Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

On DG Comp’s fight against tax competition and tax planning

with one comment

Tax%20Planning

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? 😉

One Response

Subscribe to comments with RSS.

  1. […] The Judgments come at a moment when fiscal State aid –that we’ve been doing for a decade- is in the spotlight (the Lux leaks news broke only yesterday) so the first reaction of many will be to think about the impact this may have on other cases in which the Commission has also embraced an arguably excessively wide notion of selectivity (this includes my 25 fiscal State aid appeals currently pending before the General Court as well as the more recent investigations into tax rulings). […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: