Comparing Criteria: State Aid, Free Movement, Harmful Tax Competition and Market Distorting Disparities

Abstract

This article compares the reach of and criteria for application of four negative integration mechanisms in direct tax matters: the State aid rules (Arts. 107 and 108 TFEU), the free movement rights (Arts. 28–37 and 45–65 TFEU), the non-binding Code of conduct to curb harmful tax competition, and the treaty rules for eliminating market distorting disparities (Arts. 116 and 117 TFEU). It presents a diagram for comparison of the criteria and for identification of areas of overlap. All four negative market integrators discussed apply criteria which are concerned with three main issues: (i) is there some sort of inequality or departure (discrimination; advantage; lower tax level; disparity)? (ii) Does it (significantly) affect intra-Union economic activity or conditions of competition? (iii) Can it be justified? The four integrators overlap to a certain extent, which is not surprising, given their common overarching goal of establishing a free internal market with a level playing field. Especially the ECJ’s selectivity and discrimination analysis and its justifiability analysis in fiscal State aid and fiscal treaty freedoms cases are very similar. The Code of Conduct even seems legally redundant, as its criteria may be subsumed under Articles 116 and 117 TFEU, but politically it appears to be expedient, even though the Commission is stretching its State aid powers to tackle tax rulings and smart tax competition.