Fiscal Sovereignty and State Aid in the field of Direct Taxation of EU Law

Sammanfattning: This thesis investigates if the recent decisions by the Commission on State aid in direct tax law are intruding on the EU Member States’ fiscal sovereignty. The author concludes that the Commission’s basic legal arguments of the reference system, being the corporate income tax system of the relevant Member States, as well as the arm’s length principle as a tool to assess selectivity in article 107(1) TFEU, are problematic from a fiscal sovereignty point of view. The research conducted has established the Commission’s basic legal arguments in the recent decisions to be that the reference system should be the corporate income tax system of the relevant Member States, the arm’s length principle is part of the assessment tool of selectivity in article 107(1) TFEU, qualification mismatches resulting in non-taxation may constitute a selective advantage and so does not applying a GAAR to a domestic tax arrangement. The analysis has shown the State aid article 107(1) TFEU to be a competition law tool aimed at protecting the internal market and fiscal sovereignty to be a principle and as such its application is variable depending on the circumstances of the situations. Therefore, the EU holds, and is limited to, sovereignty in the policy area of competition law. The Member States hold sovereignty in direct tax law, but this sovereign right is limited by the Member States commitments to the EU. The analysis conducted in this thesis shows that provided that the Commission is pursuing the aim of ensuring that the internal market is free from competitive distortion, the answer to the question central to this thesis will one of proportionality, if the Commission goes beyond what is necessary to achieve the aim. In conclusion, the author argues that if the CJEU endorses the Commission’s basic legal argument of reference system this will reduce the fiscal sovereignty of the Member States. If the CJEU endorses the Commission’s view of the arm’s length principle, this will involve a standard setting in direct tax legislation that belong to the fiscal sovereignty of the Member States.