• Alex Cretu

State aid developments - short analysis

1. Can Member States favour certain companies when designing their tax systems?

Well, most of the times the answer to that question is that tax measures that are favouring certain companies are usually regarded as State aid.

2. Are there any recent developments?

Yes. According to a new ruling of the General Court in joint cases T-836/16 and T-624/17, Republic of Poland v European Commission, delivered on 16 May 2019 (the Judgment), which annulled two Commission decisions, tax measures (such as progressive tax rates) may not be selective, therefore not State aid, if they are in line with the objective of the tax system, i.e. the founding or the guiding principles of the respective tax system.

3. What is the background of the Judgment?

In July 2016 Poland adopted the Law regarding the tax on the retail sector. The Law was applicable to all retailers, regardless of their legal status. According to the Law the tax was to be determined on a progressive rate basis in relation to the retailers’ monthly turnover: (1) for turnover up to PLN 17 million no tax was due, (2) for turnover between PLN 17 million and 170 million the applicable rate was 0.8%, (3) for turnover over PLN 170 million the rate was 1.4%.

Subsequent to the correspondence with the Polish authorities regarding the tax on the retail sector, the Commission opened a formal investigation procedure against Poland at the end of which it found that the turnover tax on retailers was illegal and incompatible State aid.

4. What other novelties did the Judgment bring?

In addition to ruling that tax measures such as progressive tax rates may not be selective, thus not State aid (if in line with the objective of the tax system), the General Court stated that whenever the Commission reviews the lawfulness of a tax measure, it may not identify a hypothetical normal system, in view of the assessment, but has to accept the tax system as it is defined by the Member State.

5. Conclusion

Member States are free to design their tax systems, on the condition that State aid is not granted or the fundamental freedoms of the internal market are not distorted.

Although at first glance tax measures that differentiate between taxpayers seem to be selective, it appears that according to the Judgment they may not be, as long as they are consistent with the objective of the tax system.

Based on this rationale, the Judgment opens a door for legislators at national level to enact tax measures favouring certain companies on the pretext that they are consistent with the principles of the tax system.

Note: The full version of the Judgment may be found here:

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