Archive for the ‘Subversive Thoughts’ Category
(by Pablo Ibañez Colomo)
Voices that relativise the problems with Article 102 TFEU case law are not infrequent. It may be true that the case law is not beyond reproach in all respects, the argument goes, but perfection is not of this world. The fact that rulings are often criticised simply means that Article 102 TFEU is an inherently controversial provision and that the stakes in abuse cases are generally very high, not that there is something fundamentally wrong with the preferences expressed by EU courts. And in any event, the alternative, economics-based, approaches have their problems too. The current case law is just the expression of a legitimate choice.
There is of course some truth in this position. At the same time, I find a bit defensive and as such problematic because it can become an obstacle to an honest and constructive exchange of ideas. I can think of at least a fundamental aspect that is uncontroversially (or objectively, if one prefers) wrong with Article 102 TFEU case law. What makes it even more interesting is that it fails to attract the attention that, in my view, it deserves. We all know that exclusive dealing and loyalty rebates are (absent an objective justification) abusive under Article 102 TFEU. The assumption underlying this rule is discussed far less often and is crucial to understand the case law. In paragraph 77 of Intel, the Court repeats the old formula whereby the abovementioned practices, as opposed to quantity rebates, ‘are not based – save in exceptional circumstances – on an economic transaction which justifies this burden or benefit but are designed to remove or restrict the purchaser’s freedom to choose his sources of supply and to deny other producers access to the market’.
This statement, as a matter of economics, is incorrect. Contrary to what the Court holds, there are perfectly valid pro-competitive justifications for exclusive dealing and loyalty rebates. I am inclined to believe that everyone at DG Comp and the Legal Service agrees by now with this idea, which has long been part of the mainstream. Suffice it to check any textbook on industrial organisation or the economics of competition law. To mention the three I had in my office when preparing this post, take Carlton & Perloff; Bishop & Walker; or Niels, Jenkins & Kavanagh (Hans Zenger’s piece on loyalty rebates is great too). Given its peculiar cost structure, some of these justifications are of obvious relevance in the microprocessor industry.
Article 102 TFEU case law will not evolve until the ECJ acknowledges that a rule-based approach to exclusive dealing and loyalty rebates is grounded on a misguided economic assumption. Interestingly, a shift in this direction would not require a major revolution. The ECJ would just have to accept – finally – that what is true under Article 101 TFEU must by definition be true under Article 102 TFEU. In paras 10-12 of Delimitis the Court holds that there are perfectly valid justifications for exclusive dealing and – by extension – for loyalty rebates. As a result, they are not restrictive by object. Article 102 TFEU case law cannot be based on the opposite assumption (i.e. that these practices are anticompetitive by their very nature because they have no economic explanation other than the exclusion of competition). Paragraphs 89-91 of Intel show the difficulties into which EU courts run whenever the tension between these two lines of case law is raised (Van den Bergh Foods being another excellent example).
I am convinced that an effects-based approach would follow logically from the suggested shift. The additional arguments raised in subsequent cases to justify the current approach are not particularly persuasive. The fact that dominant firms have a ‘special responsibility’ that derives from their status does not mean that an effects-based approach to loyalty rebates and exclusivity is not conceivable. There are recent cases, like Post Danmark and TeliaSonera, where the ‘special responsibility’ of dominant firms is seen as compatible with requiring evidence of an anticompetitive effect.
Paragraph 77 of Intel also made me think of the relationship between law and economics in competition law. It is interesting that the General Court reiterates the Hoffmann-La Roche formula to make it clear that there is a long line of case law supporting its position. ‘Exclusive dealing and loyalty rebates have no pro-competitive justifications because we have always said they do not’, the judges appear to claim. What is an economic argument is dealt with, in other words, as a legal one. From an economic perspective, to be sure, the fact that EU courts have consistently relied on the same assumption does not make the latter any less incorrect.
