American multinational enterprises have long been under fire for their aggressive and intricate tax avoidance schemes. In recent years, these seemingly clandestine schemes have become more and more visible to the public, exposing the extent to which large international corporations skirt taxes around the world. In 2014, the European Commission announced that it would start investigating corporate tax abuse in the EU using State aid provisions by scrutinising advance tax agreements granted by Member States to multinational enterprises. State aid rules can be applied retroactively, meaning this approach has the potential to claw back large sums in foregone taxes even for past transgressions. To date however, the European Commission has suffered several well-publicised defeats in its bid to combat tax avoidance using this method.
The thesis critiques the Commission’s novel use of EU State aid law as being ineffective, largely to the extent that it faces a near impossible burden of proof in demonstrating that a suspect advance tax agreement necessarily leads to an unfair tax advantage. The immense burden of proof correlates to the vast leeway that corporations are afforded when setting appropriate transfer prices for the use of their unique and valuable intellectual property. State aid provisions are also incapable of counteracting regulatory mismatches that permit profit shifting between jurisdictions. While ineffective in directly combating tax avoidance, State aid provisions have been an effective and powerful tool for investigating and exposing harmful tax practices, notwithstanding the de facto legality of such schemes. This has accelerated an overhaul of global corporate tax rules with the introduction of a global minimum tax rate, one of many forward-looking measures specifically designed to address regulatory mismatches and the cause of legal tax avoidance.