Tax rulings seek to provide taxpayers with certainty on how a particular transaction will be treated by the tax authorities. However, in the recent years, tax rulings have become a source of great uncertainty due to State aid inquiries by the European Commission. Rulings granted to McDonald’s, Apple and Amazon by some European countries are currently under investigation. Last year the Commission concluded that the rulings granted to Fiat and Starbucks by the Dutch and Luxembourg tax authorities artificially lowered the tax paid by the companies. As a result, the companies have to repay EUR 20 – 30 million of unpaid taxes.
State aid has featured prominently in European tax law, but other countries are generally not familiar with this concept and thus surprised by the Commission’s investigations. Under EU law, “state aid” arises when a Member State using state resources provides, directly or indirectly, on a selective basis, an advantage to undertakings, which could distort competition and is likely to affect trade between the Member States. Non-compliance with state aid rules may have severe consequences. The beneficiary of state aid in the form of a tax ruling is ordered to repay the amount of tax it has not paid as a result of the ruling with interest.
State aid inquiries have been heavily criticized in the United States. US senators accused the Commission of “establishing its own transfer pricing rules” and “ignoring national practices of Member States”, claiming that taxpayers should be entitled to rely on a country’s ability to administer its tax laws and that retroactive investigations undermine legal certainty and the rule of law. They also urged the US Treasury Department to put pressure on the European Commission to prevent it from targeting US-based companies in state aid investigations. As US tax professionals pointed out, “adding a new layer of politically-motivated review by unelected bureaucrats with no relevant experience cannot bode well for making the system function better than it has in the past”.
The objectives pursued by the European Commission by means of State aid investigations are understandable: the Commission seeks to preserve fair competition in the European Union and to ensure that multinationals companies are paying their “fair share” of tax in Europe. However, the choice of the instrument to attain these goals seems questionable: an instrument that was designed to create certainty should not have the opposite effect.