Defining the Balance between Free Competition and Tax Sovereignty in EC and WTO Law: The “due respect” to the General Tax System

Abstract

“While direct funding of private enterprises has proven to be an efficient but rather crude and obvious device of public aid, States turn their attention to the elegant and indirect ‘tax incentives.’”Certain rulings of the World Trade Organization Appellate Body and recent EC Commission decisions on State aids have brought new attention on an old issue: States can use their tax systems to provide subsidies. The basic assumption against subsidies is that markets should not be distorted by government's intervention. However, a system of taxation without government is unthinkable. A different criterion must lead to the distinction of measures necessary to the effectiveness and fairness of the tax regime from tax measures that distort competition.