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State Aid Benchmarking and Tax Rulings: Can We Keep It Simple?

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State Aid Law and Business Taxation

Part of the book series: MPI Studies in Tax Law and Public Finance ((MPISTUD,volume 6))

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Abstract

Tax rulings and advance pricing agreements may run the risk of providing an advantage to taxpayers upon ex-post analysis. This contribution will first focus on how group companies may differ from stand-alone companies for state aid purposes and address the Commission’s potential use of secret comparables as part of a transfer pricing analysis. A flowchart to determine when a ruling may be deemed selective is provided. Then mismatches will be addressed in tax treaty situations, like the (de)recognition of permanent establishments. Lastly, the (ir)relevance of the new EU tax ruling database for state aid investigations will be discussed.

All statements in this paper are personal and do not necessarily represent the views of Loyens & Loeff. As the author is frequently consulted in matters of state aid, the reader may assume that the author may have been consulted in past or ongoing disputes. This paper was updated until 29 February 2016.

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Notes

  1. 1.

    European Commission (2015c).

  2. 2.

    Oxford Dictionaries.

  3. 3.

    European Commission (2015a).

  4. 4.

    European Commission (2016).

  5. 5.

    See Starbucks, European Commission (2015a).

  6. 6.

    See McDonalds, European Commission (2015c).

  7. 7.

    Formal investigations into Apple and Amazon are also still pending as are the Luxleaks cases.

  8. 8.

    Appeals have already been filed by Luxembourg (T-755/15, OJ C 59/48 of 15 February 2016) and Fiat Chrysler Finance Europe (T-759/15, OJ C 59/49 of 15 February 2016) in respect of Fiat Finance and Trade, by the Netherlands in respect of Starbucks (T-760/15, OJ C 59/50 of 15 February 2016), and by Belgium in respect of the Excess Profit Rulings (T-131/16, not yet published).

  9. 9.

    See Starbucks, European Commission (2015a).

  10. 10.

    For ease of reading. “intra-group transactions” may also include transactions between legal entities and related natural persons such as shareholders.

  11. 11.

    See, for the most recent examples, General Court T-287/11 of 4 February 2016, Heitkamp BauHolding v Commission, ECLI:EU:T:2016:60, para 106 and T-620/11 of 4 February 2016, GFKL Financial Services v Commission, ECLI:EU:T:2016:59, para. 111–114 (both concerning the German Sanierungsklausel).

  12. 12.

    See Starbucks, European Commission (2015a).

  13. 13.

    In a public statement the Dutch Under Secretary of Finance took the position that by using the transactional net margin method (TNMM) the focus was on determining an overall profit level in line with business standards, instead of focussing on the appropriateness of the royalty directly. Overall profitability of Starbucks Manufacturing was comparable to that of independent roasters, according to the Under Secretary. See Dutch Ministry of Finance (2015). The use of the TNMM has been questioned by the Commission in this case.

  14. 14.

    Council of the European Union (2015b).

  15. 15.

    See Starbucks, European Commission (2015a).

  16. 16.

    CJEU Joined Cases C-182/03 and C-217/03 of 22 June 2006, Belgium and Forum 187 v Commission, ECLI:EU:C:2005:266, para. 96.

  17. 17.

    European Commission (2003), paras. 43 and 95.

  18. 18.

    CJEU C-182/03 and C-127/03 of 22 June 2006, Belgium and Forum 187 v Commission, ECLI:EU:C:2005:266, para. 95. “Free competition” is not a synonym to “acting as a stand-alone company”, as in a free internal market companies may work together for economic reasons to increase their benefit or reduces their costs (within the limits of Article 101 and 102 TFEU of course).

  19. 19.

    CJEU C-5/14 of 4 June 2015, Kernkraftwerke Lippe-Ems, ECLI:EU:C:2015:354, para. 75. See also Joined Cases C-106/09P and C-107/09P of 15 November 2011, Commission v Gibraltar, ECLI:EU:C:2011:732, para. 87; 173/73 of 2 July 1974, Italy v Commission, ECLI:EU:C:1974:71, para. 13.

  20. 20.

    CJEU C-6/12 of 18 July 2013, P Oy, ECLI:EU:C:2013:525, para. 22. See also, amongst others, C-143/99 of 8 November 2001, Adria Wien, ECLI:EU:C:2001:598, paras. 41–42.

  21. 21.