The Intel judgment also made me think of something I often say. Economic analysis is sometimes presented as an exogenous force that has interfered with EU competition law since the 1990s. What wrong assumptions such as the one discussed in this post show is that this view is not accurate. Economics is hard-wired into competition law – it is an integral part of it. The only debate should be whether to rely on one’s more or less accurate intuitions (à la market definition in United Brands, for instance) or to trust instead the analytical tools developed over several decades by competent individuals devoting their professional lives to a systematic understanding of the economic side of the discipline.
Umbrella pricing- Case C-557/12 Kone, or when effectiveness may go too far with little effective consequences
Last Thursday the ECJ delivered its –once again remarkably brief (4 pages)- Judgment in Kone, Case C-557/12. In her widely discussed Opinion in this case Advocate General Kokott had raised the stakes, pointing out that “[t]he Court’s Judgment in this case will without doubts be groundbreaking in the context of the further development of European competition law and, in particular, its private enforcement” (perhaps a bit of an overstatement if you ask me).
The question at issue was whether a national legal system can exclude the possibility that compensation may be sought in relation to damages suffered due to the overprice (legally) charged by non-cartelists who independently and rationally adapted to the cartel by increasing their own prices. The umbrella metaphor signifies that those companies can profitably increase under the cover of their competitors’ cartel.
The Judgment is remarkable because –following AG Kokott’s recommendation- it somehow endorses the “umbrella pricing/damages” theory by ruling that Member States cannot exclude it “categorically”. In the Court’s words:
“[t]he full effectiveness of Article 101 TFEU would be put at risk if the right of any individual to claim compensation for harm suffered were subjected by national law, categorically and regardless of the particular circumstances of the case, to the existence of a direct causal link while excluding that right because the individual concerned had no contractual links with a member of the cartel, but with an undertaking not party thereto, whose pricing policy, however, is a result of the cartel that contributed to the distortion of price formation mechanisms governing competitive markets”. (Para.33).
A brief background note
The preliminary reference had reached the ECJ because Austria Courts had previously ruled that the “umbrella pricing” theory would not be sufficient to establish a “causal link”. The referring Court cited a legal doctrine that holds sway in Germany and Austria according to which any claimant must establish the infringement of a “protective provision”. According to that doctrine, the decisive factor is whether the provision infringed by the person responsible for the loss had as its object the protection of the injured person’s interest. In this sense, it was generally considered in Austria that “umbrella pricing” theories were out of the scope of the protective provision given that the loss they could cause involved no relationship of unlawfulness and was rather “merely a side-effect of an independent decision that a person not involved in that cartel has taken based on his own business considerations”.
The Judgment’s reasoning in a nutshell
The Judgment (i) recalls the direct effect of the competition rules and that its effectiveness requires that any individual shall be able to claim damages for loss caused to him by a conduct restrictive of competition (paras 20-22); (ii) stresses the role of damages claims as a possibility that “strengthens the working of EU competition rules” (para 23); (iii) reminds that in the absence of harmonization the principle of procedural autonomy applies (meaning that whereas EU Law imposes the necessary “existence” of a right to claim damages national laws must govern the “exercise” thereof) (para. 24); (iv) observes that the principle of procedural autonomy is subjected to compliance with the principles of equivalence and effectiveness (paras 25-26); (v) states that “umbrella pricing” is “one of the possible effects of the cartel, that the members thereof cannot disregard” (paras. 27-30); and (vi) concludes that excluding the link of causality between the cartel and umbrella pricing categorically, for legal reasons and regardless of the circumstances would run counter the effectiveness of EU competition rules (paras. 31-35).
A handful of follow-up thoughts
I haven’t yet given much thought to this, but here are some preliminary -almost instinctive- reactions that might perhaps contribute to sparking some debate:
- From the viewpoint of general EU Law the Judgment fits within a consistent body of case-law endorsing an indirect harmonization of civil procedural rules by virtue of an ample reading of the principle of effectiveness that narrows the scope of the principle of procedural autonomy.
- The key assumption or stance underlying the Judgment is that there is a certain causal relationship between the cartel and the umbrella pricing in which the former acts as a facilitator or enabling mechanism for the latter (e.g. (a) “it is not disputed by the interested parties (…) that a phenomenon such as umbrella pricing is recognized as one of the possible consequences of a cartel”; (b) “even if the determination of an offer price is a purely autonomous decision, taken by the undertaking not party to a cartel, it must none the less be stated that such decision has been able to be taken by reference to a market price distorted by that cartel and, as a result, contrary to the competition rules”); and, more clearly, (c) the suffering of loss in “umbrella pricing” settings “is one of the possible effects of the cartel”).
