State Aid: Commission recommends not granting financial support to companies with links to tax havens

On 14 July, the European Commission recommended that Member States do not grant financial support to companies with links to countries that are on the EU’s list of non-cooperative tax jurisdictions. Restrictions should also apply to companies that have been convicted of serious financial crimes, including, among others, financial fraud, corruption, non-payment of tax and social security obligations. The aim of the recommendation is to provide guidance to Member States on how to set conditions to financial support that prevent the misuse of public funds and to strengthen safeguards against tax abuse throughout the EU, in line with EU laws. By coordinating restrictions on financial support, Member States would also prevent mismatches and distortions within the Single Market.

On 14 July, the European Commission recommended that Member States do not grant financial support to companies with links to countries that are on the EU’s list of non-cooperative tax jurisdictions. Restrictions should also apply to companies that have been convicted of serious financial crimes, including, among others, financial fraud, corruption, non-payment of tax and social security obligations. The aim of the recommendation is to provide guidance to Member States on how to set conditions to financial support that prevent the misuse of public funds and to strengthen safeguards against tax abuse throughout the EU, in line with EU laws. By coordinating restrictions on financial support, Member States would also prevent mismatches and distortions within the Single Market.

A template for Member States

It is up to Member States to decide if they wish to grant financial support and to design measures in line with EU rules, including State aid rules, and their policy objectives. In the context of the COVID-19 crisis, several Member States have expressed their willingness to adopt rules, restricting access to such support by companies engaged in tax avoiding practices involving tax havens, or convicted of financial crimes, and have requested guidance from the Commission on how best to address this concern.

The Commission recommendation aims at providing a template to Member States, in line with EU laws, on how to prevent public support from being used in tax fraud, evasion, avoidance or money-laundering schemes, or terrorist financing. In particular, companies with links to jurisdictions on the EU’s list of non-cooperative tax jurisdictions (e.g. if a company is resident for tax purposes in such a jurisdiction) should not be granted public support. Should Member States decide to introduce such provisions in their national legislation, the Commission suggests a number of conditions on which they should make the financial support contingent.

Exceptions

The Commission also recommends exceptions to these restrictions – to be applied under strict conditions – in order to protect honest taxpayers. Even if it has links to jurisdictions on the EU’s list of non-cooperative tax jurisdictions, a company should still be able to access financial support under certain circumstances. This could be the case, as an example, if it can prove that it has paid adequate tax in the Member State for a given period of time (e.g. the last three years) or if it has a genuine economic presence in the listed country. Member States are advised to introduce appropriate sanctions to discourage applicants from providing false or inaccurate information.

Member States should also agree to reasonable requirements for companies to prove that there is no link with a jurisdiction on the EU list of non-cooperative tax jurisdictions.

Finally, Member States should inform the Commission of the measures that they will implement to comply with today’s recommendation, in line with the EU’s good governance principles. The Commission will publish a report on the impact of this recommendation within three years.

For More Information

The recommendation is available here.