This is a chapter from the book: "Taxes Crossing Borders (and Tax Professors Too) - Liber Amicorum Prof Dr R.G. Prokisch".
Dr. J.J.A.M. Korving1
On 24 September 2019, the General Court of the European Union entered a judgment in the state aid cases initiated by the Netherlands and Luxembourg against the European Commission. On 15 July 2020, a judgment followed in the state aid case initiated by Ireland and on 12 May the judgment in another Luxembourg state aid case was published. Developments in the field of state aid in relation to rulings, however, are ongoing. The author has attempted to summarize the issues by using metaphors from Charles Dickens’ masterpiece, A Christmas Carol.
‘Almunia was no longer in office, to begin with. There is no doubt whatever about that.’2 Until 1 November 2014, Almunia was the European Commissioner for Competition. As of that date, he was succeeded by Margrethe Vestager. As the European Commissioner for Competition at that time, Almunia initiated the state aid procedures against the tax rulings granted to Starbucks, FIAT, Apple3, and Amazon4 in 2014. Many more cases – most of them thusfar effectively unsuccessfully – would follow under his successor.
A lot of these developments were a consequence of a global discussion on citizens requiring companies to pay their fair share. It kept our (fictitious) Mr. Arpee awake. He had spent a lifetime on explaining ‘the people’, and students in particular, on a correct application of instruments in the field of international and European tax law. From that perspective, he had a lot of doubts on the correct use of the instrument. At the same time, he understood that state aid was used as ‘a tool for the European Commission to achieve its general tax policy agenda’.5
On 30 November 20196, Mr. Arpee again worked late into the evening. Once in bed, he immediately fell asleep. It was already very cold, and a brush of frigid air suddenly startled him awake. Arpee opened his eyes and sat quickly upright. His face turned white as snow when he saw a ghost at the end of his bed. It was the ghost of former European Commissioner Almunia that had woken up Mr. Arpee.
Almunia stated: ‘In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes. Under the EU's state aid rules, national authorities cannot take measures allowing certain companies to pay less tax than they should if the tax rules of the Member State were applied in a fair and non-discriminatory way.’7
Mr. Arpee agreed with Almunia. Mr. Arpee, however, responded that a more nuanced perspective should be taken in the entire state aid debate and that under current politics the state aid instrument is misused in order to create pressure on increased harmonization in the field of direct taxation. Alumnia predicted Arpee would receive a visit of three spirits to show him what ‘fair taxation’ would be all about: the spirits of State Aid Past, Present, and Yet-to-Come. Arpee made a hand gesture indicating contempt. Immediately, the vision of Almunia vanished in the cold air. Arpee, still confused, fell back to sleep after a couple of minutes.
Suddenly, Arpee felt a hand on his shoulder. A man in a decent grey suit stated, with a German accent, that it was time to reflect on how Europe intended companies to behave.8 Not only did EU law prohibit EU Member States to treat cross-border situations less favourable compared to domestic situations, it also did not allow them granting certain companies benefits compared to others. To illustrate this, the spirit of State Aid Past took Arpee by the hand and travelled back in time.
The first stop was decades in the past. The German speaking spirit explained to Arpee the purpose of state aid rules as being additional to the fundamental freedoms.9 The objective of the fundamental freedoms would be severely undermined if EU Member States provided domestic production with an artificial head start compared to their competitors in other Member States by granting the domestic productions with benefits.10
The prohibition of state aid has been part of EU law as of 1952 and also applies to tax law. Tax benefits, after all, also reduce the tax revenues of Member States. In order to prohibit the beneficial treatment, the state aid provisions in Article 107 of the Treaty on the Functioning of the European Union (TFEU) prohibit any aid granted by a Member State or through state resources in any form whatsoever that distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods in so far that they affect trade between Member States. From this definition, four (or five) constitutive elements can be deduced as qualifying a certain situation as state aid:
(i) the measure should be at the expense of state revenues either by way of a subsidy from a (national, regional, or local and direct or indirect) state body or because the tax treatment reduces state revenues (e.g. by means of a tax exemption);
(ii) (ii) the measure should distort or threaten to distort competition. This condition is usually easily satisfied.11 Every small advantage would, in principle, be sufficient to distort competition.
(iii) influencing intra-Community trade. This condition has already been met if the benefitting enterprise is active in a market in which cross-border activities occur. It is irrelevant that the beneficiary performs cross-border activities on its own;12
(iv) it should concern the granting of a selective benefit.13
In relation to the topic of state aid and taxation, the final condition of the existence of a selective benefit is the most important. Based on the criterion of a selective benefit, it should be shown that an enterprise receives a more beneficial tax treatment than other (comparable) taxpayers.
