The International Comparative Legal Guide - Corporate Tax 2021: Expert analysis chapter

The prohibition on State Aid is contained in the main EU Treaty and is an understandable adjunct to the single market, designed to prevent Member States favouring domestic businesses (or inward/outward investment more generally). But in recent years the European Commission has shown that legislation and rulings in the tax sphere may be vulnerable in a way that would once have been unimaginable.

In my introductory chapter last year (“Fiscal State Aid: is there Method in the Madness?”), I suggested that it might be possible to discern a guiding principle underlying the morass of European case law on the application of the State Aid regime to tax rules and rulings: if the legislation was passed or the ruling made with an intent to distort competition, you can expect the courts to strike it down. The European Courts would deny that this is even a relevant consideration. But in the tax sphere at least, the way in which they apply the central concept of selectivity can lead to arcane distinctions which are hard to rationalise otherwise.

The major development this year may on the face of it appear to point in a different direction: the decision of the General Court in the Apple case suggests a limit on the European Commission’s ability to interfere with the operation of their tax systems by national authorities, at least in areas such as transfer pricing which are inherently uncertain. However, on a close analysis the decision is not in my view inconsistent with the underlying principle I have proposed and I discuss the case in some detail under the heading “Rulings on Transfer Pricing” below.

One other thing certainly has not changed. The Commission is still willing to challenge legislation that no-one else would have thought remotely vulnerable; see the section below headed “Turnover taxes in Poland and Hungary” for an egregious example which clearly did not impress the General Court or, on appeal, the Advocate General.

This article was published in the 2021 edition of The International Comparative Legal Guide - Corporate Tax, published by Global Legal Group Ltd, London.

Corporate Tax 2021 Expert Analysis Chapter