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Aid elements in direct business taxation

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Aid elements in direct business taxation


To ensure consistency and equality of treatment between Member States in the application of the state aid rules to measures relating to direct business taxation and to ensure that Commission decisions are transparent and predictable.

2) ACT

Commission notice on the application of the state aid rules to measures relating to direct business taxation [Official Journal C 384 of 10.12.1998].



With a view to harmonising Member States' tax rules, the EC Treaty made provision for the Council to adopt directives unanimously (Article 94) and for the Commission or the Council, acting by qualified majority, to address certain differences between the general rules in force in Member States that could distort competition (Articles 96 and 97). Distortions of competition stemming from state aid are governed by Article 88 and must be notified to the Commission.

The Council made known its intention to draw up a code of conduct for business taxation (Council Resolution of 1 December 1997, Official Journal C 2 of 6 January 1998). The code of conduct will improve transparency in the tax field through a system of information exchanges between Member States and assessment of any tax measures that may be covered by it.


State aid relating to direct business taxation is in breach of the competition rules and subject to Article 87 where:

  • it confers on recipients an advantage which relieves them of charges that are normally borne from their budgets;
  • the advantage is granted by the State or through state resources;
  • the measure affects competition and trade between Member States;
  • the measure is specific or selective in that it favours certain undertakings or the production of certain goods.

Selectivity or specificity criterion

The Treaty clearly stipulates that a measure which is sectorally specific is caught by Article 87(1).

In addition, according to a ruling delivered by the Court of Justice in 1974, any measure intended partially or wholly to exempt firms in a particular sector from the charges arising from the normal application of the general system "without there being any justification for this exemption on the basis of the nature or general scheme of this system" constitutes state aid. However, tax measures which are open to all economic agents operating within a Member State are, in principle, general measures and not state aid.

Any decision of the administration that departs from the general tax rules to the benefit of individual undertakings leads, in principle, to a presumption of state aid and must be analysed in detail by the Commission.

However, the differential nature of some measures does not necessarily mean that they must be considered to be state aid. This is the case with measures whose economic rationale makes them "necessary to the functioning and effectiveness of the tax system". It is though up to the Member State, when notifying the Commission, to provide justification of a derogation by "the nature or general scheme of the system".

Compatibility of state aid in the form of tax measures

If a tax measure constitutes aid that is caught by Article 87(1), it can nevertheless qualify for one of the derogations from the principle of incompatibility with the common market provided for in Article 87(2) and (3). Furthermore, where the recipient, whether a private or public undertaking, has been entrusted by the State with the operation of services of general economic interest, the aid may also benefit from Article 90 of the Treaty.

After examining the compatibility of tax aid with the common market, the Commission could not, however, authorise aid which proved to be in breach both of the rules laid down in the Treaty and of the provisions of secondary law on taxation, such as the code of conduct.

If, moreover, the state aid confers continuous tax relief but is not linked to the carrying out of projects, such measures constitute "operating aid" and are, in principle, prohibited. The Commission authorises them at present only in exceptional cases and subject to certain conditions.

If it is to be considered compatible with the common market, state aid intended to promote the economic development of particular areas must be in proportion to, and targeted at, the aims sought. Where a derogation is granted on the basis of regional criteria, the Commission must ensure in particular that the relevant measures:

  • contribute to regional development;
  • relate to real regional handicaps;
  • are examined in a Community context.

Notification procedure

Member States are required to notify the Commission of all their plans to grant or alter aid and may not put such plans into effect without the Commission's prior approval.

They are also required to submit to the Commission every year reports on their existing state aid systems.

This communication is indicative in nature and not exhaustive. The Commission will review its application two years after publication.

4) implementing measures

Report on the implementation of the Commission notice on the application of the state aid rules to measures relating to direct business taxation.

The notice has proved to be a suitable tool for assessing tax aid but, as it is general in scope, the Commission might have to supplement and clarify certain aspects. However, it does not intend to devise specific compatibility criteria for state aid granted in the form of tax measures.

As regards tackling harmful taxation, the Commission believes that it is necessary to strengthen awareness of the tax aid rules among both Member States and businesses.

Lastly, with regard to indirect taxation, it takes the view that there should also be a debate on the need for clarification and codification in this field.

5) follow-up work

Last updated: 03.12.2003