Brussels, 10/11/2014 (Agence Europe) - On Monday 10 November, the European Commission stated that the decision returned last Friday by the General Court of the EU was unlikely to influence the investigations underway into a number of 'tax rulings' granted by Luxembourg to Fiat Finance and Trade and Amazon, by Ireland to Apple and by the Netherlands to Starbucks.
On 7 November, the General Court of the EU overturned two Commission decisions which declared that the Spanish regime which favours acquisitions abroad using tax breaks due to its allegedly selective nature (EUROPE 11193) were incompatible with the single market. The General Court found that the Commission had failed to establish that the Spanish regime was selective, as the measure in question does not favour any category of businesses in particular, or any specific production, but covers all companies. Richard Asquith, an international tax expert, said that the verdict is likely to give the three countries being investigated by the Commission a strong argument, as they can claim that the system was open to all companies and is therefore not selective in nature.
“We are carefully assessing the judgements and the implications”, explained Ricardo Cardoso, Commission spokesperson for competition policy. He went on to state that the investigations underway involved “tax rulings granted to individual, specific companies; the facts can therefore be clearly differentiated from the Spanish goodwill tax scheme and the legal issues ruled upon by the General Court”. Asquith does not share this interpretation and posited that Luxembourg could argue that the arrangements in question were available to all companies.
Mario Mariniello, of the think tank Bruegel and formerly of DG Competition of the Commission, explained to EUROPE that the General Court verdict “does not impose a new requirement - it just says the European Commission made a mistake in its assessment, and given the high relevance of the tax sweetener cases, I'm sure the Commission will try hard to build a solid case and also find convincing evidence on selectivity, independently of the last judgement”. Mariniello went on to say that the Commission should use the Luxembourg dossier as an opportunity to “push the member states to converge on common methodologies for tax policy”. This would make it easier to recover illegal state aid, whilst making life easier for companies active in more than one country, he said.
'Patent boxes'. 'Patent boxes' will be “the next battleground”, predicts Asquith, who believes that it is through these systems that the states will continue to wage a tax competition war. These are taxation systems favourable to intellectual property. Ireland, which has promised to repeal its 'double Irish', added that it wants to look into the creation of 'knowledge boxes'. Switzerland made a similar announcement and Germany is also believed to be considering this as a possibility. A few days ahead of the G20 to be held in Brisbane, where the major powers will discuss the fight against tax optimisation, Germany and the United Kingdom reached an agreement to the effect that these 'patent boxes' should “be limited to licence and patent income that is linked to research and development undertaken in the respective country”, Friederike von Tiesenhausen Cave, spokesperson to the German finance ministry, told EUROPE. She declined to confirm Germany's interest in the creation of these 'patent boxes', but said that the priority of the German government was to “reduce harmful tax competition through international negotiations”. The details of the agreement between Germany and Britain on 'patent boxes' are still being worked out and “also need to be agreed by a broader group of countries and the OECD”. This comes as part of the talks on the 'BEPS' project of the OECD. According to Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration, the United Kingdom was one of the most reluctant countries on this point. The aim is to ensure that profits are taxed where an important activity takes place. Several approaches have been looked into, principally the 'nexus approach' (the tax advantage granted is directly linked to the level of expenditure on research and development in the country). The United Kingdom, but also Luxembourg, had concerns that this approach was incompatible with European law and the rules of the single market and favoured the transfer price approach. Asquith stressed that the 'patent boxes' have been a success in the United Kingdom, as they have allowed the country to attract more investment than any other European country.
DG Competition of the Commission has also asked several states for information on these 'patent boxes'. The 'Code of Conduct' group is also examining the damaging aspects of such systems.
Luxembourg trying to get off the hook. Luxembourg has made “phenomenal progress” regarding its commitments to move towards greater transparency, Saint-Amans said. It has to be checked in practice but, even at this level, it also seems to be a step in the right direction, he said. Asquith sets these efforts against the backdrop of the international pressure which has been brought to bear since the FATCA agreements of the United States. The press conference given by the Luxembourg finance ministry on Thursday of last week was arranged before the press leaks of more than 540 'tax rulings' granted by Luxembourg to 340 multinational companies, allowing them to reduce their tax bill by a considerable amount. Pierre Gramegna, Luxembourg's finance minister, basically wanted to take stock of the progress made by the Grand Duchy in its move towards greater transparency. Luxembourg has decided to be one of the 'early adopters' of the global OECD standard on the automatic exchange of information, a year ahead of Switzerland and Austria, countries with which it hopes to retain comparable competition conditions. “The main thing was knowing that any country not committing for 2017 would do so for 2018”, a source from the Grand Duchy explained. There was also the idea that if Luxembourg did not get on board the scheme early on, the damage to the country in terms of image would be greater than in terms of repercussions on the banking sector. Saint-Amans also pointed out that Luxembourg accepted the proposal whereby the state would have to bring in genuine transparency on 'tax rulings'.
EP in uproar over Luxleaks scandal. Guy Verhofstadt, president of the ALDE group at the EP, said that the Commission should “immediately come before the Parliament to explain whether these practices comply with EU legislation”. He went on to warn that his group would be keeping a close eye on the Commission over its promise to move towards a more transparent and fairer corporate taxation system. Speaking through its President, Italy's Gianni Pittella, the S&D group said more or less the same thing, pledging to ask the Commission to “explain what it intends to do to fight tax fraud and tax evasion effectively”, at the plenary session to take place this week. “As President of the European Commission, Jean-Claude Juncker's credibility is at stake. He needs to make a clear decision as to which camp he is in”, said Pittella. “Mr Juncker has some serious questions to answer”, said Gabi Zimmer, president of the GUE/NGL group. The EPP, Juncker's political family, reiterated its confidence in the European Commission. “Tax policy remains a competence of the member states. We would like the national governments to stop the doublespeak about the fight against tax evasion - expressing one point of view when they are in Brussels, and then an entirely different one once they are back in the capitals - and agree on decisive action to put an end to these practices”, said Manfred Weber, president of the EPP Group at the EP. (EL)