On Wednesday, Commissioner Almunia announced that the Commission was starting three Article 108(2) investigations into tax rulings by Ireland, the Netherlands and Luxembourg given to, respectively, Apple, Starbucks and Fiat Finance. See http://europa.eu/rapid/press-release_STATEMENT-14-190_en.htm?locale=en.
The tax rulings all relate to transfer pricing (that is to say, the correct tax treatment of supplies between group companies located in different tax jurisdictions). As anyone who has been following the various investigations by the UK Public Accounts Committee (“PAC”) into the corporate tax affairs of large multinationals (including Starbucks) will know, transfer pricing lies at the centre of public concerns as to “tax dodging” by household name firms.
It is uncontroversial that tax rebates are a classic form of State aid. Nor is there any controversy over the propostion that a rebate dressed up in the form of a “settlement” or a “tax ruling” will still be a State aid. The difficulty is that many areas of tax (transfer pricing being one) are ones where reasonable people can legitimately reach different judgments over what the correct tax treatment of a transaction should be: unless the tax tribunals are to become hopelessly clogged up, most of them are usually sensibly resolved by pragmatic compromise between the taxpayer and the Revenue. But all such cases are vulnerable to the suggestion by an outsider that the State could have done better had it argued for every penny.
The present writer’s view is that – given the potential for serious infringements of the State aid rules to take place under cover of favourable tax “settlements” – the Commission must be prepared to look at such cases. But there are real dangers here. The Commission (and the EU Courts) are badly placed to rule on the complexities of national tax law (they find it hard enough to make sense of VAT, an EU tax), let alone to have a feel for whether particular deals were sensible ones for hard-pressed tax authorities to reach at the time. But, for the reasons given above, it is important not to chill the capacity of Member States to settle good faith tax disputes by a reasonable compromise. There is also more than a whiff in the Commission’s press release of a desire to jump on the bandwagon of public concern about tax avoidance: but protecting taxpayers from unwise concessions by their national tax authorities is a job for the PAC and its equivalents in other States and not for the Commission, which ought to be concentrating its efforts on arrangements – including tax arrangements – that are most likely to distort competition at EU level.
It is of course entirely possible that the arrangements being looked at are so clearly over-generous to the taxpayer that they must be State aid. But better responses to public concerns about tax avoidance seem, at least to this writer, to be to hold tax authorities accountable to bodies such as the PAC and to provide for more transparency as to the tax arrangements made by large companies with the various tax authorities with which they deal.