In order to determine whether a regime leads to a selective benefit, the European Commission applies a three-step-approach. First, the reference system should be determined. Subsequently, it should be examined whether the state deviates from the reference system to the benefit of a taxpayer. Finally, the question is whether that deviation could be justified.14 The reference system would usually consist of the generally applicable system of corporate income tax.15 The most relevant question in relation to tax rulings and their potential state aid qualification that should be answered is whether that which is included in a tax ruling deviates from what would be the result under the generally applicable regime.
Before Arpee could ask his German speaking phantom the reasoning for why he explained the objective of EU state aid rules, the spirit of State Aid Past flashed in a light beam to a later year. Closer to the present, the spirit wanted to show Arpee the spirit’s perspective of how state aid rules should apply to tax rulings. The spirit of State Aid Past explained the existence of rulings.
Rulings are usually concluded to obtain some certainty upfront on a tax qualification or the valuation of a transaction. According to the European Commission, tax rulings can also include state aid. In that respect, these tax rulings cannot escape a state aid qualification if they lead to a benefit compared to the generally applicable regime.16 Specifically in relation to the potential state aid qualification of rulings, the European Commission opines that this is the case when a ruling includes agreements on the incorrect application of the national corporate income tax regime or when the ruling is based on a wrong transfer pricing method or factually leads to an incorrect transfer price.17
Again, the spirit placed his hand on Arpee’s shoulder and time-traveled to 2015. He wanted to show Arpee how the state aid instrument got applicable to individual tax rulings. Before this, state aid in the field of taxation usually was applied to legal regimes, but not directly to individual taxpayers. Those discussions on tax regimes were, more or less, a matter of verifying whether the conditions incorporated in the national legal provisions concerned had led to a selective benefit.
The spirit showed Arpee a French employee of a Big Four tax advisory firm. In 2014, the International Consortium of Investigative Journalists published a list with an enormous number of multinationals that had made potentially undesirable ruling agreements with the Luxembourg Government.18 The French employee had turned over copies of the rulings to a journalist who made the full rulings themselves public as well. The scandal became known under the name ‘LuxLeaks’. The spirit of State Aid Past explained to Arpee that the European Commission had used this information to determine whether the Luxembourg tax rulings constituted state aid. In the European Commission’s view, the companies had obtained a ruling including a benefit that did not correspond to the actual tax treatment they would have got without that ruling. Arpee did not agree. He wanted to convince the spirit of State Aid Past that he was wrong, by indicating that rulings intend to determine future amounts by using models to calculate those amounts. The spirit of State Aid Past immediately acknowledged that the correctness of his view was still to be seen.
Besides that, the European Commission has used the LuxLeaks scandal to extend the scope of automatic exchange of information to material relating to cross-border rulings. The preamble of amending directive 2015/2376 implicitly refers to LuxLeaks: ‘Rulings concerning tax-driven structures have, in certain cases, led to a low level of taxation of artificially high amounts of income in the country issuing, amending or renewing the advance ruling and left artificially low amounts of income to be taxed in any other countries involved. An increase in transparency is therefore urgently required.’19 With this extension of the exchange of information, it appears that the European Commission wanted to avoid future state aid decisions in relation to tax rulings by exchanging information in that regard at the earliest possible stage and, by doing so, avoid recovery actions. As a result of the information on the tax rulings, other EU Member States can determine whether, in both countries, the same valuation of a transaction has occurred and, consequently, whether part of the profit would remain untaxed.
‘Time would tell whether the European Commission’s actions will have the desired effect’, stated the spirit of State Aid Past as he ends his visit. Mr. Arpee, however, did not see the relevance of the visit. After feeling around and finding his pillow, Arpee falls back to sleep.
A couple of hours later, Arpee felt a breeze. His window had opened and a cold November wind blew through his bedroom. Arpee plaintively stepped out of his bed and closed the window. When he turned around, he saw a transparent manifestation of a short-haired woman.20 Arpee recognized the spirit and was frozen in his place. After all, she resembled the person he wrote his letters to.
