EPRC has been commissioned by the region of Madeira to undertake a study of the implications of the State aid rules for the outermost regions of the EU. The outermost regions have the scope to offer so-called operating aid under the 2007-13 Regional Aid Guidelines, albeit under closely prescribed conditions and subject to detailed European Commission scrutiny.
The study examines how these rules have been implemented in practice, especially in the case of tax concessions. This focuses on the quantification of handicaps and the proportionality of aid, as well as the justification for aid on regional policy grounds and the role, if any, of the 'incentive effect', which has become a key consideration in other areas of State aid policy.
The study also considers aspects of tax competition noting, in particular, that comparable (indeed more generous) measures than those authorised in the outermost regions may be operated by EU national governments or regional governments with the requisite degree of autonomy and that such measures fall outside the scope of the State aid rules. This in turn raises important issues for EU Cohesion policy and small island economies, as well as for the relationship between EU competition policy and taxation.