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The Gentle Art of Corporate Seduction: Tax Incentives in the United States and the European Union

64 Pages Posted: 11 Dec 2008  

Tracy Kaye

Seton Hall University - School of Law

Date Written: October 29, 2008


Tax competition among the States, in particular the use of targeted tax incentives, is a compelling problem in our federal system. In order to attract corporations and the employment opportunities they represent, States engage in a "race to the bottom" through destructive bidding wars. This article discusses the considerably different approaches used by the U.S. and the European Union to temper the ability of their States and Member States to provide tax subsidies and concludes that lessons can be learned from the EU experience.

This article sets forth the current approaches to distinguishing between appropriate and inappropriate tax incentives. In the EU, the Member State bears the burden of proving that the proposed tax incentive does not distort the common market. Any new incentive is subject to a formal investigation by the Commission to determine whether it is compatible with the common market. The U.S. does not, however, have a governmental entity that is analogous to that of the European Commission. Furthermore, in the U.S. it appears that the standing doctrine effectively keeps most parties from challenging the various States' tax incentives. EU state aid policy enables Member States to resist protectionist pleas from companies such that the EU is experiencing a downward trend in the use of tax incentives and virtually no use of the targeted tax incentives utilized so widely by the American States.

This article recommends the formation of a group under the auspices of the Multistate Tax Commission to promulgate a State Code of Conduct for Business Taxation analogous to the EU's Code of Conduct. This Code of Conduct would prohibit States from offering targeted tax incentives.

Keywords: Tax, European Union, Incentives

Suggested Citation

Kaye, Tracy, The Gentle Art of Corporate Seduction: Tax Incentives in the United States and the European Union (October 29, 2008). Kansas Law Review, Vol. 57, No. 93, 2008; Seton Hall Public Law Research Paper No. 1314440. Available at SSRN:

Tracy Kaye (Contact Author)

Seton Hall University - School of Law ( email )

One Newark Center
Newark, NJ 07102-5210
United States

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