by Julie Martin
The European Commission is scrutinizing tax rulings issued to financing companies and to other businesses for potential state aid violations, EU competition commissioner Margrethe Vestager told the European Parliament’s TAXE 2 committee on April 4.
Vestager said that her office has reviewed about 1,000 individual tax rulings over the past few years including about 600 derived from the Lux Leaks disclosures.
She said that while most of rulings did not raise concerns “we have also found examples that are much more worrying, where rulings seem to be used in a way that could favor particular companies or particular types of companies.”
One concern is about rulings issued to financing companies, common in the Lux Leaks materials, Vestager said.
“Their only role is to borrow money from one company in the group and lend it to another company in the same group, and we see that there is a risk that this is being used to reduce the taxable profits,” Vestager said.
The Commission is also concerned, Vestager said, with about 100 advance pricing agreements (APAs) that look at only one side of the transaction.
“They decide on an appropriate profit on the activities of just one company of the group. As for the profit that remains, it may be taxed somewhere else or it may not be taxed at all, and this creates a potential for loopholes,” Vestager said.
“We will be looking into these issues in detail in the months to come,” Vestager said, adding that it is too early to tell how her office’s investigation will turn out.
Vestager said that the Commission asked all member states to provide a list of tax rulings issued in recent years. From that list, the Commission selected individual tax rulings to scrutinize in detail. The Commission mostly selected large companies and the member state’s “national champions,” Vestager said, under the theory that these companies would be the most likely recipients of aid.
She said that all but five member states – Bulgaria, Greece, Croatia, Latvia, and Slovenia – use private tax rulings. Of the 23 member states that do issue rulings, some only issue a handful each year while others issue thousands.
She said that most of the Lux Leaks rulings are “confirmatory rulings,” namely, simple rulings that do not contain any calculation of profits and are thus much less likely to raise state aid concerns. That said, confirmatory rulings can give rise to to state aid, which is “why we are looking at the McDonald’s case,” she said.
Vestager would not estimate when her office would issue its decision in the Apple state aid case. She said that new information recently came to light which will require further investigation.
She also said that Luxembourg has already recovered the incompatible state aid from Fiat. Recovery of state aid in the Belgian excess profits tax ruling cases is ongoing. About 700 million euros are being recovered from 30 companies, but each company’s tax liability must be separately calculated, so the process is taking some time, she said. She explained that the recovery process does not stop if a case is being challenged in court.
She also said that her office will publish a working paper outlining what they have learned from their examination of the 1,000 tax rulings.
In addition, the Commission will next week present its impact assessment on further measures to increase public transparency of country-by-country reports, she said.
Julie Martin
Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.
Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.
Julie can be reached at [email protected].
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