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Incoming EU competition commissioner promises to "send a signal" on tax-related state aid

Out-Law News | 06 Oct 2014 | 10:00 am | 2 min. read

EU state aid cases against Ireland, Luxembourg, Gibraltar and the Netherlands will be "a high priority" for the new competition commissioner, Margrethe Vestager, when she takes over the role next month, according to evidence given by the Danish politician to a European parliamentary committee.

Vestager told the economic and monetary affairs committee (ECON) that speedy resolution of the cases would "send a signal" that tax avoidance was a "very, very serious issue". The Commission is currently investigating tax rulings granted by EU member states to Apple, Fiat and Starbucks, as well as a complaint from the Spanish government in relation to the new corporate tax regime in Gibraltar.

"I think [tax avoidance] is a serious issue," Vestager told the committee. "The majority of companies pay their taxes, but they see that other companies get special arrangements and lower taxes. I fully respect that taxes are a member state competence, but if it affects competition, then I'll look into how it can be stopped."

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 have given unlawful state aid, any company found to have benefited can be ordered to pay back any illegal reliefs granted over a period usually up to 10 years.

The Commission announced in June that it was to carry out 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. More details of its cases against Ireland and Luxembourg were published last week. The investigations relate to 'tax rulings' issued by the national tax authorities to confirm transfer pricing arrangements, which are the prices charged for commercial transactions between various parts of the same group of companies. These arrangements influence the allocation of taxable profit between the parts of the group.

An in-depth investigation has also been opened by the Commission into whether the new corporate tax regime in Gibraltar selectively favours offshore companies, in breach of state aid rules. This investigation will particularly consider the exemption for passive income, such as royalties and dividends, from corporation tax in Gibraltar irrespective of where the source of the income is located, following a complaint from the Spanish government.

Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, said that the Commission had not ruled out investigating other cases, the extent of which would be likely to become clearer over the next few months.

"Unlike the Gibraltar investigation, the Commission has confirmed that it is looking at specific tax rulings in Luxembourg, Ireland and the Netherlands, and not at the overall tax system in each of the countries involved," she said. "This will be some relief to companies with existing rulings, but where a particular company has a very beneficial tax ruling they should keep their position under close review."

The Commission's new president-elect, Jean-Clause Junker, will officially take office in November. His new commissioner appointments must first be approved by the European parliament. Committee hearings continue until 7 October, ahead of a vote on the entire slate of nominees by the full plenary session of the parliament on 22 October.