Is the state aid regime a suitable instrument to be used in the fight against harmful tax competition?

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Series Details Vol.27, No.1, 2018, p19–35
Publication Date January 2018
ISSN 0928-2750
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The aim of this article is to analyse the suitability of the state aid regime as an instrument to fight harmful tax competition. There are several negative effects of such ‘race to the bottom’ competition, which act as significant barriers to the functioning of the internal market.

Application of the state aid rules has been troubled and heavily influenced by the fluctuating policy objectives of the Commission. There has been a long established intersect between state aid and taxation, although such overlap has been expanding and ever encroaching within the taxation policies of Member States, which is presently considered sovereign territory.

The current investigations into numerous multinational enterprises, for instance Apple, signify a radical new approach adopted by the Commission, one which could not have been predicted by neither the Member States nor corporations. It is evident that the Commission have adopted the state aid rules as a tool to attack harmful tax competition, and to ensure that selective corporations are not receiving unbridled benefits through favourable tax rulings.

However, the state aid regime is not and should not be used as an anti-competition instrument which allows the Commission to scrutinize every new tax measure adopted by Member States. Such developments are inappropriate and represents a radical shift away from precedent, creating uncertainty in the area of international taxation. Harmonization or regulatory competition seems a more suitable fit for the issue of harmful tax competition, plaguing the internal market.

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