State Aid and International Taxation

Abstract

Abstract Member states of the EU are free to choose the tax policy they deem most appropriate. However, their tax sovereignty should be exercised in accordance with EU law. The European Commission enacted in the late 1990s the state aid rules, due to the risk of distortion that fiscal subsidies granted by member states could cause competition between economic operators acting in the internal market. In parallel, the EU Code of Conduct was adopted to root out harmful tax regimes established in national laws which could jeopardize competition between member states. The divergences and convergences between measures to tackle harmful tax competition and to eradicate unlawful state aid are examined, as they are tools that complement one another, but are divergent in many respects. The European Commission has subsequently published state aid decisions against several member states regarding tax rulings granted in favour of certain multinational groups. The role and potential limits of the Commission in reviewing the mentioned practice is analysed through relevant case law from the EU Courts, to explore whether state aid rules provide an appropriate instrument for the control of profit shifting by multinational groups.