Brussels, 03/06/2016 (Agence Europe) - The governments should “treat multinationals in the same way as companies that operate individually”, the European Commissioner for Competition, Margrethe Vestager, said on Friday 3 June, at the publication of a specific working document on the granting of tax rulings.
Tax rulings have the virtue of giving businesses legal certainty on how the tax authorities will treat their situation. The LuxLeaks scandal of November 2014 showed how these rulings can be misused by businesses to reduce their tax bill, sometimes to derisory levels. Under the Luxembourg Presidency of the Council of the EU, the states agreed to exchange these rulings automatically from 2017 onwards. The Commission has already hauled Luxembourg, the Netherlands and Belgium over the coal over rulings it felt ran counter to the EU rules on state aid.
“Local companies have to pay the market price when they buy a service (…). So when one company from a group buys from other group it should report transfer prices that come as close as possible to the market price”, Vestager told a forum on state aid in Brussels on Friday 3 June, adding that this was where the arm's length principle comes in.
However, the commissioner acknowledged that it is “not always easy to decide what the market price should be”. Sometimes, companies can just look at what prices are actually paid in the market, but even that can be misused to support aggressive tax planning measures. “We've seen tax rulings that claim to use this method even though there's actually no market to compare against”, Vestager said in support of this argument. She feels that the basic principle is simple: what really matters from a state aid point of view is that the transfer pricing methodology used to calculate the profits of the group leads to a reliable approximation of the market-based price.
By way of example, Vestager referred to “one-sided” methods that do not even try to split the company's profits between the countries that might have a claim to them. “Instead, one country simply works out the taxable profit based on an indicator, such as operating expenses”, but those figures can be a poor indicator of how successful a company is. “So using them to set the taxable profit is only appropriate in a limited number of cases”, she concluded. As EUROPE went to press, the Commission's working document on tax rulings was not yet available. EUROPE will return to this.
The Commission has furthermore concluded a bilateral partnership with Italy to improve its management of state aid. Similar agreements were concluded in April with Bulgaria and are currently under discussion with Romania. (Original version in French by Elodie Lamer)