 I would like to start officially the first session and give the floor to Dr. K. Speck, who is from Kugelwieders. Thank you very much for coming to Tilburg today to be part of this conference on physical state aid control. Wow, this is a little... Well, I think it's a very appropriate, because we will be speaking today and I will be focusing with you on the legitimacy of physical state aid control. Although if you know the name of this very theater where we are now, it's called the Black Box. So that's why maybe it may be appropriate to dim the lights a little bit, but I think it's even more appropriate to discuss physical state aid control in this very room, because I think too many people, especially tax payers, physical state aid control has become a bit of a black box, because we don't know anymore what's coming out of the system in Brussels, what will happen. So I think it's appropriate to speak about this very topic here with you today in this very room. And I will be discussing with you the legitimacy of physical state aid control in a more political sense. You're shining. Yeah, I'm shining out, yes. Which means that I will focus mostly on the political and economic context of physical state aid control, and not so much on the legal elements and the lawfulness of physical state aid case. That will be later. Daniel Smith will discuss it. Raymond Luya in later sessions will be speaking about it. So I focus mostly on the political and institutional context, and that means that I will start with an introduction, of course, discuss the topic with you and end with some conclusions and proposals for further discussions, which will hopefully be interesting to speak about. If we think about the introduction, I think we eventually end up with this woman, Margaret Vestager. She's a commissioner of internal market and competition in Brussels. And actually, she put like a bomb in the international tax community, because she and her team started to investigate all kind of tax rulings that were concluded between the member states and taxpayers. And well, we know all the names, so we have individual tax rulings, which in decisions have been made, like in the Starbucks case, Fiat, Apple, Amazon, et cetera. We also see how some regimes as such are being investigated, the Belgium-access profit regime, but also if you brought our ruling practice and there currently cases of pending before the European courts. And there are also still other investigations of pending, and maybe even more, for example, in the McDonald's case. And what these cases have in common, and that's clearly said by Mrs. Vestager, is that there is a focus on aggressive tax planning. And it has put people a little bit in doubt, because I teach my students, for example, and I teach them about transfer pricing, that there are specific reasons why we have a separate system to tax multinational companies, because group companies are not particularly same as non-group companies. There are differences which give advantages and disadvantages. And in these rulings, at least those which focus on transfer pricing, it seems that group companies, they should be determining their prices within the multinational company in the same way as non-related companies. And the question is, how should we be thinking of that? What should we be dealing with that? And in order to understand a bit better the way of thinking, in order to get to the question, what's the political economic context of these issues, I think it's important to focus on quotes from an interview which she gave with the Guardian last year. And I think it's good to focus bit by bit on what she's saying. She starts by saying, I'm not a federalist. That's important to be sure, because that's political suicide if you say that you're a federalist. So we should start with that. But then she says, we are doing this because the people are angry. And well, it's not really who those people are, but the people are angry. And the people are, of course, the other taxpayers who don't have the possibility to have transfer pricing agreements, possibly, who are not in a group. The people are the citizens, the other ones. That's I think that she's referring to. And importantly, she says in this quote that the European Council, which is the European legislator, the member states together, they knew about it and they already had the power to change, but they didn't do it. And then she says, let's try to do something different within the system that we have. Something that means no change in legislation or voting systems, but a change in attitude that acknowledges that people across Europe are angry. I think this is an appropriate starting point to speak about this topic today. And then I will come back to some elements of this quote in my presentation. Because as we also know, there has been a lot of criticism on those rulings on these statements. People from the tax community mostly, they speak about that there is a creeping normative role. The European Commission is going further than it's supposed to be. It's taking decisions that are going beyond its previous case law. There are no precedents. And that means that the European Commission are considered to put in place de facto tax harmonization, some people say that. Some people say that the European Commission doesn't have the confidence to attack international mismatches which give rise to these possibilities. That the European Commission is even creating new rules to allocate taxing rights between member states. And at the same time, people are also criticizing that legal certainty is being reached by means of all these decisions because we have a taxing system in place already for a long time. And now suddenly the rules are different, which is something like ruling by style. You change the rules and that's of course a big problem with regard to legitimate expectations of tax payers. And then from the U.S. we hear that there is a disproportionate targeting of U.S. multinational companies. Here in Europe you are focusing only on our multinationals. You should also have a look at yours. Well, that's being done, for example, in the IKEA case and a lot of other ones. So criticisms are very severe and the question is should we assess the position of best idea and both criticisms? In order to do so I think we should first have a very brief look, otherwise we cannot have this very discussion, on the political economic context of the taxation of multinational companies in the European Union. And the starting point was and still is the autonomy of the member states to design their own corporate income tax system. They are free to make a system upon their wishes in principle. And they do that, of course, more and more in cooperation with each other, which means, for example, that we have quite some international software norms, most importantly the OECD transfer price guidelines, which make it possible for the states to design the taxing systems in coordination also with other states. But at the same time, of course, there are also a lot of things that are not properly coordinated, which give rise to disparities between taxing system gaps, which make it possible for tax payers to plan and to have tax planning opportunities. We also know that in the European Union there is no completely harmonized system for the taxation of multinational companies. Yes, I mean, we are speaking about the Consolidated Corporate Tax Base. Let's see how that progresses, but at the moment it's not there. But, of course, there is increasing coordination between the member states. Peter was already referring to the tax supported directives one and two, so there is more and more coordination in this regard. And I think it's important to emphasize that in my presentation there was the Code of Conduct for Business Taxation, which is like a political agreement between the member states to limit harmful tax competition. It was agreed upon at the end of the 1990s, and it has shown to be a rather effective mechanism to tackle harmful tax competition. For example, the Dutch ruling practice changed already in the beginning of the 2000s because of the developments and the Code of Conduct. So this is the starting point, I think, for the discussion. And then we need to wonder how should we assess legitimacy of these activities of the European Commission and more broadly, I would say, legitimacy of fiscal state-aid control. How should we think about that? And as I was telling you already briefly before, there are, of course, many ways to look at this issue, one perspective would be to look at the lawfulness of the activity. So then we look at legitimacy in a strictly legal sense, focusing on the EU rules, EU principles. I will do that very briefly, but as I told you, I think other speakers will be discussing that issue more in detail. And we can speak about a more broader concept, which is legitimacy in a political sense, which is not only on the lawfulness, but also on the question to what extent do the citizens have trust in the EU legal order and to what extent does EU fiscal state-aid control contribute to that trust. Well, I have one slide on the legitimacy in the strictly legal sense on the lawfulness, because I took the liberty to write down that the scope of application of fiscal state-aid control of fiscal state-aid law is still not very clear. The analysis effectively boils down to a selectivity analysis, which you will hear much more about later. And the application of that is still not very clear. And there are all kinds of other questions. For example, what is the relationship with Article 116, 117 about disparities? There is one issue in this context, which I do, however, want to stress in more detail, because of course when we speak about the lawfulness of the activities of the European Commission, we also need to understand how much power is delegated to the European Commission in the EU legal framework, in the EU legal order. And then it's, I think, interesting to know that the delegation of power is rather imprecise, I would call it. Of course, we have the supranational and centralized institutional framework, but the very competences have been quite long subject to discussion. I think it's important to know that the founding fathers of the European treaties, they didn't have much faith in the self-constrained of member states. They didn't have much faith to think that the member states would be behaving in a way that was appropriate from the EU perspective. They were afraid that they would be focusing on their own interest, and therefore those state aid control was introduced at the centralized supranational level. And it proved to be true, because from a really long time states didn't really seem to care so much about state aid control. They didn't notify new aides, for example, they just didn't. And when the European Commission would claim recovery of a certain aid after it had been discussed and investigated, very often such aides were not being repaid. There was no recovery. Member states didn't care. And that means that from a long time state aid control was a very political issue. There were no proper procedural rules until the member states to the council eventually agreed upon the procedural rules in 1999. Before that there was no art law to deal with it. And that means, and that's my point, is that there is very limited art law to limit the power of the European Commission. There is the procedural regulation, the law detention regulation, but for the rest everything is based on soft law, which means that in the end the European Commission has quite some freedom to develop its own policy and it is being supported there by the European Court of Justice. And that means that in the end the leeway of the European Commission is in fact limited by the rationale of this state aid control in the treaty, case law, presidents, its own soft law, and some art law. And that shows that to a big extent we are constantly thinking