First published in BNA Bloomberg Tax Planning International, 31 August 2016.
Under EU law, State Aid is defined as an advantage granted by a State and with State resources to some selective companies and leading to a distortion of competition and EU trade.
State Aid is in principle prohibited, unless it has been notified by the Member State ex ante to the European Commission and has been approved by the latter. If this preliminary procedure has not been followed, the European Commission may revise the national measures ex post and order their recovery if they feel the measures are not in line with EU law. As a result, the beneficiaries of these measures will have to pay back all State Aid received (increased with compound interest for 10 years).
These State Aid rules in principle also apply to tax legislation, although these rules are very difficult to assess in tax matters.
The most difficult element in such application is the ‘‘selectivity’’ criterion referred to above. There appear to be two types of prohibited State Aid in fiscal matters; (i) tax rules based on selective criteria and (ii) discretionary tax decisions taken by the tax authorities. If a tax benefit to all companies in a certain Member State has been granted by the competent tax authority of such member State, such tax benefit will in principle not be considered as being ‘‘selective’’. If the benefit is however granted to only a limited group of companies, without any justified restrictive motivation, the element of ‘‘selectivity’’ may be considered present by the European Commission or European Court.
The European Union has recently been alert to the practice of State Aid in the form of tax rulings. Indeed, Belgium is currently waiting on a decision from the European Court of Justice regarding the legality of its excess profits ruling practice, a situation which has not helped the country’s image as a place to do business.