The purpose of this article is threefold. First, it reviews Community policy on operating aid and explains why it is normally not permitted. Fiscal aid is a form of operating aid. One cannot understand many of the competition problems caused by fiscal aid unless one understands the nature and the issues raised by operating aid.
The second objective is to carry out a similar review of fiscal aid. In general, tax provisions that discriminate in favour of or treat in a different manner certain companies may be regarded as a form of State aid. The problem, however, is that tax systems are not uniform. Immediately there is a problem of what type of differentiation is acceptable and what type is State aid and therefore incompatible with the common market. The article evaluates the various tests of "objective differentiation" that have been proposed in the literature.
The third and most important objective of the article is to propose an economically meaningful method of distinguishing between tax provisions that are a hidden form of State aid and those that are not. Because tax measures may favour certain companies or activities even when they are not overtly discriminatory, the proposed method involves a multi-stage test.World Competition