In a significant opinion that could impact how government subsidies are taxed, the Advocate General (A-G) of the Dutch Supreme Court has advised the court to overturn a ruling that upheld the unequal tax treatment of two materially identical environmental schemes. The case highlights a critical tension between national equality principles and the complex web of EU state aid regulations, offering valuable insights for any company receiving government support.
THE BOTTOM LINE
- Subsidy Risk & Uncertainty: Companies receiving regional or specific government subsidies that are similar to national schemes face tax uncertainty. This opinion suggests that if two schemes are functionally identical, their tax treatment should also be identical.
- Stronger Grounds to Challenge: This provides a powerful argument for businesses to challenge tax assessments on subsidies if they can prove their scheme is materially the same as another, tax-exempt program. The government cannot simply cite its own administrative choices (like failing to notify the EU) as a justification for discrimination.
- Rethinking State Aid Compliance: The opinion reframes the state aid risk. Instead of unequal treatment being a “safe” way to avoid illegal state aid, the A-G suggests that applying an existing, EU-approved tax exemption to a materially identical scheme is the legally consistent and compliant path, reducing risk for both the government and the recipient.
THE DETAILS
The case involves a farmer who received a subsidy under a provincial program (“pNN”) to convert his agricultural business into a nature reserve. While this compensation was taxed, a virtually identical national subsidy scheme (“SKNL”) benefits from a full tax exemption. The government and lower courts justified this discrepancy by arguing that the tax exemption for the SKNL scheme had been formally approved by the European Commission under state aid rules, whereas the exemption for the pNN scheme had not. They reasoned that treating the two differently was a necessary precaution to avoid granting illegal state aid, which could later be clawed back from the farmer.
The Advocate General dismantled this line of reasoning, calling it circular. He argued that the unequal treatment was not justified by the lack of EU approval but was in fact caused by the Minister of Finance’s own inconsistent actions—seeking approval for one scheme but not for the other. In the A-G’s view, the government cannot create a discriminatory situation and then use that very situation as its legal defense. This shifts the focus from the taxpayer’s position to the government’s responsibility to act consistently.
At the heart of the A-G’s opinion is a crucial distinction in EU law between “new aid” and “existing aid.” New state aid is illegal if not pre-approved by the Commission. However, the A-G concluded that extending the tax exemption to the pNN scheme would not constitute “new aid.” Because the tax exemption for the materially identical SKNL scheme was already approved, it qualifies as “existing aid.” Applying this same approved treatment to a factually identical case is merely an extension of a legitimate, existing measure. As a result, the state aid concerns that underpinned the lower courts’ rulings are unfounded, leaving no valid justification for the unequal tax treatment. The principle of equality, the A-G concludes, should prevail.
SOURCE
Source: Office of the Advocate General at the Dutch Supreme Court
