Antitrust Law Daily Wrap Up, ANTITRUST NEWS: EC to investigate member states’ tax breaks for Apple, Starbucks, Fiat, (Jun 11, 2014)

By John W. Arden, J.D., LL.M.

The European Commission (EC) has opened three in-depth investigations to examine whether tax rulings by Ireland, the Netherlands, and Luxembourg—providing tax breaks for Apple, Starbucks, and Fiat Finance and Trade, respectively—violate European Union state aid rules, Joaquin Almunia, Vice President of the European Commission for Competition Policy, announced today.

“We have serious doubts about the compatibility of these three particular ruling decisions with the Treaty rules on state aid,” Almunia said. “It is well known that some multinationals are using tax planning strategies to reduce their global tax burden. These aggressive tax planning practices erode the tax bases in our Member States.”

In particular, some multinational companies attempt to reduce the profits they declare in countries where taxes are higher, noted Almunia. This may be achieved through transfer prices—the prices charged for commercial transactions between entities that are a part of the same corporate group, he said. “And this is where state aid control at the EU level gets into the picture.”

If member state authorities accept that the remuneration of a subsidiary or branch does not correspond with market conditions, reflecting normal conditions of competition, the company would be granted “selective” favorable treatment, in Almunia’s view.

“This is the problem, because such treatment would constitute state aid within the meaning of our Treaty rules,” he observed. “And such aid is in principle incompatible with the Single Market, because it would give these companies an unfair advantage and distort competition.”

The EC has the power to control state aid, including the granting of selective tax advantages. “This means that national authorities cannot take measures allowing certain companies to pay less tax than they should if the tax rules of the Member State were applied in a fair and nondiscriminatory,” said the competition chief.

These three formal investigations were undertaken based on the EC’s belief that the national tax authorities have renounced taxation of part of the multinational companies’ revenues by allowing them to lower their taxable profits. However, the investigations are based only on a preliminary analysis. “Before making a decision, we will look carefully at the comments by the Member States concerned and all interested third parties who want to send us comments,” Almunia concluded.

In addition to these three investigations, the EC decided yesterday to open an infringement procedure against Luxembourg, based on its authorities’ partial answers to requests for information in relation to the use tax rulings and the regime for specially taxing intellectual property rights.

Companies: Apple, Inc.; Starbucks Corp.; Fiat Finance and Trade

News: Antitrust