about what's the rationale of this state aid control? What are we supposed to doing? So there is the teleological problem where we have to look at the objective of this state aid control. And of course we could more, introduce more art law in this regard to make it clearer to limit those competences, but that would probably also limit the effectiveness. So from a strictly legal point of view I think there are still some doubts about the application, the scope of law, and the segregation of power to the European Commission, which puts into question the entire debate. If we then continue, because I told you I would focus mostly on more political economic context, if we put it in the broader scope, a political science perspective on legitimacy, which is somewhat broader, and that means that I also consider the relevance of trust of citizens in the political order. And in that regard I think it's useful to reflect upon the work of Kitschow, who is a famous political scientist, and he made a distinction between input and output legitimacy, and it seems rather... and I think it will help us to think about that problem today, because he says input legitimacy is like government by the people. People, political choices are legitimate, if and because they reflect upon the will of the people. That's on the basis of elections, that's right. But at the same time, he says, we also have to consider output legitimacy, government for the people, and that means that political choices are considered to be legitimate, if and because it effectively promotes the common welfare of the people, which means that in order to be legitimate, there should be mechanisms that facilitate problem solving. They should make it possible that problems of society are effectively being solved by the government, by the politicians. And of course, in the democratic nation states as we are used to live in, that goes hand in hand. There are the elections, and that makes clear also what kind of problems should be solved and there are all kind of other institutional mechanisms in place to improve that, for example, corporate agreements, et cetera, et cetera. But Sharpe says that member states were, and he wrote it in the 1990s, were facing a loss of problem solving capacity, as he called it, because of globalization, because of EU integration that became increasingly difficult for member states to resolve the problems that were being addressed and that would facilitate the welfare of the society that we are speaking about. And that's why, for example, taxation of capital, if we take this as an example, that became increasingly difficult for member states because of the globalization, because of the case law of the European Court of Justice to organize a texting system of capital which is able to result in a fair sharing of the tax burden. And Sharpe wondered, maybe at EU level, we can help to solve this lack of problem solving capacity at the level of the member states. And in this slide, we can have a look at the competences of the European Commission in this regard because, of course, fiscal state-aid control doesn't depend on the input part of legitimacy. It's not that citizens vote for fiscal state-aid control. It's really related to the output part. We expect the European Commission to solve collective EU problems in an effective and efficient way. That's what it's supposed to do. So it operates outside political processes to solve problems that are regarded to be in place that cannot be solved by the member states' level themselves. So it's technocratic governance based on expert knowledge. And then the question is, what problems is the European Commission supposed to solve? What are the issues that it's supposed to deal with? And I think that if we take a look at fiscal state-aid control, the way it was always seen, that we always regarded, that the output legitimacy to solve the problems of the European citizens was, in the first instance, based on the ability to eliminate negative cross-border externalities of the state intervention. So that means, for example, that if one member state would introduce a favorable tax regime for a limited group of companies, for example, financing activities, that introduction has an effect on the company's operating on the internal market, and in that way, it has an effect on the competition between firms in the EU and other member states companies are suffering from that. So that's, I think, the starting point of the output legitimacy, the definition of the problems. Secondly, the European Commission was supposed to solve those problems on the basis of objective criteria that guarantee that those decisions are founded on rational arguments. It should be very crystal clear on which decisions, which criteria those interventions are being made. So that means, we are speaking about expert knowledge, and that means that there should have been an objective identification of the taxation that would have been due in the absence of fiscal stay dates. And it's interesting to know that on the basis of the case law of the Court of Justice, the European Commission in the late 1980s found inspiration in the tax expenditure concept to give substance to those criteria. And tax expenditures, you will know that those provisions in the taxing system that actually implement government spending programs. For example, in the Netherlands, mortgage, if you pay interest on your mortgage, it's tax deductible, which is a government spending program of the Dutch government. And Stanley Surrey, who was a professor of public finance, thought it was important that we are able to manage those government spending. We should keep control of that. In that regard, he came with this tax expenditure concept and he suggested that they should be differentiated from the normal taxing system. And that's how we got to these normal rules. That's how we got to the benchmark ID of dealing with fiscal stay dates because it was being transferred from that public