Reflecting on the state aid rules, the spirit immediately began to explain Arpee her perspective on state aid in the field of tax rulings:
I think it is one of the fundamentals, not only of the European Union but also of free trade, that competition is fair.21 We also want a free market, but we know that the paradox of a “free” market is that you sometimes have to intervene. You have to make sure it's not the law of the jungle but the laws of democracy that works.22 Consumers depend on us to make sure that competition is fair and open, and it's my responsibility to make that happen.23 Consequently, rulings need to be in line with state aid requirements.
She continued her monologue to Arpee with an intimation that governments also cannot grant benefits to individual companies.
No government can give a selective advantage to a specific company, because that would make competition unfair.24 When a government gives special tax treatment to a few companies, that makes it hard for anyone else to compete on equal terms.25 If a member state would allow a shift of profits, this could reduce the other countries’ tax revenues. That is not something we deem desirable.26
Before bringing Arpee to the first place of State Aid Present, the spirit concluded on the choice of the state aid instrument in the fight against tax avoidance:
Being a politician, I know how motivating it can be when the public is outraged.27 We are doing this because people are angry about tax avoidance, and the European council knew that it already had the power to do something to change that.28 However, even though the council had the knowledge, it did not act on it. The thinking was: “Let’s attempt to do something different within the system that we have. Something that means no change to legislation or voting systems but a change in attitude that acknowledges that people across Europe are angry.29”
As state aid already existed as an instrument, the spirit explained that it had used that to achieve a change in corporate mentality and tax morality. She continued by admitting that the use of the instrument may not have been what she hoped it would be. She reached out to Arpee and, upon the first touch, they were beamed away out of Arpee’s bedroom.
The first stop was in Luxembourg. Arpee and the spirit were in the building of the Court of Justice of the EU. The General Court had just issued its verdict in the state aid cases against Luxembourg and the Netherlands on the fundamental question of whether the European Commission is allowed to initiate state aid proceedings in relation to tax rulings granted by national tax authorities.
Especially the Luxembourg Government stated that the EC is, in fact, harmonizing tax law by imposing a European arm's length principle and is consequently subjecting tax rulings to state aid investigation. The General Court disagreed with this.30 In addition, the court observed that the EC must be able to examine – in the context of the state aid rules – whether the remuneration deemed acceptable in advance for a group transaction is comparable with the remuneration that would have been agreed on for market terms.31 The General Court argued that this so-called European arm’s length principle is, hence, a direct consequence of the prohibition of state aid.32
This is an acceptable line of reasoning. In non-affiliated relationships, it may be expected that transactions are always at arm’s length and competitive prices are negotiated while, in fact, this does not have to be the case in affiliated relationships. However, for tax purposes, a remuneration must usually be charged in such affiliated situations as would have been applicable in unaffiliated relationships; the remuneration must be at arm's length. Because the affiliated entities wish to obtain certainty about the valuation of the remuneration to be taken into account prior to the granting of the loan (and the related interest payment), this is specified in a ruling usually after an extensive transfer pricing analysis. Since the EC must be able to determine whether individual cases deviate from the normal corporate income tax regime, it would be quite logical to create the possibility of subjecting rulings to a state aid investigation. The EC must be able to assess whether the rulings correspond to market (and/or non-affiliated) situations or whether they create an advantage for the affiliated relationship. It so happens that the (unpublished) rulings may not contain any agreements that do not reflect the economic reality that would have existed in non-affiliated situations. Such an advantage would constitute state aid. It should be noted explicitly that issuing a ruling as such does not result in granting state aid but that the substance of the ruling may do so insofar as the effect of applying the ruling results in preferential treatment compared to a situation for which market economy conditions prevail. So, the ‘advantage’ is ‘only’ the difference between the transfer price set out in the ruling and the price as it should have been in accordance with the market and not, as is erroneously often assumed, by definition the full amount included in the ruling.
The court does take as a starting point that the ‘European at arm’s length principle’ is only a tool for establishing whether the content of the ruling at issue would qualify as state aid.33 Furthermore, the court compared the tax treatment of ‘stand-alone’ companies with the application of the at arm’s length principle to transactions between group companies. After all, the essence of that principle is to treat transactions between group companies comparable (if not identical) to transactions between non-related entities. It phrased:
Where national tax law does not make a distinction between integrated undertakings and stand-alone undertakings for the purposes of their liability to corporate income tax, that law is intended to tax the profit arising from the economic activity of such an integrated undertaking as though it had arisen from transactions carried out at market prices. In those circumstances, it must be held that, when examining, pursuant to the power conferred on it by Article 107(1) TFEU, a fiscal measure granted to such an integrated undertaking, the Commission may compare the fiscal burden of such an integrated undertaking resulting from the application of that fiscal measure with the fiscal burden resulting from the application of the normal rules of taxation under the national law of an undertaking placed in a comparable factual situation, carrying on its activities under market conditions.34
Most countries do not distinguish between group companies and stand-alone entities for the determination of their tax liability. The conditional approach by the General Court, however, would afford some opportunity for discussion. It implies that, when countries do make a difference in the determination of the tax liability for group companies and stand-alone companies, the establishment of selectivity could be different; i.e. since another reference framework could then be applied, it would be questionable whether the specific treatment would deviate from that more limited reference framework (that only applies to group companies).
