The Compatibility of IP Boxes With the European Union State Aid Law in Light of the OECD Recommendations on Harmful Tax Practices

The scope of this working paper is to analyse to what extent the Intellectual Property Box regimes (“IP Boxes”) adopted in the European Union are compatible with the State aid legislation. What is understood during the analysis is that the introduction of a “nexus”, like the one imposed by the Organisation for Economic Co-operation and Development (“OECD”) Action 5 against base erosion and profit shifting (“BEPS”), might be the key to the compatibility of IP Boxes with the EU State aid law. The results are based on a confrontation of economic analyses, stating that in absence of a relationship between economic substance and the concession of tax reductions, no research and development is enhanced by IP Boxes. Accordingly, there is a risk to incur material selectivity, and consequently infringing State aid legislation, by reason of a reduction of the tax burden without any justifiable reason