Tax Law and Competition

Therelationship between competition and tax law, defined as a means of setting thetax burden for corporations, is far-reaching and complex. Competition isundoubtedly shaped by tax law, insofar as tax expenditures and regular tax provisionsmay adversely affect the outcome of competition on a given market. Specifically,competition may be distorted by tax criteria that unalign the tax burden fromthe competitive advantage which determines the market outcome, and which can bedefined as the difference in added value between competitors. A more analyticalexpression of this would be that the criteria setting the tax burden distortcompetition - either de jure or de facto - when they provide for aspecific tax treatment of certain competitors or competing operations. Furthermore,pursuant to the arm's length principle, competition can be considered as an instrumentfor tax law, insofar as it is used as a tool for setting intragroup tax bases.The arm's length principle, which falls under anticompetitive pricing rules, evidencesthe distorsion of competition that stems from disregarding taxpayers' respectiveadded values, thereby empirically confirming that tax capacity and added valueshould be aligned in order for tax law to be competition-neutral. Accordingly,tax distorsions of competition are a question of tax criteria; this legaldimension begs the question of whether such distorsions are characterized andregulated by statute and /or case law. A first observation would be that competitionincreasingly applies to tax law, marginally via competition law (which is aparadox), but more profoundly and widely as the defining influence behind a numberof provisions and principles that govern tax law. That competition isaccordingly instrumental for these norms would tend to make of competition asubstantive norm for tax law.  The Frenchprinciple of equality before tax increasingly factors full-fledged competitionanalyses in the tax and constitutional courts' appreciation of the competitiveeffects of tax provisions, but its scope is curtailed by an overly abstractconception of equality and, overall, a reluctance to challenge the legislator'spolicy decisions.  This influence,characterized in French law and conducive to tax being affected by theobjective of free competition, also entails the instrumentalization of tax lawin the field of economic law, which imposes on tax law its own competitive objectives.