Abstract
In 2013, the European Commission started investigating the compatibility of tax rulings granted to multinational companies by their domestic tax administrations with EU State aid law. So far, the Commission has found State aid to be present in nearly each case it has been investigating. The investigations have resulted in a situation where the principle of equal treatment and non-discrimination (pursued by the State aid rules) and the principle of legal certainty (which underlies the instrument of a tax ruling) come into conflict. This chapter evaluates the European Commission’s State aid investigations from the perspective of the Rule of Law, which embodies the core values of equality and legal certainty. The chapter concludes that a system of fair taxation, which the European Commission seeks to establish, cannot be achieved if the fundamental elements of the Rule of Law, such as legal certainty and predictability, are at risk. State aid rules should not be used to remedy shortcomings in the tax legislation or administration of the Member States and to scrutinize binding decisions of national tax authorities.
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Notes
- 1.
- 2.
OECD (2015).
- 3.
On 21 October 2015, the Commission concluded that the rulings granted to Fiat Finance and Trade and Starbucks by the Luxembourg and Dutch tax authorities artificially lowered the tax paid by the companies. See European Commission (2015) Commission decides selective tax advantages for Fiat in Luxembourg and Starbucks in the Netherlands are illegal under EU state aid rules, http://europa.eu/rapid/press-release_IP-15-5880_en.htm. On 11 January 2016, the European Commission concluded that selective tax advantages granted by Belgium under its excess profit tax scheme were illegal under EU State aid rules (European Commission (2016a) State aid: Commission concludes Belgian “Excess Profit” tax scheme illegal; around €700 million to be recovered from 35 multinational companies, http://europa.eu/rapid/press-release_IP-16-42_en.htm). On 30 August 2016, the Commission concluded that Ireland granted undue benefits of up to 13 billion to Apple and ordered Ireland to recover this amount plus interest (European Commission (2016a), State aid: Ireland gave illegal tax benefits to Apple worth up to €13 billion, http://europa.eu/rapid/press-release_IP-16-2923_en.htm). On 4 October 2017, the European Commission concluded that Luxembourg granted undue tax benefits to Amazon of around EUR 250 million (European Commission (2017) State aid: Commission finds Luxembourg gave illegal tax benefits to Amazon worth around €250 million. On 20 June 2018, the European Commission decided that Luxembourg allowed two Engie group companies to avoid paying taxes on almost all their profits for about a decade and ordered Luxembourg to recover about EUR 120 million in unpaid tax (See European Commission (2018), State aid: Commission finds Luxembourg gave illegal tax benefits to Engie; has to recover around €120 million, http://europa.eu/rapid/press-release_IP-18-4228_en.htm). On 19 September 2018, the European Commission found that the non-taxation of certain McDonald’s profits in Luxembourg did not lead to illegal State aid (this has been the only case so far where State aid was found not to exist). See European Commission (2018), State aid: Commission investigation did not find that Luxembourg gave selective tax treatment to McDonald’s, http://europa.eu/rapid/press-release_IP-18-5831_en.htm. On 2 April 2019, the Commission concluded that some parts of UK’s controlled foreign company regime permitted granting illegal tax advantages to certain multinational companies. See European Commission (2019), State aid: Commission concludes part of UK tax scheme gave illegal tax advantages to certain multinational companies; remaining part does not constitute aid, https://europa.eu/rapid/press-release_IP-19-1948_en.htm.
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European Commission (2017) State aid: Commission opens in-depth investigation into the Netherlands’ tax treatment of Inter IKEA, http://europa.eu/rapid/press-release_IP-17-5343_en.htm; European Commission (2019) State aid: State aid: Commission opens in-depth investigation into tax treatment of Huhtamäki in Luxembourg, https://europa.eu/rapid/press-release_IP-19-1591_en.htm; European Commission (2019), State aid: Commission opens in-depth investigation into tax treatment of Nike in the Netherlands, https://europa.eu/rapid/press-release_IP-19-322_en.htm.
- 5.
In this chapter, the term “Rule of Law” is capitalized to distinguish it from the phrase “a rule of law” which may be used to refer to a particular piece of legislation in a country’s legal system.
- 6.
Secretary-General of the United Nations, Kofi Annan in 2004, quoted by Cowdery (2015, 103).
- 7.
OECD, Glossary of Tax Terms, www.oecd.org/ctp/glossaryoftaxterms.htm (accessed 30 Oct. 2018).
- 8.
For a comparison of the main characteristics of tax rulings in the major economies, see Compliance Tables, Quick Reference Tables IBFD.
- 9.
Alarie (2014, 367). In contrast to the traditional view that taxpayers are entitled to know in advance the tax consequences of their actions, some U.S. scholars have argued that fostering uncertainty on the part of taxpayers may be advantageous to the tax authorities as it may increase taxpayer compliance. Risk-averse taxpayers may over-comply with uncertain tax law and pay more tax than the law actually requires. See Scotchmer and Slemrod (1989), Louge (2007).
- 10.
- 11.
Art. 107 Treaty on the Functioning of the European Union (TFEU).
- 12.
CJEU, 21 December 2016, Case C-20/15 P, European Commission v. World Duty Free Group and Others, ECLI:EU:C:2016:981.
- 13.
- 14.
European Commission (2014).
- 15.
Five Member States (Bulgaria, Croatia, Latvia, Greece and Slovenia) informed the Commission that they did not grant any transfer pricing rulings during the period under investigation.
- 16.
U.S. Senate, Committee on Finance (2016).
- 17.
European Commission (2010), Commission Decision of 26 May 2010 concerning State aid in the form of a tax settlement agreement implemented by Belgium in favour of Umicore SA (formerly Union Minière SA) (State aid C 76/03 (ex NN 69/03)).
- 18.
Council Regulation (EU) 2015/1589 laying down detailed rules for the application of Article 108 of the.
- 19.
CJEU, 11 Dec. 2012, Case c-610/10, European Commission v Kingdom of Spain, ECLI:EU:C:2012:781.
- 20.
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Bal, A. (2020). Tax Rulings, State Aid and the Rule of Law. In: van Brederode, R. (eds) Ethics and Taxation. Springer, Singapore. https://doi.org/10.1007/978-981-15-0089-3_14
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