Last year, Ireland, the Netherlands, Belgium and Luxembourg were found to have been in breach of EU competition rules by the European Commission. They were accused of using tax incentives to international companies as a form of illegal state aid. EU law specifically requires member states to offer any such inducements to all companies.

However, the commission decided that these four countries had been selective when granting tax deals to the likes of Amazon, Apple, Starbucks, Fiat, BP, BASF and more. These firms were told to pay unpaid taxes to the member states concerned. For example, in the grand duchy Amazon was asked to stump up €250m in what European commissioner Margrethe Vestager called “illegal tax benefits”.

Luxembourg and the other countries have appealed against these decisions, and there are signs that their line of thinking is resonating amongst senior lawyers in the ECJ. On 14 May, Juliane Kokott, an advocate general for the court (pictured), was reported by the Tax Notes website to appear to have reservations with aspects of the commission’s approach.

“I think the end result cannot be that every tax law is a potential state aid. The commission does not have the capacity, competence, or expertise to scrutinise all tax laws. And the commission people always say they are only looking at outliers, or the real bad cases, but this does not provide legal certainty,” Kokott was reported as saying. She went on: “It can also lead to certain countries being treated differently than other ones. There are cases pending before the general court on tax rulings, and that will create a tremendous amount of work for the commission and courts to check every single tax ruling and will be a huge cost if it goes too far in this direction.”

Advocates general have an important role in the EU judiciary, working alongside the judges who come from each of the member states. While Kokott’s words were carefully chosen, they appear to highlight some of the points Luxembourg and others have used to defend themselves in this case.

In particular, the four countries in the dock say these sweetheart tax rulings are indeed available to every international company that requests them. There is a feeling that these four countries have been chosen for criticism unfairly, and that all member states offer degrees of flexibility on corporation tax. There are also concerns that the court has been excessively activist, moving into the realm of national taxation which is generally held to be a national responsibility in the EU.

The commission has received praise from tax justice activists who see this as decisive action against “aggressive tax avoidance”. Defenders of current arrangements say critics exaggerate the extent to which corporations avoid tax. They add that these arrangements help deliver broad economic benefits globally. It will be years before these cases come to resolution in the European courts.

This article was first published in the June 2018 edition of Delano Magazine.