In recent cases across various European Member States, the European Commission (EC) has deemed that selective tax allowances had been granted, conflicting with the EU State Aid rules. In applying the State Aid rules, the Commission is extending the State Aid law in an unprecedented fashion. This topic was discussed today at Taxand’s Global Conference 2016 in Dublin.
Whilst State Aid rules can apply to a wide range of benefits offered by governments, the EC has been recently focused on corporate taxation. Some have argued that, as a result of heightened media exposure, the EC has embarked on a crusade to weed out selective agreements granted to multinationals. As such, some notable household business names such as Apple, Starbucks and FIAT have been and remain firmly in the cross hairs of the EC and are feeling the full force of State Aid rulings. A number of these cases have been felt very sharply by Luxembourg, the Netherlands and Ireland, where there has been a huge degree of interference from the Commission, largely around Transfer Pricing.
We are seeing a simplistic approach to a complex problem. We are also seeing a confusion between BEPS (the OECD’s initiative to address global tax avoidance and evasion) and the State Aid rulings. These investigations are a prime example of the Commission flexing its muscle and applying an absolutist approach to a subjective matter. The selective nature of these agreements is a tricky condition to determine as rules which appear, theoretically at least, open to all may be in fact selective.
Whilst the EC claims that tax rulings are, in principle, fine and that only certain ones are problematic, its reasoning behind some recent rulings seems to call into question the tax rule in general. A domestic business operating in its home country cannot, for example, be compared to a multinational, with different operating structures. Therefore comparisons around the use of tax agreements cannot be made in a simplistic manner, or else we end up in a situation where any case involving State Aid is a self-fulfilled prophecy.
If we look at the meaning of ‘selectivity’ as a means to identify State Aid, where does it end? On this basis, companies who benefit from R&D subsidies in Ireland could very well become the focus of investigation. The absurdity of the situation and the analysis undertaken to make the assessment does little to encourage business growth and prosperity.
How the Commission’s State Aid decisions will affect the ruling practice and potentially many other practical and seemingly benign aspects of tax administration (could negotiated compromises of tax disputes be next?) in the countries concerned, and how they may impact the overall tax planning of corporate taxpayers, is a question many may be mulling. A successful ruling will not only be detrimental to the relationships of those involved but could also be the starting pistol of European wide reform. Tax rulings are ordinarily sought in order to provide taxpayers with higher degrees of tax certainty. The recent EC actions in challenging tax rulings has exactly the opposite effect.