In recent years there has been much discussion of the impact of the Treaty freedoms on the tax sovereignty of Member States. Another constraint on the freedom of Member States to construct their tax systems as they see fit – or rather, another instrument intended to protect the proper functioning of the internal market – lies in the State aid rules. Subject to certain conditions under which aid may be considered compatible with the internal market, Member States may not subsidise favoured economic activities. Tax incentives are no different from cash subsidies and may sometimes be more pernicious. How can a tax incentive be identified? The usual approach is to say that a measure derogating from the normal tax system represents an alleviation of the normal burden borne by undertakings and hence a subsidy. But that just displaces the problem: what is the normal system, and how do we know a derogation when we see one? And is it not possible that the tax system as a whole may favour some undertakings more than others? What then?

 Richard Lyal is a member of the Legal Service of the European Commission. Over the last twenty years he has appeared for the Commission in some 600 cases before the European Court of Justice and the European Court of Human Rights in the fields of competition, taxation and State aid.


This event is organised in collaboration with the Oxford University Centre for Business Taxation.