State Aid Review of Member States’ Measures Relating to Direct Business Taxation

Member States’ direct tax measures on business activities are increasingly coming under the scrutiny of the Commission as potential hidden forms of State aid. The scope of this article is to describe how the Commission has interpreted the application of the State aid prohibition with a view to distinguishing anticompetitive aid measures from general direct tax measures.

by Pierpaolo Rossi-Maccanico

Among the possible forms of State aid, those relating to fiscal aid are often viewed as the least permissible, as they are normally found in the form of operating aid, which is a forbidden type of aid. It is difficult to understand whether the approach followed by the Commission in its action against the fiscal schemes allegedly distorting competition within the EU is indeed justified, or whether the distortions we see are the inevitable result of a non-harmonised tax scenario in the current context of imperfect European integration.
The Commission has recently completed a number of difficult State aid enquiries amid increasing accusations that it is pursuing a hidden tax policy agenda in lieu of investigating effective forms of State aid. The controversial scope of State aid control with respect to measures relating to direct business taxation directly stems from a settled judicial doctrine of the Court of Justice, which defines a measure as constituting State aid with sole regard to its effect, without considering its objectives.
Under this doctrine, any provisions of the internal tax code of a Member State, thus attributable to the State, having the effect of providing an advantage in favour of certain companies may in principle constitute a State aid measure as indicated by Article 87(1) EC Treaty.

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published: Lexxion Verlagsgesellschaft mbH, EStAL 02/2004 (May 2004), 5|2004
Keywords: Landfilling, Policy Tax Instruments