EU tax break notifications rise

Data gathered by Pinsent Masons, the law firm behind Out-Law.com, shows the commission has received 385 notifications about potentially unlawful tax breaks in the last five years – almost five times the number received in the previous five-year period.

In the 12 months to 31 March 2019 the commission received 51 notifications from governments or businesses. Under EU rules, both companies and member states have to notify the commission when they believe a tax break or scheme is in existence that may provide an unfair advantage and infringes EU state aid rules.

Any interested party can also make a complaint to the commission about alleged unlawful state aid by an EU member state if they may be affected by the granting of the aid. Complaints will typically come from competitors of a business that has been granted aid.

Tax law expert Jason Collins of Pinsent Masons said the rise in notifications was likely to be linked to a clampdown by authorities on tax avoidance by businesses.

“Offering favourable tax treatment on a selective basis to multinational businesses has become an important method by which many countries attract inward investment. However, in this era of the war on tax avoidance this has become more controversial,” Collins said.

“The European Commission has been taking a more aggressive stance towards possible anti-competitive behaviour and has the tax treatment of multinationals very much in its sights,” Collins said.

“The complexities of the tax rules in some EU member states is also likely to have driven the increase in the number of notifications. Other factors, such as tax breaks provided to investments in a country’s overseas territories or to encourage investment in certain industries, could also count,” Collins said.

The European Commission carried out a number of investigations into tax rulings by several member states, particularly in Ireland, Luxembourg and the Netherlands, from 2013. Companies which have come under the spotlight included Apple, Starbucks, Amazon, ENGIE and Fiat, with the Commission finding in all of those cases that unlawful state aid had been given.

Fast food giant McDonald’s was also investigated, but no breach of state aid laws was discovered in its case.

In April 2019, the commission said the UK's Controlled Foreign Company (CFC) rules partly contravened EU state aid rules and that the UK must require repayment from companies that have benefited.

EU and competition law expert Alan Davis of Pinsent Masons said this repayment would still be required, regardless of the outcome of the ongoing Brexit negotiations.

“The Commission has made it clear that any UK tax rulings found to have infringed the state aid rules before the UK's exit from the EU will still require any unlawful state aid arising before that date to be repaid, notwithstanding Brexit,” Davis said.

“After Brexit, the position becomes less clear. On the one hand, the UK will have a domestic UK state aid regime that will be enforced by the Competition and Markets Authority and which may regulate these tax rulings at a domestic level. But EU state aid law will no longer apply in the UK, so UK businesses will no longer be able to complain to the Commission about new and potentially unlawful tax schemes in other EU member states,” Davis said.

Pinsent Masons’ research found that the most notifications about potentially unlawful tax breaks made to the European Commission since 2007 came from France, with a total of 51 notifications.

The Czech Republic with 37 notifications and Poland with 36 completed the top three, while the UK was sixth with 24 notifications.

The high number of notifications by France could reflect the traditionally more interventionist nature of public authorities in the country, resulting in some French companies receiving an advantage. The French government has equity positions in 81 French companies.