EU Parliament sets up 'special committee' as State aid tax probe continues

EU Parliament sets up 'special committee' as State aid tax probe continues

Published:

Author: Sarah Livestro

The European Parliament has set up a special committee to examine whether Member States broke EU rules by offering tax breaks to large multinational companies.

The move may disappoint some MEPs, who had been calling for greater powers to probe alleged tax sweeteners offered by national governments. But others were concerned that a more extensive investigation would have hit legal problems, as it risked overlapping with European Commission (Commission) investigations into whether so-called 'tax rulings' breached EU State aid rules.

'Tax rulings' are letters issued by a national tax authority giving advance notice of a company's tax bill. The Commission initially opened State aid investigations into Dutch arrangements with Starbucks, Irish arrangements with Apple and the treatment in Luxembourg of the tax bills of both Amazon.com and Fiat Finance and Trade.

But in December last year, the regulator widened the scope of its enquiries by asking all EU Member States to disclose information on their use of tax rulings. Most recently, the Commission announced that it had opened an investigation into a system of tax exemptions offered by the Belgian tax authorities through so-called 'excess-profit tax rulings'.

Proving that national tax arrangements broke EU State aid rules will not be an easy task for the Commission - the Commission must prove that the tax system gives certain companies a selective advantage over others.

This involves first identifying the normal or 'reference' system of taxation in a particular Member State and then showing that certain companies received preferential treatment compared to this benchmark.

Even where the regulator succeeds in showing there has been preferential treatment, a Member State may still be able to show that there is no State aid if it can argue successfully that the preferential treatment is justified by the nature of the tax system.

Tax harmonisation measures have been resisted by some Member States, who are keen to retain control over their own taxation policy. EU Competition Commissioner Margrethe Vestager has been quick to point out that her mandate is to impose 'corrective' measures and not to introduce tax harmonisation by the back door as any such legislative - or in the words of Commissioner Vestager 'preventative'- measures fall under the remit of the EU Commissioner for Financial Affairs.

However, Commissioner Vestager made clear that companies engaged in tax avoidance could expect a joined up approach by the Commission since: 'the preventive and corrective arms can work together to provide a "very warm hug" to those that engage in aggressive tax planning'.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.