Tax incentives provided by the Local Authorities to Businesses: A Comparative Study in the light of National Recovery and Resilience Plans

Tax incentives may be considered as part of state aid and have always been among the most discussed legal topics. The emergency situations during the Covid19 Pandemic and the invasion of Ukraine have required the European Commission to adopt a State Aid Temporary Legal Framework and the State Aid Temporary Crisis Framework respectively. By focusing on the fiscal incentives provided by local authorities, this research aims at identifying the interrelation between the EU state aid rules and tax incentives and analysing existing practices and relevant CJEU decisions. Tax incentives are classified among the regulatory taxes of which main purpose is not raising the revenue to finance governments’ policies. 1 In this context, local authorities and their fiscal incentives are of particular importance for the delivery of the policy goals at local level. The question of whether tax incentives provided by local authorities could be regarded as state aid or not should be evaluated case by case, and this evaluation can be done not only by the European courts, but also national courts. 2 Due to the Covid19 Pandemic, some tax concessions granted by the local authorities can be justified under the tax measures taken in response to the pandemic. In this sense, it is necessary to focus on National Recovery and Resilience Plans (NNRPs), the European Commission practices and the CJEU decisions on tax concessions. In addition to the Italian practice, similar fiscal measures adopted by other EU countries and non-EU countries will be comparatively evaluated as well. To better explain the subject matter from the different angles, this thesis looks at the intersection of the EU State aid mechanism, policy and law, focusing on the aids provided by local authorities to the business. The intersection between these topics requires not only knowledge of economics, but also the knowledge of the EU competition law and trade law. The thesis also includes the analysis of tax incentives that can be provided by local authorities and whether they could be justified under the Temporary Legal Framework. In this sense, it is necessary to evaluate country specific examples. This comparative study would contribute to existing literature thanks to comparative analysis and the assessment of the relevant case law. With these aims, the first chapter starts out with an introduction outlining key points and findings of each chapter. The second chapter of this research provides a detailed analysis of the European State aid mechanism, case law and policy to emphasise the state aid criteria. State aid rules, which also encompass local authorities, are explained considering the evolution of the CJEU’s jurisprudence. Also, the concept of permitted aid, tax incentives as well as the role of tax incentives in achieving EU policy goals are explained in this chapter, considering existing regulations, the State aid Covid Temporary Framework as well as the Temporary Crisis and Transition Framework. In the third Chapter the role of local authorities in National Recovery and Resilience Plans as well as the state aid assessment of RFF measures are explained. Also, an analysis of the relevant judgements is provided. In addition to these, the best practices for fiscal incentives are identified together with an overall suggestion in the last chapter.