State Aid and Tax Law by Unknown

State Aid and Tax Law by Unknown

Language: eng
Format: epub
Published: 2021-07-01T16:00:00+00:00

§6.04 Justification in the Light of the System

As mentioned earlier, there is a third step in the assessment of tax selectivity which can play a key role: the justification of the selectivity ‘by the logic and nature of the system’.

This justification by the logic of the tax system, which was introduced by the Court in 1974 as an obiter dictum, is now firmly established as an additional step of the selectivity test. The justification must be based on the intrinsic features of the system concerned, or, in other words, on the basic or guiding principles of the identified tax system. This notion of ‘justification by the logic of the tax system’ is strictly interpreted. In that respect, one should draw a distinction between, on the one hand, the objectives attributed to a particular tax regime and which are extrinsic to it (i.e., social policy, environmental, international competitiveness objectives) and, on the other hand, the mechanisms inherent in the tax system itself and which are necessary for the achievement of such objectives (e. g, the progressive nature of taxation). Only the latter can be taken into consideration for the purpose of this justification. In other words, all sorts of policy objectives may have been attributed to a specific tax measure. However, if the measure results in a selective advantage, it is not selective only if the selective advantage directly results from a feature inherent in the tax system itself without which the objective cannot be achieved.

In the Italian Cooperatives case,45 the Court interestingly added two elements which are required to establish that the tax measure is justified:

(i) The Member State concerned must introduce and apply appropriate control and monitoring procedures in order to ensure that the tax measures concerned are consistent with the logic and general scheme of the tax system and to prevent economic entities from choosing that particular legal form for the sole purpose of taking advantage of tax benefits provided for that form of undertaking.

(ii) It is also necessary to ensure that those exemptions are consistent with the principle of proportionality and do not go beyond what is necessary, in that the legitimate objective being pursued could not be attained by less far-reaching measures. This reference to the principle of proportionality constitutes a novelty in the ECJ case-law on selectivity.


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