EU Review of Direct Tax Measures: Interplay between Fundamental Freedoms and State Aid Control

Abstract

The State aid review of business tax measures under Article 108 TFEU (Treaty on the Functioning of the European Union) essentially concerns tax advantages which favour certain undertakings or productions, without there being a justification from the nature or scheme of the system. The presence of unjustified discriminations caused by national tax measures affecting the functioning of the Internal Market is also the condition for the Commission to promote infringement procedures, pursuant to Article 258 TFEU. The case law relating to the joined review of national tax measures both under the application of State aid and the elimination of discriminations contrary to other Treaty rules is scarce but significant. Typically, the review of State aids and discriminatory tax measures is disjoined because the incompatibility of the latter measures, unlike State aids, is directly enforceable by national courts. Moreover, not all forms of discriminatory taxation are also State aid and the Commission has exclusive competence to review the compatibility of State aids, including fiscal aids. However, the State aid review can sometimes lead to contextually determine, besides the selective nature of a tax advantage in favour of certain undertakings, the presence of additional market effects of a discriminatory tax system measure, without prejudice however to the separate examination of its justification for overriding reasons of public interest which can only take place in the framework of the more protective procedure pursuant to Article 258 TFEU. The assessment of the selective nature of a tax measure under State aid rules remains, however, separate from the one to ascertain possible tax restrictions or discriminations. A Joint review provides for a complex framework by which when an aid measure is also discriminatory in a sense prohibited by other Treaty rules, the existence of a link between the discrimination and aid under review obliges the Commission to take into account the ulterior effects of the measure in assessing its compatibility with the Internal Market.