Today’s blog comes from Caroline Ramsay at Pinsent Masons, who will also be speaking at next Tuesday’s UKSALA event on State aid and tax
The European Commission has commenced the first stage of informal investigations into financial sweeteners offered to multinationals in the form of tax breaks. It is understood that the investigations are currently focussed on Ireland, the Netherlands and Luxemburg, although the possibility of investigating additional States has not been ruled out.
The investigation is targeting so called advance pricing agreements. Such arrangements see Member States offer deals to companies over how their taxes will be handled, often in advance of a decision to relocate to that Member State.
Under EU State aid rules, Member States are allowed to set their own corporation tax rates, but these must offer equal treatment and avoid the creation of an undue selective advantage through State aid.
Whilst only a preliminary step, the European Commission’s decision to investigate this matter coincides with wider efforts by the European and US authorities to make international tax policies more transparent. It also follows UK wide protests earlier this year regarding the level of taxes paid by major US corporations such as Apple and Starbucks.
Most EU States implement some form of competitive corporation tax rates or reliefs. The challenge is making sure that such incentives do not constitute unlawful State aid. Already this year, the Commission announced its intention to open an investigation into the UK’s plans to provide tax relief to the video games industry and, more recently, announced the formal investigation into exemptions and reliefs within the aggregates levy.
With increasing pressure from the EU, all Member States would benefit from reviewing their approach to tax breaks and incentives.