Upsetting the Apple Cart: European Commission State Aid Rulings and State Tax Sovereignty

Abstract

Since its founding as a common market, the European Union has worked to promote a single market without internal borders or trade barriers. Recent years have seen increased attention by nations to the harmful competitive distortion caused by tax measures. Recently the European Commission for Competition has focused on tax measures constituting state aid. Its discretionary executive authority in the area of direct taxation must be balanced against Member State tax sovereignty, reserved to Member States subject to a legislative unanimity requirement in the Treaty on the Functioning of the European Union, Article 115. Legislative guidance would be welcome but has not been forthcoming. In the absence of legislative guidance, the Commission’s examination of transfer pricing in state aid cases must be exercised prudentially in circumstances where the action risks upsetting the balance between Member State tax sovereignty and EU treaty authority by implementing new tax principles in national tax legislation.