STATE AID: TIME TO INVESTIGATE INFORMAL CAPITAL RULINGS

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See all articles by Jan Vleggeert

Jan Vleggeert

Leiden University - Leiden Law School

Date Written: September 15, 2020

Abstract

This paper discusses the question of whether the Dutch informal capital scheme
constitutes state aid. This scheme endorses tax deductions for payments or charges
between group companies, even where such payments are not actually made.
Informal capital structures are based on a mismatch between the Dutch corporate
tax and the foreign profit tax. The issue of whether the scheme is selective would
appear to boil down to the question whether the scheme can be justified by the
arm’s-length principle. The objective of the arm’s-length principle purportedly is
the allocation of an arm’s-length profit to the Netherlands and nothing more.
However, this does not explain why the unilateral downward adjustment is only
granted on the condition that the foreign affiliated person who provided the
advantage would have been subject to Dutch tax had it been resident in the
Netherlands. This condition has the effect that double non-taxation is avoided in
domestic but not in cross-border situations and is discriminatory. Therefore, the
present author is of the view that the prima facie selectivity of the Dutch informal
capital scheme cannot be justified by the arm’s-length principle. Accordingly, the
present author submits that European Commission should investigate the Dutch
informal capital scheme.

Keywords: State aid, tax rulings, arm’s length principle, informal capital, mismatch, deemed payments, selective advantage, unilateral downward adjustment, double non-taxation, discriminatory

JEL Classification: K34

Suggested Citation

Vleggeert, Jan, STATE AID: TIME TO INVESTIGATE INFORMAL CAPITAL RULINGS (September 15, 2020). Available at SSRN: https://ssrn.com/abstract=

Jan Vleggeert (Contact Author)

Leiden University - Leiden Law School ( email )

P.O. Box 9520
2300 RA Leiden, NL-2300RA
Netherlands

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