Tax Treaties and State Aid: Some Thoughts

European Union State Aid rules may restrict EU Member States from granting tax incentives in their national tax laws. But will they also restrict bilateral tax treaties from containing tax benefits for certain taxpayers? Even though tax treaties may survive the discussion on Most Favoured Nation (MFN) Treatment, such treaties will still be subject to state aid rules if concluded between EU Members or by at least one EU Member State. In this Article the author examines this issue prima facie, looking into the question what parts of tax treaties may be affected by state aid rules. He concludes that Articles 5 and 8 of the OECD Model Treaty (text of 2004) may contain provisions contrary to state aid rules. He also concludes that tax sparing credits may be under scrutiny.