To me this causal relationship would seem intuitively hard to establish, and I wouldn’t have bet on the Court taking it for granted (with the sole supporting arguent that the intervening parties in the case had not disputed that umbrella pricing is, very theoretically, a possible consequence of a cartel). In any event, those familiar with the Court’s case-law in other areas may observe that the ECJ might arguably have embraced a much narrower interpretation of the causality link in other areas, such as that of non-contractual liability of EU Institutions, where a “direct causal link” is required…
- Effectiveness trumps it all? The deviation from the general principle of procedural autonomy and the arguably flexible interpretation of the “causality” requirement might once again be explained by the perceived need to safeguard the effectiveness of the competition rules (read paras. 32 and 33 of the Judgment). Effectiveness has –rightly- been the core concern at the root of the case law on damages actions (Courage and Crehan, Manfredi, City Morors, Pfleiderer, Otis or Donau Chemie). However, one often has the impression that we hail the effectiveness of these rules too much in order to deviate from general principles of law to a greater extent than we do it with other legal regimes, particularly when dealing with cartels (para. 32 of Kokkot’s Opinion makes this last point more evident). I recently made the same point regarding the Court’s minimalistic interpretation of the limiting principles of necessity and proportionality in these cases for the sake of effectiveness
- At the level of incentives, what signal would this Judgment send to non-cartelists operating in a seemingly cartelized market? [admittedly not an easy group to target] How about “hey, raise your prices in the shadow of the cartel: you’ll reap the profits plus your rivals will have to pay extra for it”?
- It’s remarkable that, to my knowledge, this is an issue that hasn’t received that much attention in the U.S. in spite of private enforcement being much more developed. In fact, distric courts have tended to view this theory as too speculative or conjectural, observing that independent pricing decisions (which may be affected by several and complex factors) break the chain of causation. [e.g. Antoine Garabet, M.D., Inc. v. Autonomous Techs. Corp., 116 F. Supp. 2d 1159, 1167-68 (C.D. Cal. 2000)].
- The Judgment will be welcomed by many lawyers (because we now have an apparent better chance at overcoming the causality hurdle) and particularly economists (for whom, paradoxically, the endorsement of the umbrella theory could bring in a rain of new work) (I get metaphorical at lunchbreaks)
- At the end of the day, and in spite of all the above, I doubt this Judgment will have very significant practical implications. The only thing the Court really says is that national legislations cannot exclude the “umbrella theory” categorically and regardless of the specific circumstances of the case. However, it does in no way require national Courts to accept this theory when they examine the causal link originating responsibility in a given case. The causal relationship still will need to be proved in the light of the specific circumstances of the case and, well, good luck with that.
On Privacy, Big Data and Competition Law (2/2) On the nature, goals, means and limitations of competition law
In my previous post I outlined the content of the main part of my presentation at the European Data Protection Supervisor’s recent workshop on Privacy, Consumers, Competition and Big Data, held in the wake of the EDPS preliminary opinion on the subject.
Today I’ll provide you with my views on the great question underlying both the workshop and the opinion: should data protection considerations be incorporated to competition law’s substantive assessments?
The (preliminary) view implied in the EDPS’ opinion is that they should. In essence, the opinion posits that competition law is or should be about consumers’ welfare, and that this comprises much more than only the narrow set of economic considerations that competition law currently looks at. The EDPS tends to believe that public interest would be better served that way. Some lawyers and the companies they represent also hold these views but perhaps for different –less public interest oriented- reasons.
somewhat anticlimatic view I conveyed to the participants at the workshop on this point was the following (as in the last post, I’ll basically sketch my conference notes):
Competition law is certainly a most tempting instrument given both its flexibility to accommodate creative theories of harm and the ample remedial powers it offers. These reasons explain the recent use (or instrumentalization) of competition law to pursue other public policy goals [I also talked about the latter yesterday at another conference, but I might develop that in another future post].
