Document Type


Publication Date



This article uses patent boxes, which reduce taxes on income from patents and other IP assets, to illustrate the fact that the jurisprudence of the European Court of Justice has a longer reach than has previously been recognized. This article argues that, along with having effects within the European Union, the ECJ’s decisions can also have effects on countries outside of the EU. In the direct tax context, the ECJ’s jurisprudence has hampered the ability of both EU and non-EU countries to police international tax avoidance.

In 2015, the Organisation for Economic Co-operation and Development (OECD) proposed restrictions on patent boxes that were designed to limit income-shifting opportunities. As this article points out, these restrictions are weaker than they could have been due to EU legal constraints. Although the majority of countries involved in the OECD’s work on patent boxes were not EU Member States, they were all constrained by the ECJ’s permissive definition of tax avoidance. This article argues that the tax jurisprudence of the ECJ placed downward pressure on international tax avoidance standards and that this in turn shows that countries both within and without the European Union are losing the ability to prevent international tax avoidance to the degree that would have been possible in the absence of the ECJ’s tax jurisprudence. This article refers to this downward pressure as the Luxembourg effect. This effect is even more important in the context of the United Kingdom’s “Brexit” vote to leave the European Union since it highlights that a vote to be free of EU law may not have the desired effect if even non-EU countries are subject to the consequences of the ECJ’s jurisprudence.

Publication Citation

Minn. L. R. (forthcoming)