State Aid and Tax: The European Commission’s Application of the State Aid Rules to Tax – Where Are We Now?

Sullivan & Cromwell LLP - January 17, 2017
Download

The European Commission established a task force in 2013 to look at the “tax planning practices” of multinationals.  2016 brought its work into the open.  The Commission has published:

  • decisions that tax rulings granted by Belgium, Luxembourg, the Netherlands and Ireland to a number of high-profile multinational taxpayers, constituted unlawful state aid; and
  • two policy documents that aim to shed light on the Commission’s approach to state aid in the context of transfer pricing and tax rulings.
Investigations into other multinationals are ongoing.

The Commission’s actions raise concerns both about how it evaluates alleged fiscal state aid, and about whether the Commission is impermissibly encroaching on the sovereign right of Member States to determine their own national tax systems.

In December the Court of Justice of the European Union quashed the General Court’s judgment in World Duty Free Group and extended the circumstances in which a measure may be considered “selective” and vulnerable to challenge as state aid.

Now is a good time for multinationals to take stock of their own positions in light of the relevant principles and the Commission’s new and evolving approach.