But just because competition authorities have a hammer, that doesn’t mean they should view every problem –even if unrelated to competition law- as a nail.
In my view, competition law and competition authorities are not well-suited to factor into their analysis (perhaps more important) public policy considerations alien to the specific matters they are supposed to deal with. Competition law is a legal regime of last resort, which means that their existence is premised upon the assumption that, in those areas where regulation doesn’t say otherwise, competition is the best way to allocate resources. When this is not the case, I think the solution may lie in regulating more or in a smarter way, but not in blurring the already blurred contours of a legal regime that –let’s not forget- is of a quasi criminal nature.
Other reasons why competition law might not be well-suited to deal with privacy/data protection issues relate to the fact that it’s only triggered in very specific circumstances; that it is about conduct and not structure; that if authorities are reluctant to intervene in cases of apparent direct harm to consumers in the form of excessive price it’s not easy to see why they should focus on direct harm through lower privacy alternatives (when moreover there is an additional ad hoc legal regime precisely to establish minimum standards). And on top of those there are institutional factors: if competition authorities struggle to strike a balance between strictly economic factors, how would they be supposed to trade-off economic factors with fundamental rights or other public policy objectives? (environment, industrial policy, labor standards, effects on jobs …)
Coming back to the data protection world. The gap (if any) does not lie in competition law not reaching where it should, but on data protection law lacking adequate regulation and remedies. Accordingly, the way to fill in that gap would require devising an effective data protection regime with its own and more effective rules and principles, but not extending competition law beyond its natural limits.
Some person I very much appreciate personally and intellectually (can’t give names because Chatham rules applied) raised the point that the Charter of Fundamental Rights may perhaps be a game changer in that the European Commission would be bound by it and therefore should not only not violate those rights but also facilitate their exercise by citizens. I tend not to agree. In my mind the argument that the Commission would have any obligation not only to comply with the negative obligations Charter but also to positively ensure that private companies comply with it to an extent that goes beyond that required by specific ad hoc legislation –and that may moreover clash with the fundamental rights of others- is stretching the reach of the Charter too far.
I certainly don’t think public policy should be only or mostly about efficiency and competition (as an admired colleague often says, a world exclusively governed by competition would make a great subject for a dystopian novel). There are values, fundamental rights and public interests which might very well trump economic considerations. But my point is that even if one doesn’t trust market forces to promote optimal levels of privacy (due to consumers’ apparent indolence or for whatever reason), one shouldn’t entrust competition law with that task either.
If you ask me, there are issues far too important to be left to competition authorities and competition lawyers.
Chillin’Competition has encountered its first serious legal problem after a third party requested us to remove some content.
As usual readers will remember, we took particular interest in the French endives cartel case. A number of posts were devoted to endives (the
best troublesome ones are here and here). Oddly enough those posts still rank among our most read, to the extent that when you type “Chilling competition” in Google’s search box the word “endives” quickly appears next to it. This is a testimony to how bad the rest of our posts must be as well as to the bizarre taste of our audience (and I thought no one liked endives…). In our defense, the endives cartel also earned some air time at the French Presidential debate. (I don’t know what’s with this vegetable, but Belgian endives were also a major feature of the U.S. 1989 Presidential campaign -see here-).
Since then we hadn’t paid any more attention to endives, even though every time there’s an infringement concerning food some readers sent press clips to us with all sort of weird post suggestions (a message to them: we are grateful, but there’s no need to do that anymore, really).
But two recent legal developments occurring within the lapse of two days have changed the landscape, and have exposed Chillin’Competition to legal risks.
- On 13 May the ECJ delivered its ruling in the Google Spain case, holding (I will oversimplify) that there exists a certain right to be forgotten under the Directive on the processing of personal data even in relation to information which is true and was legally published.
- And on 15 May (hold tight) the Paris Court of Appeal annulled the decision of the Autorité de la Concurrence sanctioning the endive cartel. No kidding; see here.
