Taxation and State Aid Law in the European Union

26 Pages Posted: 10 Jun 2010

See all articles by Wolfgang Schoen

Wolfgang Schoen

Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law

Date Written: September 1, 1999


Forty years after the Treaty of Rome entered into force, the safeguarding of competition in the Community remains at the top of the European Agenda. Among the most significant impediments to free competition lies the arena of State aids, which often comes in the rather crude and obvious form of direct funding, but increasingly takes the elegant disguise as “tax incentive”. Nevertheless, it has only been in the last years that the Commission has started to establish a systematic approach as to the problem of State aids and tax expenditures. The article undertakes to delineate the special relationship between taxation and State aid law. This relationship culminates in the delicate distinction between general tax measures, which are covered by the Member State’s unquestioned sovereignty in tax matters, and selective incentives, which give rise to infringement proceedings under the Treaty rules on State aid prohibition (Art. 87 et seq. EC). In order to draw the full picture, the article proceeds in three consecutive steps: First of all, it looks at the economic fundamentals and settings of State aid and tax competition. In a second step, it depicts the relation and interdependencies between State aid law and other features of tax competition, notably the fundamental freedoms, the provisions of the EC on discriminatory levies (Art. 25 EC and Art. 90 et seq. EC) and the “Code of Conduct” with respect to tax competition, which was recently published by the Council of Ministers. Finally, it outlines a systematic approach for the application of Art. 87 et seq. EC in the area of taxation. For this purpose, the author analyses the notion of aid with respect to tax measures and the extent to which an aid might qualify as “selective” under the specificity-criterion of Art. 87(1) EC. The article comes up with the conclusion that the fundamental freedoms and the rules on State aid law equip the European Institutions with sufficiently effective tools against unfair competition practice. At the same time it reminds of the fact that tax competition does not end at the frontiers of Europe but has to take into consideration its effects on the attractiveness of the European Market in comparison with worldwide competitors.

Keywords: European Tax Law, Tax Competition, Tax Harmonization, Tax regulation, Subsidies, State aids

Suggested Citation

Schön, Wolfgang, Taxation and State Aid Law in the European Union (September 1, 1999). Common Market Law Review, Vol. 36, No. 4, pp. 911-936, 1999, Available at SSRN:

Wolfgang Schön (Contact Author)

Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law ( email )

Marstallplatz 1
Munich, 80539

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