After establishing its fundamental decision that individual tax rulings are open to state aid investigations and that the European Commission should be able to determine whether the transfer prices agreed to in those rulings deviate from market conditions, the court continued its verdict by actually examining the contested rulings. A ruling can be considered as state aid in two ways: the application of a wrongly selected TP method and/or the calculation of an incorrect transfer price. The latter, of course, may be the result of application of the wrong method, however, this is not necessarily so. The question of whether the method was wrongly chosen was only raised in the case against the Netherlands.35 In this case, the EC took the position that another method would have been more obvious; the CUP method rather than the TNMM method should have been applied. The EC adduced several comparable agreements that should have led to an incorrect transfer price as a result of the method applied in that case. However, the GC set aside nearly all of the comparable agreements because they were, inter alia, of a later date than the ruling under consideration. The state aid assessment must be made for the transaction at issue. Therefore, the EC may not use hindsight and rely on data that were not yet available at the time the ruling was granted. As a consequence, the EC had not adequately proven that the CUP method would have resulted in a ‘better’ outcome than the TNMM.36
In the case against Luxembourg, the EC assumed that, although the most appropriate method had been chosen, this method was misapplied which led to incorrect transfer pricing. Within the TNMM, capital was selected as the profit level indicator. However, a discussion arose as to whether the capital could be assigned to specific functions and whether it was at all possible to link different rates of return to those functions.37 According to the General Court, the segmentation of capital could not be justified by the need to differentiate between the remuneration for the various functions since that segmentation is entirely artificial.38 The GC thus concluded that all of the company’s capital should have been included in the application of the TNMM and that the same rate of return should have been linked to it. The segmentation agreed to in the ruling produced an advantage compared to this approach. The tax advantage resulting from this difference must be recovered by Luxembourg if the decision on a possible appeal is upheld.39
In a flash, Arpee and the spirit of State Aid Present were transported to a book shop. The spirit explained to Arpee that the GC’s judgment in relation to Luxembourg should have made clear that Member States should not ‘hide’ benefits in tax rulings. Individual agreements between the tax authorities and a taxpayer are not necessarily wrong, however, they may be regarded as state aid if they create an advantage compared to normal market situations and thus lead to the recovery of the wrongly unpaid amount of tax. Additionally, although the EC will have to attempt to identify and quantify this advantage that does not seem to be easy,40 this could open doors for the EC. All concluded tax rulings can, in principle, be assessed under the state aid prohibition.
One of these currently pending cases concerns another ruling issued by Luxembourg.41 The situation involved annual payments for intellectual property rights between two Luxembourg based entities: an operating company and a holding company. The latter was a limited partnership. Since this limited partnership is not taxable in Luxembourg, a major portion of the payments made by the operating company to the limited partnership remained untaxed. A 2003 ruling provided for the method for determining the tax base of the operating company which indirectly approved the method for establishing the annual payment. This payment turned out to comprise almost the entire profit of the operating company and was much higher than the annual amount payable by the limited partnership to a US group company on the basis of a cost-sharing agreement. The ruling is contested by the EC which exclusively considers the method of calculating the annual payment to constitute state aid. The use of the transparent limited partnership, a result of which the income attributable to the limited partnership is not taxable in Luxembourg, is not part of the discussion.42 The previous judgments make it possible, in principle, to assess the amount of the agreed payment in light of state aid criteria. The volume of payments, therefore, should comply with the arm’s length principle, i.e. should be comparable to level payments between unrelated entities. However, the success of the EC in providing evidence remains to be seen. While it is argued by the EC that the transfer pricing method that was selected and the transfer price that was established have been determined incorrectly, the EC’s reasoning seems to be ensnared in observations, and the EC uses agreements for comparison that date from after the conclusion of the original ruling in question.43 This may call into question the qualification of state aid. Note that similar discussions on transfer prices established in rulings that are qualified as state aid are also being conducted in other countries such as the Netherlands,44 Ireland45, and Belgium.46 In these cases, it must also be assessed whether the EC will ultimately succeed in proving that the transfer prices established on the basis of transfer pricing reporting accord with prices that would have applied under normal market conditions. The author doubts whether the EC will succeed in providing such evidence in many situations.