Following these developments, an organisation called “Les amis des endives” (French for Endive’s Friends) has requested us to withdraw all our posts regarding the endive cartel. They allege that the informations are inadequate and no longer relevant. For the record, this association has nothing to do –that we know- with the EndiveLover Twitter account).
I initially thought it was a joke. Then I thought that the Judgment doesn’t support their claim. First because, (I may get in trouble for saying this) endives aren’t natural or legal persons (arguably endive producers are, even if tasteless and heartless). Second, because -contrary to what many people seem to think- the Judgment only refers to “results displayed following a search made on the basis of a person’s name”, and people that get to our posts don’t do searching specifically for endives. Third, because –reading particularly para 80 of the Judgment- I get the impression that its establishing a lex specialis for search engines only, and perhaps only for Google (which once again gets treated as the SGEI of the new century). Lastly, I thought the information shouldn’t be withdrawn because of “historical statistical, scientific purposes” (para 92 of the Judgment).
In order to be on the safe side, I asked a team of eminent avocats about their view: Do endives have the right to be forgotten? Should our posts on endives be consigned to oblivion?
Grace Aylward (our endive expert; she’s the one who informed us about both the decision and its annulment) says: “I thought that when I grew up and became a Lawyer I could dislike whichever vegetables I wanted. Obviously I was wrong. I just hope I don’t start receiving endive hearts in the post.”
Orla Lynskey (privacy and competition expert at LSE) “the ruling does not apply to publishers. It applies to search engines (and most probably could be limited to Google). Even if they do fall within the scope of the DP rules (which is very unlikely to be the case if the piece only mentions legal persons), this does not automatically entitle them to have the original link removed. You need to pass the buck to Google to determine whether the processing is incompatible with the DP rules and the public interest test for removal is met”.
Other lawyers consulted coincide on the view that the Judgment doesn’t give mushroom to such requests and that this one in particular is nuts; if you see it differently, please lettuce know.
P.S . For the avoidance of doubt: this was a joke. Sadly, other absurd/ridiculous scenarios such as UKIP and the Front National winning the EU elections in England are France are not.
In the past days a Commission official who ranks among my preferred legal minds expressed her/his though that our discipline may not be as legal as we often think. The thought, formulated on the fly (don’t click, very bad joke) (I told you..) , was triggered by the observation that whereas the law and legal reasoning should be cuasi cartesian, logic, certain, it’s nevertheless very often impossible to predict the outcome of a given case. [This may remind some of a Holmes' quote: "prophecies of what the courts will do in fact, and nothing more pretentious, are what I mean by the law”].
Then on Monday a lawyer in the audience (not me, really) made a similar remark (this time at a conference in London regarding a certain case I discussed on my previous post, coincidentally published that day). The idea expressed there was that the Commission could have taken exactly the opposite conclusion it took in the face on the very same facts at issue, and it would very presumably also have been endorsed by the Court.
And a few minutes ago a colleague sent me an email discussing the spill-over effects that Alrosa has had in competition enforcement.
As much as I don’t like to admit it, all those are right and share a common theme. I guess Competition Law may indeed be partly losing its last name. I suppose an element of this could be found in other areas of law, but my feeling is that the issue is more acute in our field:
Is it because of the simplicity and vagueness of our main working provisions and the terms they use? (as I observed here, the Court itself recently acknowledged that “Article 101 or 102 TFEU are drawn up using imprecise legal concepts, such as distortion of competition or ‘abuse’ of a dominant position” ).
Is it because of the transformation of the discipline by the incorporation of economic analysis to the assessmente of legallity of market practices? (on that, you know my views). It has become popular to bash ordoliberals, but they crucially emphasised the need to preserve the competitive process through law-making, as opposed to unconstrained policy choices, and this is a lesson we may be forgetting.
Is it because of the Court’s inclination to show deference to (what they see as, and often are) specialized agencies?
Is it because of developments like Alrosa, that enable a disconnect between the problem and the solution and, in a way, may legitimize the abuse of an institutional dominant position?
Is it because of the number of the unavoidable yet more-or-less-reliable proxies (market definition, market shares, cost-assessments, object short-cuts, etc..) we use and the little certain tools we have?
