In her article, Mason discusses European anti-subsidy rules in an era of large-scale tax avoidance by multinationals. This Article is especially timely in light of the recent announcements of the European Commission (EC), the European Union’s (EU) executive body, requiring EU Members States to recover amounts of tax subsidies they provided multinational conglomerates such as Apple, Amazon, Chrislaer-Fiat, Starbucks, and others. In the case of Apple, the EC ordered Ireland to collect from Apple the largest tax deficiency in world history — $14.5 billion (plus interest). Under Europe’s state-aid rules, Member States are prevented from distorting private competition by granting exclusive subsidies to particular firms. The EC concluded that Ireland colluded with, and illegally subsidized, Apple by issuing confidential administrative rulings that significantly relieved Apple from Irish tax. These EC decisions involving U.S. multinationals created much turmoil. U.S. Treasury Department issued a white paper stating that such recoveries would violate tax treaties between the United States and EU Member States. Members of Congress proposed waging a “tax war” urging Treasury to consider imposing retaliatory taxes on the EU. In an unprecedented move, the United States sought to intervene in the upcoming Apple appeal, but the EU courts held that it lacked standing.
In light of this saga, Mason’s article is important in offering historical background on state-aid laws and their economic and political justifications. She demonstrates that similar to the U.S. dormant Commerce Clause doctrine, European anti-subsidy provisions aim to protect EU market competition from state interference. They serve as powerful tools not constrained by ordinary notions of res judicata or stare decisis. Under these rules, Member States provide unlawful advantages when they grant companies special tax advantages in a selective way. Under the traditional selectivity doctrine, states must apply their policies without discrimination in order to avoid characterization as state-aid. In Mason’s opinion, this selectivity requirement accords to the international consensus about what constitutes harmful tax competition.
Traditionally, the EC established selectivity in tax state-aid cases by utilizing the tax-expenditure approach. In the U.S., labeling items as tax expenditures requires reporting on the estimated revenue loss in the U.S. Federal Budget. Created by Stanley S. Surrey, former Assistant Secretary of Treasury, as a way to expose the political use of tax breaks through budget spending, many scholars have argued that over the years the tax expenditure concept has lost his salient “teeth” and does not serve its purpose. Yet, according to Mason, the tax expenditure concept has significant implications in the European context when the EC can order Member States to recover certain tax expenditures it deems as improper. She identifies a three-step approach by which the EC categorizes tax expenditures over the baseline in each Member State: classification of ordinary tax law, identification of a deviation from it, and establishment of selectivity. In determining selectivity, special attention is given to suspicious classifications such as size, sector, nationality, and cross-border commerce. Yet, according to Mason, the purpose of the state-aid prohibition is not to provide equal treatment of all enterprises no matter what but to prevent states from deviating from their own laws.
Mason argues that the EC went too far by injecting its own normative views into the selectivity requirement. Her article provides an important contribution to the international tax literature by placing a spotlight on the significance of the European traditional selectivity requirement in retaining control over tax policy. Mason provides a loud warning that in the recent cases involving U.S. multinationals the EC has sought expansive policymaking powers that are specifically reserved in EU treaties to Member States. Under the European domestic-law reference base, a Member state is involved in illegal state-aid when it provides benefits that are unavailable under normal domestic law. Yet, Mason points out that under the EC’s normative reference base, a Member state confers illegal aid whenever it deviates from the EC’s tax policy preferences.
Accordingly, the Article prescribes that the European Court of Justice should reject the EC’s sui-generis arm’s-length standard over the Member State’s own domestic-law income allocation rules. The EC’s dangerous new course in state-aid enforcement, according to Mason, provides an important opportunity for the European Court of Justice to tame the EC’s discretion. By doing so, the Court will reaffirm the importance of the traditional selectivity analysis with its domestic-law reference base and halt the EC’s attempts to impose on the Member States its own views of what is a proper tax base.
Mason concludes that the traditional selectivity analysis serves a vital role in forcing states to internalize costs of policies that create cross-border negative externalities while striking a balance between free-market and policy-diversity goals. She advises the United States to tax its own multinationals on income earned in Europe before the EC may try to fill the void by directing EU Member States to tax these companies on income that would be more properly allocated to the United States.