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The growing problem of state aid in the tax world

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The latest developments in this regard include the announcement made by the EC on 4 October relating to an investigation launched in October 2014 by the EC into a tax ruling issued by Luxembourg in 2003. The EC concluded that the ruling had ‘lowered the tax paid by Amazon in Luxembourg without any valid justification’ and constituted approximately €250m of illegal state aid. Also of concern is the recent action by the EC referring its state aid action against the Irish government to the CJEU for Ireland’s failure to recover up to €13bn from Apple Inc that the EC determined in August of 2016 constituted was illegal state aid conferred on Apple. In addition, to date the EC is or has investigated tax arrangements entered into with European governments (including Luxembourg, Ireland, the Netherlands, and Belgium) with the likes of Starbucks, Fiat, McDonalds, Amazon and Engie.

The law being applied is found in articles 107 to 109 of the Treaty on the Functioning of the European Union. In particular, article 107 provides that, except as otherwise provided, ‘any aid granted by a member state or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between member states, be incompatible with the internal market.’ The conditions that must be found to be present in order for a government action to constitute a contravention of the state aid provisions are:

  • the action must be funded through state resources (in other words, in general, it must have an effect on the state’s budget);
  • the action must provide an advantage to the recipient;
  • the recipient must carry out an economic activity (such as supplying goods or services) in the market;
  • the action must be ‘selective’; and
  • the action must threaten to distort competition and affect trade between member states.

It is the ‘selectivity’ aspect of the application of the state aid prescriptions to tax matters that is the principle focus and area on concern and debate. ‘Selectivity’ has been defined more broadly than many tax practitioners might intuitively think should be the case. It is not limited to actions available to a particular person or corporation but can include actions favouring certain behaviours or types of entities. Accordingly, an action open to all entities or undertakings nevertheless may be selective if it treats differently situations that are legally and factually comparable, such as actions favouring or more generally accessible to foreign activities over domestic activities, or multinational organisations over small domestic organisations.

Tim Wach, Taxand (

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