Is it because law and policy-making are inextricably intertwined in our field? (in the sense that policy choices are often expressed through the choice of cases).
As with anything else, the answer is very likely cumulative and complex, but the fact is that competition law may have become a discipline where the authority’s self restraint, negotiations in the shadow of the law, disclaimers in lawyers’ risk assessments, administrative/judicial discretion, and therefore uncertainty, play a larger role than perhaps they should.
The fact that the law needs to be interpreted, or even the fact that legal reasoning can be played with has upsided (allowing me to earn a living or making the profession interesting are just two examples), but I can’t help feeling that there is something not right about it.
P.D. These are, as always, thoughts in progress. If you don’t agree with them, remember our disclaimer.
In the competition law world there would appear to be too many prizes, awards and things of that sort. If you or your firm haven’t received an award, or at least a nomination, in the past few days, then either you’re a loser or your firm should increase its sponsoring budget :) (before anyone reacts, I’m kidding).
Someone should one day do an awards ranking and give a prize to the worst one. In the meanwhile, we at Chillin’Competition recently created the Stupidity of the Day Award, which is a purely merit-based award given to the person who contributes to the development of competition law and policy with the… most original thought.
Our first proud recipient was the then French Minister for Industry (appointed today Minister for the Economy and New Technologies (!); this is not an April Fools’ Day joke), Arnaud Montebourg, who said that the European Commission lives in a “legal delirium” and “makes up rules that don’t exist in the Treaties in order to perpetuate its powers” and that Vice-President Almunia is an “obsolete liberal integrist”.
And our second winner is….. Arnaud Montebourg again! He’s a goldmine. Look at this excerpt from a recent interview (Le Figaro, 3 février 2014)
“Quand je reçois l’Autorité de la concurrence, je lui dis : vous êtes contre les ententes. Moi, je les organise ! Qui a raison? Vous êtes nommé, je suis élu, donc c’est forcément moi !”
Translation: “When I receive the competition authority I tell them; you’re against agreements between companies. I arrange them! Who’s right? You were appointed, I was elected, so I’m certainly the one who’s right!”
(Thanks a lot to Benoît Durand (RBB) for this little gem!)
When one reads these things a thought comes to mind. Some say the problem with competition policy is that it doesn’t have constituents pushing for it; well, I don’t know; this might be politically incorrect (as if the rest of this post weren’t), but sometimes I’m glad that (for the most part) politicians keep their hands off it. This last thought gives me a new chance to once again promote my priZeless piece Antitrust and the Political Center and the follow-up interview).
It’s been two months since Nicolas temporarily left this blog for a half a year stint at DG Comp’s Private Enforcement Unit.
In the course of this short period he’s managed to single handedly unblock negotiations on the Commission’s proposal for a Directive on Antitrust Damages, and he’s adapted very well to the fonctionnaire lifestyle (meaning that he’s now taking some days of holidays) ;) (jokes aside, congrats to Eddy de Smijter and to the rest of the people involved in the negotiations about the Directive).
As he anticipated in his farewell post, Nico is maintaining all academic activities. Within that context, he’ll soon be participating at a conference on one of is favorite topics organized by his University. So, on 24 April the Liège Competition and Innovation Institute will be hosting a conferece in Brussels on Conflicts of Interest, Ethical Rules and Impartiality in EU Competition Policy .
Although Nicolas knows that I don’t share the same passion for the topic (or maybe precisely because he does?), he’s asked me to advertise the conference here. So voilà. It will feature representatives from the General Court, the European Commission, the OECD, the Belgian Competition Authority, as well as lawyers in private practice, The New York Times’ Brussels correspondent and ULG Professors and Researches, including Nico himself. Even Emilly O’Reilly (the current Ombudsman, whom you may remember from this) is on the tentative list of speakers.
