Brussels, 11/06/2014 (Agence Europe) - It had been rumoured for a week and on Wednesday 11 June, the European Commission announced its decision on corporate tax transfer pricing arrangements for Apple in Ireland, Starbucks in the Netherlands and Fiat Finance and Trade in Luxembourg (see EUROPE 11096).
The Commission is opening infringements proceedings against Luxembourg for refusing to provide information requested about some of its taxation practices (see EUROPE 11068).
Tax rulings. The Commission has spent months collecting information about “tax rulings” in a number of member states that tell companies how they are planning to tax them and allow legal guarantees to be provided. Tax rulings are used to confirm deals on transfer pricing (the price used for deals between companies in the same group), which affect the size of taxable profit and its breakdown among subsidiaries in a number of countries.
The Commission is not challenging the idea of tax rulings in general, but is not happy about parts of the tax rulings for the three companies in question. Its investigations raised “serious doubts” about the compatibility with EU legislation of the tax rulings in Ireland for Apple, in the Netherlands for Starbucks and in Luxembourg for Fiat Finance and Trade, said Competition Commissioner Joaquin Almunia.
He said it was common knowledge that a number of multinationals planned tax issues to reduce the amount of tax they have to pay and shift profits to countries where taxes are lower. After examining the calculations used to decide on the tax basis for the three tax ruling cases in question, the Commission thinks the tax offices in the three countries allowed the multinationals to pay less tax by giving them a selective advantage and Almunia said that, in the current situation of budget constraints, it was very important that multinationals pay their fair share of tax.
If the Commission were to decide that the three tax rulings break EU rules, then it could demand recovery of the unpaid tax under certain conditions. For example, was it a case of legitimate expectation, or can the principle of legal security be applied? Almunia said the member states might have to change their tax rules, but it was too early to comment about that.
Luxembourg not very cooperative. The commissioner said that tax dealings with Ireland and the Netherlands had been excellent, but not with the tax office of Luxembourg, which has only provided a little information of a not very high quality. At the end of April 2014, the Luxembourg authorities said they would be lodging a court case against the Commission's two demands for information and the Commission decided to launch infringement proceedings in order to take the case to the European Court of Justice with a view to obtaining the information that it says Luxembourg has to provide.
Quizzed about the legitimacy of the Commission's action, Almunia said that tax questions are clearly a matter for the EU, beyond state aid controls. He cited a number of precedents, like when the European Commission launched a dozen investigations of this nature in 2011. He said it was not the first time and would not be the last.
Nine other countries have been asked for information about their tax systems - Belgium, Spain, France, Hungary, Luxembourg, the Netherlands, the United Kingdom, Cyprus and Malta - and their use of “patent boxes”, which relate to intellectual property. “Tax rulings'” are used in seven countries - Belgium, Cyprus, Ireland, Luxembourg, Malta, the Netherlands and the United Kingdom - and the seven have been asked to provide explanations. An investigation into tax rulings for Google has not been ruled out, or any other legislation that introduces selectivity, but Almunia said they were not at that stage yet, and it was not his job to change tax systems. He added that draft EU legislation to harmonise the company tax basis is still blocked at the Council of Ministers.
Ireland not concerned. An Irish finance department spokesman said: “Our technical experts do not believe that there is any state aid. We will now turn to providing our detailed, technical legal rebuttal of the Commission's position and if necessary will defend our position in the European Courts”. Apple issued a press release stating that it paid every euro it owed. (EL)