There has been a lot of media attention recently on the EC’s investigation into tax arrangements in certain EU jurisdictions. These include Ireland, the Netherlands, Luxembourg and Gibraltar. But what exactly is the issue?
State aid is aid from a government body which a private sector entity would not have provided, or would have provided on different terms. It is in principle banned in the EU, although there are numerous exceptions.
State aid is normally visualised as being a grant or a subsidy, but it can take many forms, including alleged “sweetheart” tax deals. The recent high-profile EC announcements concern these types of arrangements − deals between individual companies and national tax authorities where, in the EC’s words, the beneficiaries “can put enticing investments and job opportunities on the negotiating table” which “smaller companies” cannot match.
The EC has made it clear that it is not trying to harmonise tax policy across the EU by the back door. EU countries remain free to set their own policies; the EC is simply trying to ensure that, when implementing these, national authorities do not grant selective advantages to a few companies at the expense of all the others present in the same jurisdiction. Big must be treated in the same way as small.
Regardless, what is clear is that companies concerned about favourable tax treatment of competitors will receive a sympathetic ear at the EC. Complaints can be made and ultimately the beneficiaries of illegal aid via tax breaks may have to pay back the advantage received, plus interest. Clearly these sums can be very large. There is a lot at stake.