Tax Aid to Public and Social Enterprises: A Collision between Competition and Public Policy

Abstract

In a number of Member States including the Netherlands the European Commission has investigated and challenged the tax regime of public enterprises. In the view of the European Commission the regime qualifies as existing State aid. In this article the author discusses which room Member States have to grant tax benefits to public enterprises and non-profit organizations. In particular the distinction between economic and non-economic activities is discussed and the conditions of State aid. The author argues that it is clear from the Graphos case that the tax regime of public undertakings and non-profit organizations must be compared with the general corporate income tax regime and that tax benefits for public undertakings and non-profit organizations are in principle selective. Thus the question arises to which extent tax benefits can be compatible with the special rules that apply to the Services of General Economic Interest (SGEI). The author concludes that due to the strict conditions tax benefits that have the character of a general exemption of the corporate income tax will not qualify. However, tax benefits might be declared compatible under Article 107(3) TFEU.