The Interaction Between the Member States’ Fiscal Sovereignty and the State Aid Rules in Art. 107, (1) TEUF

Abstract

This thesis investigates the legal developments arising from the interplay between tax sovereignty of European Union (EU) member states and competition law within the internal market. The compatibility of member states' tax rules and agreements with EU competition law has long been a topic of debate. This complexity is particularly evident in the context of state aid resulting from tax agreements between member states and companies, where member states exercise tax sovereignty and establish their own tax regimes and rates. However, member states are also bound by competition rules within the internal market, necessitating alignment of their tax measures with EU law; consequently, conflicts and disputes have emerged. The European Commission has issued numerous decisions addressing tax agreements between member states and companies that may constitute illegal state aid. This dispute primarily stems from the tension between member states' tax sovereignty and the compatibility of their tax rules and agreements with EU competition law in the internal market. Member states' tax sovereignty implies that taxation falls under their jurisdiction, enabling them to independently establish their own tax rules. A prominent case of interest is the joint judgment T-778/16 and T-892/16 rendered by the EU Court. This decision examines whether Ireland provided illegal state aid to Apple through various tax agreements. The contested tax agreements revealed that Apple paid taxes as low as 0.005%. The European Commission concluded that these agreements fulfilled the criteria outlined in Article 107 TEUF, constituting illegal state aid. This case serves as the central focus of the thesis, as it raises significant questions regarding the state aid concept defined in Article 107(1) TEUF. The thesis therefore explores the challenges arising from the interaction between member states' tax sovereignty and EU competition rules, and the potential impact on effective competition within the internal market. By conducting a comprehensive analysis of this case, the thesis aims to provide insights into the intricate relationship between tax sovereignty, competition law, and state aid in the EU. Through an examination of conflicts and challenges, it seeks to deepen understanding of the implications for effective competition and harmonization within the internal market. Ultimately, this research contributes to the ongoing discourse on striking the right balance between tax sovereignty and competition law in the European Union.