The Advocate General recently delivered two opinions in relation to the Fiat Finance and Trade State aid case. In his opinion the Advocate General proposes that the appeal brought by the taxpayer itself should be dismissed. However, he proposes that the Court allow the appeal brought by Ireland.

In our briefing on the Amazon case and the Engie case, we concluded that, absent a tax authority failing to apply its law to a particular taxpayer, State aid has no place in tax policy or tax administration. This was based on the General Court declining to accept that there are overarching EU direct tax concepts that must be applied by Member States. This was relevant to Ireland as, at that time, it had no transfer pricing rules in its domestic law which could be applied.

The most recent Advocate General opinion in the Fiat Finance and Trade case agreed with this argument which was advanced by Ireland in that case. In particular the Advocate General declined to accept the Commission’s use of an overarching EU arm’s length principle in the examination of the existence of selective economic advantage. Instead, the Advocate General returned to basic State aid principles and required that the existence of a selective advantage must arise by a departure from the reference framework i.e. the domestic tax system. This principle seems obviously correct to us. It is noteworthy that all other arguments advanced by the taxpayer were rejected.

Accordingly, so long as the Member States’ tax systems operate within the confines of the anti-discrimination protections in the Treaty on the Functioning of the European Union (“TFEU”), Member States should be free to apply and develop the approaches to taxation that they wish. While this may lead to differences in tax policy between Member States, this is a good thing. It leads to innovation in taxation and economic policy which will drive towards a more effective and economically efficient means of funding each Member State’s activities. From the late medieval to the early modern period in Europe, competition among European countries led to the development of government bonds, insurance, cross border finance (the so-called Commercial Revolution) which in turn led to a significant increase in overall living standards. Innovation in how best to fund Member States’ activities efficiently is a good thing. The European Commission should desist from imposing uniformity in a manner that would stifle such competition. Instead, it should acknowledge and apply in practice the principle of subsidiarity in this matter which is not a harmonised matter.