At Taxand’s 2017 Global Conference in Frankfurt, a panel discussed recent EC challenges to tax planning, using State Aid laws. The panel involved Keith O’Donnell (Taxand Luxembourg), Dr. Axel Cordewener (Katholieke Universitet Leuven), Rafael Calvo (Taxand Spain) and guests.
Apple’s recent clash with the EU over its European tax arrangements attracted a huge amount of attention across the globe as the European Commission (EC) flexed its muscles and looked to challenge the tech giant’s arrangements with the Irish government, concluding that Apple had been granted illegal tax benefits of up to €13 billion.
The issue grew further when the US Treasury released a statement challenging the authority being assumed by the EC, and questioning the role it was taking in making financial demands of a US-based multinational.
This storm brought the issue of ‘State Aid’ to the forefront of global tax debate, particularly with the EC seemingly on a crusade to determine if any Member States have been illegally granting favourable tax positions to certain businesses. The Apple case came hot on the heels of a similar case involving Starbucks.
The ongoing debate that has been sparked centres around what constitutes state aid under European law and whether other businesses or member states will be under pressure in the future. A measure is considered illegal state aid if it is granted by state resources, confers an advantage, is selective and if it affects trade between member states and distorts, or threatens to distort, competition.
US companies with operations outside the country are following the situation closely given that they, like Apple, commonly hold considerable cash overseas, given the onerous tax regime currently in place in the US.
‘Selectivity’ lies at the heart of any State Aid case, as this will ultimately determine if a country is giving preferential treatment to a certain business. Under closer scrutiny, the case brought against Apple was somewhat flawed and was particularly questionable in its application of State Aid methodology, but despite this, the case has been lodged.
All eyes now turn to the next stages in the Apple case, in what could be a long drawn out process. Other cases in State Aid have been known to run for a decade or more so we may not see a conclusion any time soon. This ultimately creates an uncertain and unknown liability for companies who are faced with such cases from the EC.
State Aid cases are undoubtedly shrouded in ambiguity. The Apple case is a perfect example of this – the EC have made a case, though Apple has signalled confidence that it is compliant in Ireland, and the Irish government has been clear that it agrees with them. This demonstrates that corporates can no longer just rely on local authorities to help with tax planning.
What is clear, is that multi-country tax planning in the EU is no longer just a case of navigating individual country tax rules; multinationals must now consider the over-arching presence of challenges from the EU.
This is by no means the end of the story as the EC has said it has hundreds, and possibly thousands, of cases it would like to investigate. Certain cases will no doubt set a precedent, so multinationals across the world will no doubt be watching with interest.