Out-Law News 2 min. read

Investigation into tax rulings to be extended to all EU member states, says Commission

An investigation into tax rulings provided by certain EU member states is to be widened to cover all member states, according to a press release from the European Commission.

The Commission said that it will now ask all member states to provide information about their tax ruling practices. Member states will be asked to confirm whether they provide tax rulings and, if they do, to provide a list of all companies that have received a tax ruling from 2010 to 2013.

Tax expert Heather Self of Pinsent Masons, the law firm behind Out-law.com, said: "This is a significant widening of the EU’s investigation, with information on rulings now being requested from all member states.  It remains to be seen whether this will lead to any additional formal investigations of rulings given to specific companies.”

Since June 2013 the Commission has been investigating the tax ruling practices of Cyprus, Ireland, Luxembourg, Malta, the Netherlands, Belgium and the UK. The Commission has also requested information about 'patent box' intellectual property tax regimes, from Belgium, Cyprus, France, Hungary, Luxembourg, Malta, the Netherlands, Portugal, Spain, and United Kingdom.

EU competition Commissioner Margrethe Vestager said: "We need a full picture of the tax rulings practices in the EU to identify if and where competition in the Single Market is being distorted through selective tax advantages. We will use the information received in today's enquiry as well as the knowledge gained from our ongoing investigations to combat tax avoidance and fight for fair tax competition."

Tax rulings are 'comfort letters' from tax authorities giving specific companies clarity on how their corporate tax will be calculated or on the use of special tax provisions. Tax rulings are used in particular to confirm transfer pricing arrangements, which are the prices charged for commercial transactions between various parts of the same group of companies, particularly prices set for goods sold or services provided by one subsidiary of a corporate group to another subsidiary of the same group. Tax rulings may involve state aid within the meaning of EU rules if they are used to provide selective advantages to a specific company or group of companies.

"The information being gathered should, ultimately, lead to greater transparency and consistency in ruling practices across the EU, which is to be welcomed.  However, there will be considerable uncertainty while the investigation gathers and considers a large volume of information – companies will not know for some time whether their own rulings are at risk of more detailed investigation,” said tax expert Heather Self.

Last month European Commission president Jean-Claude Juncker said that the Commission was going to prepare a directive on the automatic exchange of information on tax rulings. This would see member states sharing information about the tax rulings they had given. The Commission's press release said that the widening of the enquiry into tax rulings is "fully in line" with the initiative for automatic exchange of rulings.

In June 2014 the Commission opened formal investigations into the rulings provided to Apple in Ireland, Starbucks in the Netherlands and Fiat Finance& Trade in Luxembourg. In October 2014, it opened an investigation regarding rulings given to Amazon in Luxembourg.

In November journalists claimed that leaked documents showed that over 300 companies had received favourable tax rulings in Luxembourg.

The Commission said that the results of its preliminary investigations into Apple's arrangements were that advance pricing arrangements (APAs) agreed with the Irish tax authorities may have given the company unfair advantages incompatible with EU state aid laws. Although Irish Finance Minister Michael Noonan claimed that the European Commission does not have "a very strong case", Margrethe Vestager told Irish state broadcaster RTÉ that there are "reasonable doubts" about the legitimacy of the rulings.

The Commission's preliminary view into the agreement between the Dutch tax authorities and coffee shop operator Starbucks was that the agreement also amounted to unlawful state aid. However, state aid expert Caroline Ramsay of Pinsent Masons said that the Commission may have "gone too far" on its conclusions in relation to Starbucks.

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