Cooperative compliance at the crossroad of different legal frameworks Cooperative compliance in the light of the EU State aid rules

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1 Cooperative compliance at the crossroad of different legal frameworks Cooperative compliance in the light of the EU State aid rules Cooperative Compliance: Breaking the Barriers Vienna, April 2016 Rita Szudoczky Institute for Austrian and International Tax Law 1

2 Prohibition of State aid in the EU The Union shall establish an internal market (Art. 3 TEU) The internal market includes a system ensuring that competition is not distorted (Protocol No. 27) Prohibition of State aid (Art TFEU) Institute for Austrian and International Tax Law 2

3 EU State aid control Ex ante authorization system Art. 108 TFEU + Council Regulation 2015/1589 EU Commission central role Supervision, monitoring Exclusive competence to declare aid compatible with the internal market Notification requirement, standstill clause Unlawful aid recovery of aid Art. 108(3) last sentence: direct effect National courts can enforce standstill clause Institute for Austrian and International Tax Law 3

4 Article 107(1) TFEU Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market. Institute for Austrian and International Tax Law 4

5 in any form whatsoever The concept of aid is thus wider than that of a subsidy because it embraces not only positive benefits, such as subsidies themselves, but also interventions which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are similar in character and have the same effect. (Case 30/59 De Gezamenlijke Steenkoelenmijnen, para. 19; Case-387/92 Banco Exterior, para. 13; C-241/94 Kimberly Clark) Institute for Austrian and International Tax Law 5

6 Fiscal State aid State aid can be granted through tax measures: Reduction in the tax base: special deductions, exclusion of certain income, accelerated depreciation, (eg. special accelerated depreciation for aircrafts) Reduction in the amount of tax: special tax rates, tax credits (eg. 45% of costs incurred on new investments in fixed assets exceeding EUR 15 million is deductible from tax bill) Deferment, cancellation or rescheduling of tax debt (eg. special bankruptcy procedure for large firms: exemption from repayment of tax debts) Discretionary administrative practices (eg. ruling systems) Institute for Austrian and International Tax Law 6

7 Difficulties with fiscal State aid Aid schemes (not individual aid): upon the fulfilling certain objective criteria a tax benefit is granted, beneficiaries are not known in advance BUT this does not mean that these measures cannot de facto favour a certain group of undertakings Tax systems are used to achieve certain economic or social policy goals they necessarily differentiate between tax payers How to distinguish measures of general economic or social policy from selective measures favouring specific undertakings? Institute for Austrian and International Tax Law 7

8 Elements of State aid Advantage State resources Selective Distorts competition Affects trade Institute for Austrian and International Tax Law 8

9 Advantage Economic/financial advantage Is tax liability including penalties, late payment interest reduced? Do procedural benefits constitute economic benefit? Is legal certainty a relevant advantage? Overall reduction of compliance costs? Institute for Austrian and International Tax Law 9

10 State resources Transfer of State resources, loss of tax revenue Normally, win-win situation (benefits both for the taxpayer and the tax administration) tax incentives Only procedural benefits? Also reduction of tax liability? loss of tax revenue (overall increase in budget revenues does not compensate it) Institute for Austrian and International Tax Law 10

11 Selectivity Role of discretion of tax administration Does the tax administration have broad discretion to decide on the eligible taxpayers, right and obligations of the participants and consequences of non-compliance? Are the conditions transparent and accessible? [a measure] cannot, in principle, be considered to be selective if the competent authorities have, [ ], only a degree of latitude limited by objective criteria which are not unrelated to the tax system established by the legislation in question, such as the objective of avoiding trade in losses. On the other hand, if the competent authorities have a broad discretion to determine the beneficiaries or the conditions under which the financial assistance is provided on the basis of criteria unrelated to the tax system, such as maintaining employment, the exercise of that discretion must then be regarded as favouring certain undertakings or the production of certain goods in comparison with others which, in the light of the objective pursued, are in a comparable factual and legal situation (P Oy C-6/12, paras 26-27) Institute for Austrian and International Tax Law 11

12 Selectivity Discrimination, i.e. differential treatment of objectively comparable situations Relevance of the eligibility criteria: only large taxpayers? settled case law that measures can be selective if they differentiate according to the size of undertakings But comparability is to be determined in the light of the objective of the measure, objective of CC programs: improving tax compliance Are large and medium/small taxpayers comparable from the point of view of tax compliance (behaviour/transactions/risks)? Differentiation between trustworthy and not trustworthy taxpayers? Justification By the nature and general scheme of the tax system: only reasons internal to the tax system are accepted Proportionality Institute for Austrian and International Tax Law 12