State aid law and corporate taxation
Produced in partnership with Garrigues
State aid law and corporate taxation

The following Competition practice note Produced in partnership with Garrigues provides comprehensive and up to date legal information covering:

  • State aid law and corporate taxation
  • Material selectivity
  • Three-step analysis
  • Exception to the three-step analysis
  • Discretionary power (paras 123–125 of the Notice on the notion of aid)
  • Territorial selectivity
  • Application of the rules to tax rulings

Article 107(1) TFEU defines State aid as 'any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods (…), in so far as it affects trade between Member States'. The reference to 'any form whatsoever' makes reference to a concept of State aid much wider than direct subsidies to companies, and particularly it includes the possibility for the European Commission (Commission) to control possible aids granted by Member States through their tax legislation. This category of aid is called 'fiscal aid' and includes any legislative, regulatory or administrative measures related to Member States’ tax systems, especially, but not limited to, corporate taxation.

The Commission put fiscal aid under the spotlight in 1998, with the adoption of a 'Notice on the application of the State aid rules to measures relating to direct business taxation'. This Notice confirmed that Member States retain exclusive competence to design their tax systems and to adopt general measures of economic policy, but in doing so must respect EU law, including State aid law

The control of fiscal aid by the Commission therefore implies an important limitation in Member States’ powers to design their tax systems. The elements constituting the notion of State aid have been compiled by the Commission in its

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