EU State Aid Rules Applied to Indirect Tax Measures

Abstract:

Indirect taxes account for roughly half or even more of the tax revenue in most Member States of the European Union (EU). Most of those taxes are riddled with exemptions, reduced rates, or other preferential regimes which could potentially constitute State aid within the meaning of Treaty on the Functioning of the European Union (TFEU) Article 107(1). Despite their fiscal relevance, the State aid implications of such tax benefits were largely ignored for decades. The EU Commission has increasingly become aware of them only in the last ten years, and there is still not much case law clarifying the standards to be applied to indirect tax measures in order to identify them as State aid. This article therefore attempts to shed some light on the application of Article 107(1) TFEU in the field of indirect taxation. While an appropriate approach is certainly embedded in the general concept of fiscal aid, the criteria developed by the European courts so far need to be refined and adapted to some particularities of this type of tax. This concerns the determination of the beneficiary of a tax advantage, who matters for assessing its selectivity and the extent of an eventual recovery, the distinction between State aid and Union aid regarding harmonized indirect taxes, and the assessment of distortive effects of an aid scheme.