The spirit of State Aid Present explains to Arpee that not all currently pending cases relate to application of incorrect transfer pricing methodologies or transfer prices. Upon touching Arpee’s shoulder, the scenery changes from a book shop into a European energy plant. The spirit explains this is Engie.47 When a Luxembourg company grants a loan to another Luxembourg group company and the latter owes interest on that loan, the interest payment is ‘parked’, and the loan has been converted into a capital contribution in the meantime. With this option, Luxembourg effectively creates a domestic hybrid loan that can provide a double benefit in Luxembourg: interest deduction at the level of the recipient of the loan and participation exemption for the lender. This system is under attack also because the tax advantage resulting from the hybrid loan does not arise from an international qualification mismatch of the loan in this case but because the same Member State unilaterally disregards it and permits it. A cross-border mismatch should qualify as a disparity which can only be resolved through harmonisation.48 In principle, a country does not have to qualify a loan the same as the other country involved since it may unilaterally determine that classification. If this leads to an advantage, in principle, it is the result of the parallel application of the tax laws of multiple EU Member States, which is permissible.49 However, according to the spirit of State Aid Present, a qualification as a disparity may be called into question if the mismatch is created by the same country since the unilaterally created double benefit of deduction and exemption can also be solved unilaterally in that case. She explained that, at this moment, the General Court agreed to her conclusion.50
Immediately after that, the spirit changes Arpee’s surroundings again. They are in a Finnish drink packaging factory. She explains that the Huhtamäki case introduces another issue.51 Since the EC’s final decision has not yet been published, it is not entirely clear how things will evolve. In broad terms, it seems to involve the deduction of interest on an interest-free loan. This seems to be a contradiction in terms but is, in fact, a similar discussion as the one in the Luxembourg case (paragraph 4.2). Such an interest-free loan is usually concluded only between group companies. In fact, no interest is payable but, for tax purposes, the parties must act in the manner that would have been agreed between non-affiliated parties. In that case, interest would have been payable, and Luxembourg as well as other EU Member states allow that amount of imputed interest as a deduction in such situations. In this case, the EC does not dispute the level of the interest rate that is set but rather the legal system applied in Luxembourg. According to the EC, the Luxembourg regime results in a selective advantage as a result of the conditions applied by this country for qualification for deduction of an arm’s length rate of interest, such as (i) the limited applicability to only cross-border situations, (ii) the non-binding nature, and (iii) the non-application of a comparable upward adjustment at the level of a Luxembourg resident provider of a non-interest-bearing loan. This debate is also awaited with interest in other countries. The author believes this case will have limited impact on the Netherlands, considering the arguments proposed by the European Commission. There are major differences between the optional and unilateral Luxembourg system and the compulsory Dutch system, which also requires that corrections are imposed at the level of the grantor of the loan, provided – of course – it is established in the Netherlands.52
Before returning Arpee to his home, the spirit of State Aid Present takes him to a hamburger restaurant for a midnight snack. She tells Arpee that the EC has withdrawn the state aid procedure against Luxembourg in relation to McDonalds.53 Luxembourg had allowed the allocation of royalty income to a US permanent establishment while the United States did not recognize any taxable presence. As such, a part of the Luxembourg profits remained untaxed. The EC had initially argued that the qualification mismatch of a US permanent establishment qualified as state aid. In the end, the EC withdrew the case as Luxembourg acted in accordance with its domestic law and the tax treaty between Luxembourg and the United States. The spirit concludes:
Of course, the fact remains that McDonald's did not pay any taxes on these profits – and this is not how it should be from a tax fairness point of view. That's why I very much welcome that the Luxembourg Government is taking legislative steps to address the issue that arose in this case and avoid such situations in the future.54 Furthermore, it should be noted that ATAD2 may cover such mismatches as well.55
Hoping that Arpee had learned something on the current state of affairs and the reasons for using the state aid instrument, the spirit of State Aid Present took him back to his home. She ended her visit with the words:
The Commission will continue to look at aggressive tax planning measures under EU State aid rules to assess if they result in illegal State aid. At the same time, the ultimate goal that all companies pay their fair share of tax can only be achieved by a combination of efforts to make legislative changes, enforce State aid rules and a change in corporate philosophies.56 To me, a tax heaven is where everyone pays their fair share. In that respect, I am not quite sure we are in tax heaven yet. 57
Arpee responded that she should not be so convinced of her positions. He said that she had to admit that her approach did not have the effect she wanted, as she effectively lost most of the currently pending cases. Even though she won on the matter that tax rulings could be subject to a state aid examination, she did not succeed in substantiating any deviations from the general tax regime in those rulings. The spirit of State Aid Present turned away. After that, she left Arpee with the announcement that one last spirit would visit him.
