Tuesday, February 5, 2019
Ruth Mason (Virginia) presents Benchmarking Illegal Subsidies at Georgetown today as part of its Tax Law and Public Finance Workshop Series hosted by John Brooks and Lilian Faulhaber:
The United States vigorously contests the EU Commission’s recent decisions that U.S. multinationals received illegal tax subsidies from EU Member States, including its decision that Apple must pay a staggering $14.5 billion in back taxes to Ireland. The controversy involves the Commission’s departure from a traditional tax-expenditure approach to identifying subsidies.Under the traditional approach—employed in EU, U.S., and WTO law—a state confers a tax subsidy only when it deviates from its own regularly applicable tax law to relieve a company of taxes normally due. Because the recent EU cases involved “structural mismatches” that are not susceptible to reference-law benchmarking, however, the Commission advanced a radical normative approach , under which a state confers an illegal subsidy when it deviates from ideal tax rules to favor companies.
This Article argues that rather than turning to normative benchmarking, the Commission could have made structural mismatches tractable under a reference-law benchmark by borrowing the “internal consistency test,” an approach developed by the U.S. Supreme Court to analyze tax discrimination under the dormant Commerce Clause.
Normative and reference-law benchmarks have vastly different implications for the breadth of illegal subsidies and, consequently,the division of tax policymaking powers between state legislatures and the subsidy adjudicator. In anticipation of upcoming landmark state-aid appeals involving U.S. multinationals, this Article compares reference-law to normative benchmarking and concludes that reference-law benchmarking is more predictable, accountable, effective, and consonant with international standards regarding harmful tax competition. Because it is narrower than normative benchmarking, however, reference-law benchmark benchmarking does less to constrain tax competition and corporate tax avoidance. Which approach we prefer depends primarily on whether we want state legislatures or subsidy adjudicators to make tax policy. The arguments about subsidy benchmarking presented here are not just important for EU law; they apply to all forms of tax subsidy control, including WTO anti-subsidy rules, dormant Commerce Clause doctrine, and proposals inspired by “Amazon H2Q” that would limit the ability of U.S. states and localities to use taxes to attract business.