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Multi-rate Turnover Taxes and State Aid

A Prelude to Taxes on Company Size?

DOI https://doi.org/10.21552/estal/2019/3/3

Phedon Nicolaides


In order to determine whether a tax measure is selective, it is necessary to determine first the reference tax system. The General Court has recently ruled that the reference system is that which is defined by Member States and includes such components as the tax base, the tax rates, and the various bands of taxable income, profit, or revenue. The Commission may not identify a hypothetical or artificial reference system. The General Court has also ruled that differentiation of tax payers is not necessarily selective as long as it follows from the objective of the system and that the progressivity of tax rates is a form of differentiation that is not necessarily selective. In this connection, progressive tax rates on profit can be justified according to the ability to pay. This article argues, however, that progressive taxes on turnover are unlikely to correspond to ability to pay. It also warns that Member States may be tempted to target company size under the pretext of levying progressive taxation.
Keywords: State aid; Turnover; Taxation; Progressive rates; Selectivity

Phedon Nicolaides is Professor at the University of Maastricht and Visiting Professor at the College of Europe.I would like to thank Péter Staviczky for comments on a previous version. I am solely responsible for the contents of this article. Earlier and shorter versions appeared in two articles on my State aid blog ‘State aid uncovered’.

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