Why do I say I don’t share the passion for the issue? Because whereas some improvements could possibly be made in the rules -mainly regarding their transparency-, I think we should be careful in not overshooting the mark. Otherwise we’d risk creating the impression that there’s a major endemic problem where I’m not at all sure there’s one (I, for one, I’m much more concerned about the Commission’s recruitment processes and about internal rules that oblige experienced people to rotate jobs too often or too soon). Anyone working in Brussels for some time will have worked with, against and before friends or professional acquaintances (sometimes the line is drawn too thinly). In my experience who you have on the other side doesn’t matter (at least for good: I do know of situations where lawyers’ friends deciding on cases have been unnecessarily harsh on them just to make a point and dispel any concerns, and that’s as unfair as the contrary) and there are enough checks and balances to avoid problems. The only positive consequence of working before people who know you is that they will perhaps trust you, provided that you have never proved not worthy of that trust (and competition law practice is also a game of repeated interactions), but I don’t see what’d be wrong about that.
As I told Nico back when he wrote his controversial piece on this subject, what’s different in our field is that our “relevant market” is very narrow; we’re not so many lawyers/economists repeatingly interacting among us and with the same academics, officials and judges. The only solution to the perceived problem, as framed, would be to have virginal public officials and lawyers who have not moved around jobs, who know no one, who haven’t studied at the same places, who haven’t worked with different people and who haven’t established a personal rapport with those in their field. In my view, at least, in that case the cure (assuming it were feasible, quod non) would be worse than the disease.
That said, considering the speaker line-up I’ve no doubt the conference will be most interesting.
The European Commission has in recent years been very active applying State aid rules to tax provisions and regimes. The first paper I ever wrote back in 2004 (don’t read it, it was initially done for a tax course and I was a 20 year old student…) dealt with those issues; now, ten years later, I’ve taken interest again on this subject and am currently involved in a handful of cases dealing with the taxation/State aid interface before the General Court.
The fact is that the Commission has recently undertaken a more proactive and prominent role in resorting to State aid rules to public initiatives that, in its view, facilitate aggressive tax planning. Those of you attending the 2014 Competition Forum back in February will recall that the Commission held a panel on “Taxation and Competition Policy”, in which it inquired about the role of State aid investigations in tackling tax evasion, tax fraud and aggressive tax planning (a video recording of the discussion as well as the transcripts of the speeches are available here).
Against a background of lack of political consensus on how to deal with harmful tax competition and what is seen as tax avoidance, the Commission is keen on being regarded as a proactive authority (it’s not the first time that competition policy is used to achieve results that couldn’t be attained by governments and legislators).
As part of this effort, the Commission has sent information requests to various Member States in order to assess the compliance of tax ruling practices (advanced binding decisions in fiscal matters which may allow for special treatment for some particular companies) and patent box regimes (incentives designed to encourage companies to make profits from their patents) with state aid rules. Yesterday the European Commission went through the trouble of issuing a Press release aimed at naming and shaming Luxembourg for having failed to provide information (specifically, the names of thelargest 100 companies benefitting from the patent box regime) , invoking fiscal secrecy.
I was quoted yesterday in a Bloomberg piece in relation to this news, so I though it’d be interesting to
recycle my thoughts explain my views in a bit more detail here:
This is a highly sensitive area where publicly visible messages (such as yesterday’s press release) may send powerful signals and give rise to concern on the parts of governments and companies, and where playing to the gallery might therefore be considered useful at times. That’s part of the game and shouldn’t surprise anyone.
But if we’re realistic, we should realize that (for as long as fiscal policy remains within the realm of nation States), there’s a limit to what can be achieved with State aid rules, and that it’s doubtful that the current investigation, focused on patent box regimes and tax rulings, will yield any meaningful results:
- Patent box regimes have been authorized in several Member States, and the Commission has consistently accepted that they do not confer the selective advantages that would qualify them as State aid.
- With regard to tax rulings –and whereas I’m not aware of the details of the investigation- even in the event that the Commission were to find incompatible State aids, this would only have the effect of suppressing divergent tax treatment within the Member State at issue (the Commission can only identify as aid deviations from “the system of reference” provided by the State’s standard tax regime ). This would therefore not at all address the main, big picture, concern linked to divergent treatment across, and beyond, different Member States.
It’d nevertheless be interesting to follow developments on this area. The amounts that could be in play for many companies would make any antitrust fine look insignificant. Anyone in need of a lawyer? ;)