Out-Law News 3 min. read

EU needs 'common corporate tax base' to discourage use of special tax rulings, says competition commissioner

The European Commission will not be able to move quickly enough to tackle anti-competitive tax practices by the different member states without "at least" a single corporate tax base and automatic exchange of information about so-called 'tax rulings', the competition commissioner has said.

However, in evidence given to a European parliamentary committee convened to investigate the practice, Margarathe Vestager said that this work could not be delivered through enhanced cooperation between a "coalition of the willing" made up of only certain member states.

"[This] might scare member states away […] because competition is important for all the EU member states," she told the committee.

"If member states don't provide the necessary information, we can give injunctions. We can launch infringement procedures and we can take them to court if we don't get the info we need to do out work. But for the Commission to work in a dedicated, fast and just manner, we need at least the automatic exchange of information on tax rulings and a common consolidated tax base. We might also have to prepare guidelines for member states to explain in detail what is allowed and what is not. But for that we need more case law," she said.

The European parliament set up a special committee in February to look into tax rulings and "other measures similar in nature and effect" going back to 1 January 1991. It will review the way that the European Commission treats state aid in member states and the extent to which those member states are transparent about their tax rulings, and make recommendations for the future.

The committee was established following a series of investigations by the Commission into tax rulings given to multinational companies by authorities in Luxembourg, Ireland, Belgium and the Netherlands. Tax rulings are 'comfort letters' from national tax authorities giving specific companies clarity on how their corporate tax will be calculated, or on the use of special tax provisions such as transfer pricing arrangements. If used to provide selective advantages to a specific company or group of companies, tax rulings may involve state aid within the meaning of EU rules.

The Commission said in December that it would ask all 28 member states to provide a full list of companies that they had given tax rulings to between 2010 and 2013. It has also published a proposal for the automatic exchange of tax rulings between member states which, if adopted, would require every member state to report any tax rulings they had issued to all the other member states every three months. This proposal could come into force on 1 January 2016 if agreed by the end of the year.

When asked by the committee why the Commission had taken so long to tackle the potential anti-competitive effects of tax rulings, Vestager said that member states had been unable to agree on the necessary measures. EU tax issues are decided only by unanimous votes, and the European Commission cannot interfere in the tax regimes of individual member states.

However, Vestager also said that the EU would not meet its self-imposed deadline of June for publishing its final decisions on Apple's tax practices in Ireland, Amazon and Fiat Finance and Trade in Luxembourg and Starbucks in the Netherlands. She said that obtaining the necessary information had been "both challenging and time-consuming", and that the Commission would not "sacrifice the rule of law or the quality of our work to speed up the process".

Vestager also denied that the Commission was only pursuing "small countries" as part of its investigations, in response to an Irish MEP.

"We have now asked every country about their tax rulings," she said. "With our limited resources, we look at cases that will set a precedent, so that we generate incentives for member states to change."

“The Common Consolidated tax base has been a key EU project since 2001, and it is proving very hard to bring it into practical effect. Whilst this may be the theoretical solution, the Competition Directorate will have to work closely with the Tax Directorate in order to achieve workable solutions,” said Heather Self of Pinsent Masons, the law firm behind Out-Law.com.

“The sheer volume of change from the EU, the OECD and the G20 at present is quite overwhelming for multinational businesses. Whilst it is understandable that governments want to ensure that unfair advantages are eliminated, there is also a risk of an increasing number of disputes, and potential double taxation,” she said.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.