Abstract

Tax compensation, mainly in the form of financial aids or of tax relief, represents an instrument largely advocated by entrepreneurs and political forces to enhance competition and economic development in the weakest regions. The paper points out that the EU legislation limits the use of tax compensation among Member countries and, in this view, may also arise a specific risk related to harmful tax competition. The author proposes a solution based on a new tax compensation scheme where Member States should support tax compensation to make their less developed areas more competitive.