Fasten your seat belts: European Commission to use state aid powers to scrutinize aggressive tax planning

An important message to all tax planners: The European Commission’s Directorate General for Competition has declared war on "fiscal optimization."

It intends to use the antitrust stick to overcome the lack of tax harmonization at member state level.

At the recent European Competition Forum in Brussels, Competition Commissioner Joaquin Almunia declared that he is ready to use the Commission's far reaching state aid powers against "aggressive tax planning" because such planning is – in Commissioner Almunia's view – contrary to the principles of the Single Market.

The European Competition Forum is an annual event that enables the Commission to communicate its agenda for future action to all stakeholders concerned. According to Almunia, member state tax legislation with fiscal loopholes attracts investment to the detriment of other member states and thus is akin to a "subsidy race," which the EU state aid rules are designed to prevent.

In the late 1990s, DG Competition made similar attempts to focus on "fiscal aid," which significantly reduced the member states' room for maneuver in tax matters.

Ex post risk of reimbursement

While state aid tools are used against member states, not companies, recipients of state aid are obliged to reimburse the value received retroactively, with interest. Using state aid powers to claw back tax savings may make the powers of the ordinary tax inspector look benign.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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