The EU State Aid Prohibition and Taxation – The Expanding Scope of Art. 107 TFEU

Abstract: A topic that has received a significant amount of attention within the international community is the concept of harmful tax competition. This is of particular relevance to the EU due to the additional exposure to this problem the Member States experience by virtue of the internal market. A closely related concept is that of aggressive tax planning where multinational enterprises abuse mismatches between tax systems allowing them to pay low or no tax on large parts of their profits. The Commission’s recent State aid investigations into the advanced rulings handed out by Member States is an attempt to resolve a situation where Member States facilitate tax avoidance for tax competition purposes. This paper focus on the four investigations where a final decision has been reached: Starbucks, Fiat, Apple and Excess Profit. The paper introduces the reader to the background of tax competition before explaining the current state of the law surrounding the notion of State aid in Art. 107. The focus is on the concept of the selective advantage in the area of tax law. A review of the ECJ’s case law in this area show a significant degree of inconsistency in how the test of selective advantage is to be applied. The ECJ puts a major emphasis on the question of competitive advantages being granted on a discriminatory basis. This is contrary to the traditional idea of State aid which require there to be a transfer of state resources to an undertaking. But the ECJ seem to consider evidence of unequal treatment under the tax laws as enough to raise a presumption that this prerequisite is fulfilled. Using that logic the Commission argues in the cases mentioned above that a failure to abide by the OECD’s arm’s length principle in the area of transfer pricing is contrary to Art. 107. As this paper illustrates this further expands the scope of Art. 107 to such a degree that the Commission can be regarded as harmonizing this area of law through the State aid process. This paper argues that this interpretation by the Commission infringes too much on the Member States’ tax sovereignty and that a more restrictive approach to the State aid test is needed.