Fiscal State Aid: is there Method in the Madness?

Previous introductory chapters, “Fiscal State Aid: the Kraken Wakes” and Fiscal State Aid: Some limits Emerging at Last?”), have focused on the alarming unpredictability for taxpayers and tax authorities alike of the fearsome weapon that is fiscal State aid. It has at times seemed uncontrollable, threatening to wreak havoc on well-established tax practices and principles. But with a lot of squinting it is perhaps possible to discern a thread of rationality at the heart of it and this year’s chapter tries to look anew at fiscal State aid with this in mind.

Although the UK’s Brexiteers have shown no interest in the subject, this is one imposition that can definitely be sourced to the EU, and specifically the European Commission. The prohibition on State aid is contained in the main EU Treaty and is an understandable adjunct to the single market, designed to prevent Member States favouring domestic businesses (or inward/outward investment more generally). But in recent years the Commission has shown that legislation and rulings in the tax sphere may be vulnerable in a way that would once have been unimaginable.

Nor in fact can Brexit be relied upon to provide an answer, even for UK corporates, unless perhaps it is on “no deal” terms. The UK government has said that it will replicate the EU’s State aid rules after Brexit, with an independent decision-maker to ensure compliance − though it would be a considerable constitutional novelty for any court or independent body to have a specific remit to strike down legislation, given the sovereignty of Parliament.

This article appeared in the 2020 edition of The International Comparative Legal Guide to: Corporate Tax, published by Global Legal Group Ltd, London.