Volume 44 (2016) / Issue 11

Peter J. Wattel, 'Stateless Income, State Aid and the (Which?) Arm’s Length Principle' (2016) 44 Intertax, Issue 11, pp. 791–801


The arm’s length principle has a new function. When used by the European Union (EU) Commission for State aid control purposes, it is aimed at protecting a level playing field for all economic operators in the internal market, i.e. at protecting free competition, rather than at tax base protection or prevention of double taxation. In that function, it is part of competition law, rather than of tax law. It may, therefore, deviate from the traditional Organisation for Economic Co-operation and Development (OECD) understanding of that principle. The case law on which the Commission relies, is not very explicit, and it remains to be seen whether the EU Courts will endorse the Commission’s approach, but from a competition law perspective, that approach makes sense. Both from the Belgian excess profits scheme case and the Apple case, it transpires that the Commission is of the opinion that a company cannot have stateless income. A branch State cannot suffice by saying ‘not in my yard’ if that implies that real income is allocated into a tax void, disappearing for tax purposes into a physically non-existent head office.

Whether or not the EU Courts, if they accept the Commission’s approach, will also accept recovery ten years back with interest, will most likely depend on the question of whether, even if the Commission’s approach may be novel, the companies and the Member States involved should anyway have known better.

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ISSN: 0165-2826
ID: TAXI2016071