Real Estate Investment Trusts (REITs) - Europeanizing Tax Regimes

The development of REITs in the European Union (EU) has created a common understanding on core features but a ìEuroREITî does not exist yet. Member States¥ (MS) national tax regimes generally provide for beneficial tax treatment to domestic REITs only. Although direct taxation is not one of the EU competences the Freedoms have unlimited priority and MS¥ must exercise their direct taxation powers in accordance with the Treaty. This separate treatment of nondomestic REITs is an infringement of the Freedom of movement of capital. Applying the relevant case law of the European Court Justice (ECJ), non-domestic REITs should legally benefit from tax treatments for domestic REITs, even though the foreign REIT does not comply with domestic REIT regulations. Implied powers of movement beside the Treaty may be seen where MS¥ (e.g. Netherlands, Bulgaria and Spain) provide domestic tax treatment to non-domestic REITs. This effect of the ECJ can be shown by counterfactual reasoning using political mechanisms, e.g. ìEuropeanizationî (used within political sciences to explain the process towards ìEuropeî and explore to the future of MS¥ tax sovereignty).