finance concept into fiscal stay date control. And it's important to know that for Surrey, this control of tax expenditures was an objective exercise. It was a science, and he believed very strongly in the science of public policy that there was a rational approach in order to determine that benchmark and that rational approach would make it possible to create decisions that are based on rational knowledge to determine the benchmark. So that's the second element of the legitimacy in the old story, as I would say. And then there was, I think, also important for the member states. It should have been clear that in this framework, they still had the appropriate leeway to develop tax policy, to develop international tax policy. And that's why, and you will all know that, in the 1998 notice on the application of stay date rules, there was this reference to tax measures of a purely technical nature. They were regarded to be general measures instead of fiscal stay dates. And the reference was made, for example, to set in the tax rate, but also provisions to prevent double taxation. They were like safeguarded by means of that provision in the notice on the application of stay date. And that gave sufficient leeway to the member state to continue to conclude double tax that they liked, for example. If we look at the context of this story, if we look at, okay, where is this all based on? You could see that, of course, it's based on the idea that the member states themselves want to set the limits for tax competition in the European Union. So the member states themselves want to set political limits on desirable harmful tax competition in the code of conduct. And for the rest, fiscal stay date control is a complement to that, focusing only on competition between firms within the EU. And, moreover, there was a defect or carve out of those provisions of international taxation by means of that categorical exception that I was speaking about. So member states really were able to set the limits on tax competition by themselves. Well, it's all fine and nice, but at the same time, of course, we could see that the EU, as a whole, would be bearing cost, maybe because of the loss of the lack of coordination. We could claim that states are in charge, that they are autonomous, as it's being claimed in this ID, but were states effectively in charge of the allocation of taxing rights? Or, could we say that because of double tax treaties, et cetera, et cetera, globally operating companies were able to set the allocation of taxing rights because, for example, the state of the income case is in fact the way of a tax payer who decides by himself how he wants to set to allocate the taxing rights states had lost control there. And that's why we saw that because of a lack of coordination, we had what I like to call a tax law market where there is a whole of non-authority. States didn't always have control on tax payers. States also didn't have control on each other. And this gave rise to problems that were very difficult to solve the problems that we were facing. At the same time, it made it also possible for member states to focus on their own self-interest. For example, in the Netherlands we are considering the abolition of dividend withholding tax within some limits, in abuse cases we will continue, et cetera. That's a general measure so cannot be physical stated, but at the same time it gives rise to substantial distortions probably on the internal market. Would it be okay if all states would be doing the same, or maybe better not? So there are costs because of a lack of coordination. And we see that to continue with this status quo is more and more difficult, I think. The first place because the cost increase when economic integration progresses. We should be considering whether maybe we shouldn't broaden the scope of physical stated control. Secondly, it's proving to be more and more difficult for the European Commission to guarantee that their decisions are based on proper rational choices. As we see, and we will hear about it much more later, this benchmarking test, which was regarded to be an objective measure, bit by bit it seems at least like a non-discrimination test, which makes it more difficult maybe to qualify it as a really objective test, like the benchmarking test. And more importantly, I would say that as we know we have a few criteria to see whether there is physical state aid, but the focus is completely on the selectivity criteria. And for example the criterion whether there is a distortion of competition and an impact on trade is in fact irrelevant because if we look at, if there could be a potential impact then it's already sufficient. So the effector is now need to check it. And I think that's a shame because it would be much better if there would be more economic analysis involved to check actually whether there are those distortions. And it shows, like Professor Vanistendal wisely said already more than ten years ago, it is not relevant whether competition is being distorted, but it's relevant how it is being distorted by means of a physical state aid or a general measure. And if it's a general measure, how distorted it could be, it doesn't matter. Which makes it difficult for the European Commission to substantiate its decisions, I would say. And lastly, of course, that's what we see in the beginning. It's the anger Mr. Stathberger is referring to. It is more and more difficult to continue maybe because people are no longer accepting this current system of taxation of multinational companies. And I would say that this discussion is culminating in the concerns about individual tax rulings because to many people the discussion about tax rulings is a discussion about the legitimacy of international tax law. It makes very clear the tension that we have. Who is in charge? It's presented as a deal, which as tax people we don't agree with, of course. But who is in charge? Is it member states setting the rules or are the companies able to define the way they feel that the rule should be granted? Of course, there are a lot of nuance in that regard, but people feel it that way. And that's something that we should be discussing. And therefore, the question is how should we assess the boundaries? I think that's what these cases are all about. The boundaries of the power of tax authorities to conclude such tax rulings. How much boundaries do they have? How should we determine that? And I think the European Commission is struggling a little bit here and in my view, the starting point should be we should be assessing the strategic behavior of tax authorities on the tax law market. And what do I mean with that? Well, if you look at many of these decisions, implicitly you see all kind of references to strategic actions of tax authorities. For example in the Apple case a ruling was granted while there was not even a transfer pricing report in place. In the Amazon case, there is no proper functional analysis. Should you be granting a ruling then? No matter if it's correct or incorrect should that be okay? Can it be okay like in the Starbucks case that the tax authorities take a look at the ruling that's being presented and don't ask many critical questions. They simply rather quickly accept that it's a tall manufacturer and maybe this should be more critical. I think that's one part of the problem that we are looking at and then even the bigger question is should tax authorities be granting a tax ruling if it's clear or it should be clear to them that the taxpayer is setting up a structure that is causing double non-taxation. So here the tax ruling is, as I like to call it explicitly anticipating on that whole of non-authority or lack of harmonization. Should you be doing that in the European Union or is that maybe for some reason not acceptable? And the other side of the story is of course that the tax authorities have to deal with the law that is in place. That's the most important starting point because the ruling is supposed to grant certainty on that and that's where European Commission is coming in because they claim that those laws are not appropriate. They are not granted a proper allocation of taxing rights and group and non-group transaction to treat it more in an equal way. The question is how should we assess this? Is it only an assessment of that behavior? Or should we go even further and also have a look at maybe other norms that are supposed to be in place? I'll come back to that in a second. What I want to say is that in my view the discussion that we are having is a classic battle of EU integration. On the one end we have the inter-government view which means effectively that states are in control. States set the limits of European integration and states set the limit of the harmful tax competition that is in place. And in this way physical state aid control is an instrument of the states. They define the problems and the European Commission is like an agent, a weak agent to implement those. And well since the states never delegated any power to monitor activities on the tax law markets the question is should we continue that or should we maybe consider that states would be better off to transfer those powers to the states because then they can overcome the lack of trust they maybe have with each other. They don't trust each other and it is better to set up an agent that is able to control that lack of trust. Or should we, and that's the other classic idea about EU integration are we seeing a new official list view which means that member states are in fact no longer to be trusted to set the limits for harmful tax competition and that therefore supranational institutions take over they take control like for example the European Court of Justice did with regard to negative integration where it gave itself the competence to conclude that we have a supranational order that are stronger than national legal systems and that in that way forced negative integration on the member states. Are we seeing the same here? The European Commission doing the same. I think that's the big question that we are facing and which means that we should be thinking can states still be trusted to give a ruling which is not at the expense of others? And even brawler, and that's what the European Commission seems to be after, can states be trusted to create a corporate income tax system that contributes to the legitimacy of national tax system as well? Which brings me to my conclusions and I will be brief here but I think what I would like to argue is that first of all we need to have this discussion much more and not only think about whether the ruling of such decision is okay but we should have the discussion what is the purpose and I think that the intervention of the European Commission should not be based on substantive tests so not like there should be a single tax principle or the benefit principle and that gives us authority to intervene no, we should look at the national system and see whether in a way or another there are failures at the democratic level nationally and if there are such failures then the European Commission should intervene and well, given the time I will only look at the last slide because I think that's the discussion I would like to have with you what is desirable should we continue with member states themselves setting the limits of harmful tax competition so that we have the code of conduct tax competition should we, and that's number three rely on member states who agree on far reaching tax harmonization should we have tax rate competition only or should we go in the middle and say maybe far reaching harmonization is not necessary but if we grant more authority to the European Commission with detailed mandates in mind we don't need tax harmonization but we can still have a European Union that is solving collective problems that we are facing without losing that much sovereignty in case of harmonization thank you very much for your thanks