How to cope with harmful tax competition in the EU legal order : going beyond the elusive quest for a definition and the misplaced reliance on state aid law

Abstract

The European Union relies on two legal instruments for limiting harmful tax competition: the Code of Conduct for Business Taxation and state aid law. This article analyses their role in the fight against harmful tax competition, assessing their suitability and effectiveness, and proposes an alternative approach to tackle this issue. In particular, in light of the impossibility of effectively defining harmful tax measures, the article calls for abandoning the traditional approach, shifting the focus from control over the measures adopted by Member States to the limitation of incentives that encourage undertakings to use aggressive tax planning and profit-shifting strategies. The introduction of a Common Consolidated Corporate Tax Base could be a suitable instrument for that purpose. The current crisis, triggered by the COVID-19 pandemic, is presented as an example that highlights the drawbacks of relying on state aid law for limiting the implementation of harmful tax measures.