Member States

Tuesday 20 February 2024

Margriet Lukkien

Loyens & Loeff, Amsterdam


Jorn Steenbergen

Loyens & Loeff, Amsterdam



The influence of European Union (EU) law on the national legislation of EU Member States is ever increasing. More specifically, the EU frequently adopts EU tax directives. These directives need to be adopted by the EU Member States through their domestic tax laws (in line with the directive at stake) and they have an impact on the interpretation of those national laws.

By way of background, the EU constitutes its own legal order, in principle, separate from national law. The EU legislator adopts directives, which contain obligations for Member States to achieve certain results. In this context, EU tax directives are adopted by the Council of the EU, which is comprised of all the relevant ministries (such as the Economic and Financial Affairs Council (ECOFIN)). The Council of the EU must vote unanimously on the adoption of an EU tax directive before it can take effect, in other words a positive vote from all Member States is needed.

Once adopted, EU directives must be transposed into national law to fulfil the obligations laid down therein. Some examples are the first and second Anti-Tax Avoidance Directives (Council Directive (EU) 2016/1164 otherwise known as ATAD1 and Council Directive (EU) 2017/952 otherwise known as ATAD2) containing the obligation for Member States to, among other things, implement certain measures stemming from the Organisation for Economic Cooperation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) Actions published in 2015. A more recent example is the EU Minimum Tax Directive, Council Directive (EU) 2022/2523, which lays down the rules on the implementation of Pillar Two in the EU.

These EU tax directives often contain very detailed provisions and when transposing an EU tax directive into national law, Member States often use the exact wording that is included in the EU directive itself. 

The interpretation and impact of EU tax directives on Member State national laws is a fairly new element in the discussions with national tax authorities in the EU, for example, discussions concerning the granting of an exemption that is based on an EU tax directive. In order to interpret the national laws that transpose EU tax directives, one needs to look beyond the national laws themselves. It is necessary to analyse the meaning of the EU tax directive in question. It is important to ascertain what exactly is the obligation on Member States and what is the meaning of certain terms in the EU tax directive that has been transposed into national law? These types of questions relate to the interpretation of EU tax directives and are increasingly relevant for all EU Member States. Moreover, the specific EU tax directive and the context in which it was developed has an impact on the interpretation of the national laws of a particular Member State. These aspects are discussed below. 

Interpretation of EU directives


When interpreting an EU directive not only is the wording relevant, but also the objective of the directive, its context and EU law as a whole should be considered. This consideration should also include all relevant case law from the Court of Justice of the European Union (CJEU).

This means that one should consider not only the literal text of the directive, but also its objective, the context and the legislative history. As is generally accepted regarding national legislation, interpretations of EU directives should also take into account grammatical interpretation, teleological interpretation and historical interpretation.

Relationship between primary and secondary EU law

In interpreting EU directives and the national laws that implement them, it is also relevant to be aware that EU law consists of primary and secondary legislation. Primary EU law can have an impact on secondary EU law. Primary EU law includes fundamental freedoms (such as the freedom of establishment) and fundamental rights (such as the right to property). Secondary EU law includes acts set down by the EU legislator, such as EU tax directives.

EU tax directives should not be in conflict with primary EU law. In that context, the EU directive must as far as possible be interpreted so as to avoid being in conflict with primary EU law. Where that is not possible, a disapplication of part of the relevant directive may be a necessary consequence. However, it is commonly accepted that the CJEU grants wide discretion to the EU legislator and may only find a directive to infringe primary law when a ‘manifest error’ has been made by the EU legislator.

Relevant sources in the interpretation of EU directives


EU tax directives do not come out of nowhere. Usually, a long process precedes the final version of an EU tax directive. This involves work by the European Commission (which has the legislative initiative) to draft the directive and, most importantly, negotiations by the Member States in the Council of the EU on the exact aim, purpose and wording of the provisions.

More recently, EU tax directives have also been dependent on other negotiations in an international context. Certain directives, such as ATAD2 and Pillar Two, are largely based on or inspired by developments in the OECD context. Such developments related to the OECD are often laid down in relevant reports or models, based on which the European Commission proposes (and the Council of the EU adopts) EU tax directives. These EU tax directives often aim to introduce OECD model rules, in a coordinated manner, in all EU Member States.

In the interpretation of EU tax directives, it is important to consider the relevance of other sources and to what extent they can be used when interpreting such directives. Below, a selection of relevant sources is discussed, which includes the preamble to a relevant EU directive, the preparatory works, OECD reports and commentaries and statements by the European Commission.


One difference between EU directives and national legislation is that national legislation usually has an extensive parliamentary history. A historical and teleological explanation are, therefore, a common and appropriate means of explaining national laws. In contrast, EU directives do not have these types of extensive elaborations.

Arguably the most important means of determining the aim and purpose of an EU directive is through its preamble. The preamble usually elaborates why an EU directive has been adopted and, thus, reflects its underlying objective.

Although the considerations in the preamble do not create an independent right, a certain ‘value’ can still be attributed to the preamble. The preamble may in fact portray the objective and scope of the directive.

An example is where ATAD1, in its preamble, provides that ‘the rules should not only aim to counter tax avoidance practices but also avoid creating other obstacles to the market, such as double taxation’. ATAD2, regarding hybrid mismatches, is part of ATAD1 and it should, thus, follow from its aim and purpose such that double taxation (ie, overkill) should also be prevented as far as possible.

The importance of preparatory works

A relevant source is 'travaux préparatoires', or preparatory works. These may consist of official documents from the European Parliament, the European Commission and/or EU Member States, in the course of the work preceding the drafting of the directive.

In regard to case law, the CJEU has relied on preparatory documents to determine the objective and scope of European legislation in various cases.

In practice, more and more ‘case files’ on the adoption of EU tax directives are being requested from the EU legislator. Such information may provide helpful insights on the aim and purpose of these directives.

OECD reports and commentary

More recently adopted EU tax directives are largely based on or inspired by OECD projects. The preamble to the first Anti-Tax Avoidance Directive (ATAD1), for instance, states that it is necessary to apply the OECD’s conclusions on base erosion and profit shifting (BEPS) at the EU level. A similar consideration can be found in the preamble to Council Directive (EU) 2011/16 in relation to cross-border tax arrangements, known as DAC6, as well as the second Anti-Tax Avoidance Directive (ATAD2) and Pillar Two Directive.

The underlying OECD reports are presumably also relevant for the interpretation of the respective EU tax directives. In doing so, however, these underlying documents cannot lead to an interpretation contrary to the text of the directive itself (ie, no contra legem interpretation) or to other EU law provisions.

An interesting phenomenon is the interpretation of the provisions in an EU directive in line with commentaries that appear only after the adoption of the EU directive. A practical example can be derived from the Pillar Two Directive.

The preamble to the Pillar Two Directive states that EU Member States should use the OECD model rules and explanatory notes and examples when applying (and, thus, interpreting) the Directive. This raises the question, whether and to what extent ‘posterior’ OECD commentaries are relevant to the interpretation of Pillar Two Directive provisions.

A similar question has previously been posed to the CJEU in the ‘Danish cases’ (T Danmark (C-116/16) and Y Denmark (C-117/16)), relating to the concept of ‘beneficial ownership’ in the EU Interest and Royalty Directive (Directive 2003/49/EC). The CJEU considered that this concept, even if it draws on the OECD’s documents, has its basis in the directive itself and in its legislative history, reflecting the democratic process of the EU. Therefore, the CJEU does not seem particularly reluctant to include later amendments to the text of the OECD model convention or the commentary related to it.

From the perspective of democratic legitimacy, one would expect the EU legislator and the CJEU to be careful with sources of interpretation that have not been directly approved by a parliament and that are posterior. The CJEU has, however, not yet provided any elaboration on possible limits to these ‘external’ sources of interpretation.

Statements by the European Commission

Another question is to what extent soft law should be taken into account when interpreting directives. This concerns, for example, statements (communications, recommendations) by the European Commission.

The European Commission may publish its views on certain provisions of EU tax directives, in order to provide Member States with further guidance on the correct interpretation. While the Council of the EU is the main legislator for EU tax directives, the European Commission does have a certain influence in the drafting and adoption of these EU directives. Recommendations from the European Commission could, therefore, be helpful in achieving uniform implementation of EU directives across EU Member States. While the issuance of recommendations is not yet common practice for EU tax directives, it cannot be excluded that this will change in future.

Generally, recommendations from the European Commission have ‘no legally binding force’. However, in the Grimaldi case (CJEU C-322/88), the CJEU ruled that non-binding acts can also have a certain interpretative force. Where a recommendation clarifies the interpretation of the implementing legislation, then these recommendations should be considered when interpreting the directive. However, the CJEU has not specifically clarified that such recommendations should be followed. This raises the question as to whether a deviation from the recommendations is possible, if sufficiently motivated (after all, then it has been ‘considered’).

In practice, ‘Commission Recommendation of 6 December 2012 on aggressive tax planning’ (OJ 2012, L 338/41) comes to mind and its impact on the interpretation of the main benefit test (DAC6) and the anti-abuse rules (such as the general anti-abuse rule in ATAD1).

Consistent interpretation of national law

Once the exact meaning of the provisions in an EU tax directive has been determined (of course, in accordance with the relevant sources), the next step is the interpretation of national law.

After all, an EU tax directive by itself, in principle, cannot lay down obligations for taxpayers. An EU tax directive is addressed to Member States and must first be transposed into national law, after which it is the national law that is applied in respect of the taxpayer. Nonetheless, this national legislation must be interpreted in line with the EU tax directive from which it is based. Such an interpretation is called a ‘consistent interpretation’.

According to this consistent interpretation, national authorities and national courts must ensure the full effect of EU law, if necessary, on their own authority, by disapplying a national interpretation previously given where that interpretation is not compatible with EU law.

A consistent interpretation by taxpayers, national authorities and national courts should bring the interpretation and application of national law in line with the aim, purpose and text of the EU tax directive that it transposes.

The CJEU also provides guidance on the extent to which national courts can actually use a consistent interpretation. In interpreting and applying national law, national courts must assume that the Member State intended to give full effect to the obligations arising from the directive. Even if the directive in question does not regulate the particular matter, the court must in certain cases apply the national (implementing) law by analogy or extensively in order to achieve a result in those cases that is in line with EU law. The result can be that a national interpretation (for example, with its roots in parliamentary history) is set aside for a correct interpretation under EU law. This is particularly the case where otherwise there would be an unintended loophole. However, an interpretation of national law cannot be contrary to the literal text of the provisions.

Final remarks

This contribution highlights on a high-level basis how EU tax directives and the national laws transposing them should be interpreted.