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EU's new competition commissioner given explicit new remit to 'fight tax evasion'

Out-Law News | 12 Sep 2014 | 4:33 pm | 2 min. read

The explicit inclusion of tax evasion as a priority for the EU's new competition commissioner hints at imminent progress in the European Commission's investigation into the tax affairs of Apple, Google and Fiat, an expert has said.

Heather Self a tax expert at Pinsent Masons, the law firm behind Out-Law.com, noted the "interesting" wording of the 'mission letter' received by Margrethe Vestager, the Danish politician appointed to succeed Joaquin Almunia as competition commissioner from November. Vestager has been asked to consider "areas such as the digital single market, energy policy, financial services, industrial policy and the fight against tax evasion" as part of her role, Self said.

Vestager has also been asked to "keep developing an economic as well as legal approach to the assessment of competition issues and ... further develop market monitoring in support of the broader activities of the Commission", according to the letter.

"This strongly suggests that the state aid investigations into Apple, Google and Fiat will continue to be taken forward," Self said. "It is likely that more details of the specific grounds for the investigations will be published shortly."

"Meanwhile the new tax commissioner, Pierre Moscovici, has also been tasked with 'continuing the fight against tax fraud, tax evasion and aggressive tax planning', so there will clearly be some overlap of the portfolios," she said.

The Commission's new president-elect, Jean-Claude Junker, will officially take office in November. His new commissioner appointments are subject to approval by the European parliament.

As announced in June, the Commission has begun in-depth investigations into whether tax arrangements adopted by Apple in Ireland, Starbucks in the Netherlands and Fiat Finance and Trade in Luxembourg amounted to "unjustifiable" state aid. Depending on the outcome of the investigations, the three companies could face retrospective tax bills of millions of euros, according to Self. The Commission is also conducting a wider enquiry into tax rulings, which covers more member states.

The European Commission does not have direct authority over national direct tax systems. However, it can investigate whether certain advantageous fiscal regimes would be prohibited under its state aid rules, which are intended to prevent the distortion of competition when national governments grant advantages or incentives to particular companies. If the Commission rules that member states had given unlawful state aid, any company found to have benefited would be required to pay back any illegal tax relief usually going back 10 years.

The Commission has been investigating tax practices in several member states following media reports alleging that some companies have received "significant tax reductions" in the form of tax rulings issued by national tax authorities. Tax rulings are often used to confirm transfer pricing arrangements, which are the prices charged for commercial transactions between various parts of the same group of companies. Transfer pricing influences the allocation of taxable profit between subsidiaries of a group located in different companies.

According to the June announcement, the Commission is to investigate individual rulings issued by Irish tax authorities on the calculation of the taxable profit allocated to the Irish branches of Apple Sales International and Apple Operations Europe. It will also examine a ruling issued by the Dutch tax authorities on the calculation of the taxable basis in the Netherlands for manufacturing activities of Starbucks Manufacturing; and a ruling issued by Luxembourg's tax authorities on the taxable basis in Luxembourg for the financing activities of Fiat Trade and Finance.

In its statement, the Commission said that its investigations concerned "only arrangements about the taxable base" and not the particular tax rates.