    CJEU 310/85 of 24 February 1987, Deufil, ECLI:EU:C:1987:96, para. 8.

  22. 22.

    Joined Cases C-106/09P and C-107/09P of 15 November 2011, Commission v Gibraltar, ECLI:EU:C:2011:732, para. 103.

  23. 23.

    Joined Cases C-106/09P and C-107/09P of 15 November 2011, Commission v Gibraltar, ECLI:EU:C:2011:732, para. 104.

  24. 24.

    See CJEU 248/84 of 14 October 1987, Germany v Commission, ECLI:EU:C:1987:437, para. 18.

  25. 25.

    The Commission would still be allowed to take a new decision in case of an annulment; using only accessible data to do a recalculation might result in no aid being present at all or in a different amount of aid to be recovered.

  26. 26.

    CJEU C-6/12 of 18 July 2013, P Oy, ECLI:EU:C:2013:525, para. 27.

  27. 27.

    See Fiat, European Commission (2015a).

  28. 28.

    European Commission (2016).

  29. 29.

    OECD (2015), excerpts from para 1.158 and 1.162. In paragraph 1.10 of its current 2010 Transfer Pricing Guidelines the OECD even acknowledges that there are “no widely accepted objective criteria for allocating the economies of scale or benefits of integration between associated enterprises.” OECD (2010).

  30. 30.

    Belgium would need to show that the restrictive access to the ruling was not based on non-tax requirements, such as engaging in major investments, as to include all groups small and large. Compare CJEU C-6/12 of 18 July 2013, P Oy, ECLI:EU:C:2013:525, para. 23–24: “The fact that an authorisation procedure exists does not in itself preclude such justification. […] Justification is possible if, under the authorisation procedure, the degree of latitude of the competent authorities is limited to verifying the conditions laid down in order to pursue an identifiable tax objective and the criteria to be applied by those authorities are inherent in the nature of the tax regime.” The latter may be the most difficult part here.

  31. 31.

    European Commission (2016). ‘Justification’ is the last step in a selectivity analysis.

  32. 32.

    European Commission (2015c).

  33. 33.

    We follow the terminology used in the Commission’s press release. With ‘not a PE under US law’, the Commission meant to indicate that the entity did not engage in US trade or business.

  34. 34.

    See Council of the European Union (2011, 2015a).

  35. 35.

    Council of the European Union (2011), Article 23a, para. 1.

  36. 36.

    Council of the European Union (2015b), Article 25a. When this new investigative power was introduced it was stated: “In order to ensure that the Commission addresses similar issues in a consistent manner across the internal market, it is appropriate to complete the existing powers of the Commission by introducing a specific legal basis to launch investigations into sectors of the economy or into certain aid instruments across several Member States. For reasons of proportionality and in the light of the high administrative burden entailed by such investigations, sector inquiries should be carried out only when the information available substantiates a reasonable suspicion that State aid measures in a particular sector could materially restrict or distort competition within the internal market in several Member States […]”. Council of the European Union (2013), Preamble 17. It should be noted that a ‘reasonable suspicion’ was deemed to be required for sector-wide investigations but not for investigations into certain aid measures, like the ones at hand.

  37. 37.

    See European Commission (2015b); 21 Member States provided both the lists and the individual rulings requested. No individual rulings were requested from 5 other Member States after submitting their lists. In June 2015 information injunctions were issued to Poland and Estonia who refused to hand over the lists up to that point in time, ordering these Member States to comply.

  38. 38.

    See Financial Times (2016).

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Authors and Affiliations

  1. Maastricht University, Maastricht, The Netherlands

    Raymond Luja

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  1. Raymond Luja
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  1. Tax Institute, HEC-University of Liège , Liège, Belgium

    Isabelle Richelle

  2. Max Planck Institute for Tax Law and Public Finance, Munich, Germany

    Wolfgang Schön

  3. Faculté de droit et de crimonologie, Université catholique de Louvain , Louvain-la-Neuve, Belgium

    Edoardo Traversa

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Luja, R. (2016). State Aid Benchmarking and Tax Rulings: Can We Keep It Simple?. In: Richelle, I., Schön, W., Traversa, E. (eds) State Aid Law and Business Taxation. MPI Studies in Tax Law and Public Finance, vol 6. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-53055-9_7

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  • DOI: https://doi.org/10.1007/978-3-662-53055-9_7

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