Arpee did not have to wait long. Immediately upon his arrival back in his room, he saw a large figure in a large black cloak. This was clearly the spirit of State Aid Yet-to-Come. Arpee could not see the spirit’s face and, apparently, the spirit did not have the intention to speak as he commanded Arpee to come closer with only a hand gesture.58
Arpee and the spirit of State Aid Yet-to-Come arrived in the middle of the European decision-making process. It became clear to Arpee that this factually had nothing to do with the state aid cases. Discussions were not on tax rulings nor on state aid. They were on exchange of information between tax authorities,59 avoidance of taxation, and taxation of the digitalized economy.
Faster than the highspeed train, the spirit of State Aid Yet-to-Come transported Arpee to Paris where the OECD is seated. There, new discussions to tackle tax avoidance are debated.
The spirit points Arpee to the discussions on the OECD’s plans for taxation of the digitalized economy. Under the original BEPS Project, OECD countries could not agree on a joint approach and effectively postponed the discussion on the topic.68 This resulted in the debate on a digital permanent establishment and the allocation of taxing rights and nexus.69 This evolved in what now is known as Pillar 1. The proposal is accompanied by suggestions to come to minimum taxation in any form in order to ensure that profits are actually being taxed at a minimum level that would be acceptable for all participating countries, the so-called Pillar 2.70 This minimum taxation can be in the form of a fixed rate or a range or be dependent on the domestic corporate income tax rate of the respective country.
This immediately raises the question of what the consequences of the new BEPS actions are for the EU. Earlier, the BEPS actions resulted in EU legislation to create a more harmonious implementation of the OECD plans in the domestic tax systems of the EU Member States. that the same goes for the current plans on Pillars 1 and 2.71 In relation to the digitalized economy, the EU already proposed a long-term and interim solution in directives to create a digital PE72 respectively on the introduction of a digital services tax73, but these plans are already withdrawn. Before the Pillar 2 directive was introduced, an amendment – or a new directive closely related to the Pillar 2 directive – was already announced relating to the publication of the effective tax rate, following the scope and calculation method from the Pillar 2 directive. In the author’s opinion, the Pillar 2 directive could only come to fruition because consensus is reached at an international level. Setting the tax rate is, after all, considered one of the items that belong to the tax sovereignty of the EU Member States.74
All of these measures harmonizing the corporate income tax bases also raise the question of whether a Common (Consolidated) Corporate Tax Base would be near finalization.75 Commission President Von der Leyen already announced this project as one of the spearheads of her commission’s tax policy.76 Even though CCCTB by itself was withdrawn, its successor BEFIT would reach exactly the same result. Besides that, even the discussion on allocation factors of the allocation formula will be comparable.
The atmosphere is freezing, but Arpee actually felt strengthened. He did see the entire discussion from another perspective. The last couple of years, he had focused on a textual analysis of the state aid rules. The State Aid spirits, however, had given him an in-depth analysis of the state aid instrument and how it is to be applied in tax ruling cases. Especially the reasoning why state aid was used as an instrument, even though he still qualified is as ‘misused’, at least had opened his eyes for the results the European Commission wanted to achieve. He sat down, considering why he did not pay that much attention to the objective and context of the European Commission’s actions before. After the final transfer, the spirit left without saying a word.
Arpee cried and lashed about with his arms on his pillow. He slowly woke up and realized he was not in the freezing cold anymore. He jumped out of his bed. It was 1 December. Arpee still had enough time to go to his office, and amend some of his college slides. He wanted to address the background of the state aid discussions and place it in the perspective of tax harmonization, even though he remained critical on the question whether state aid was the right instrument to achieve this objective. He concluded: ‘I will honour state aid in my heart and try to keep it all the year. I will live in the Past, the Present, and the Future. The spirits of all three shall strive within me. I will not shut out the lessons that they teach!’77