NEWS that selective tax advantages granted to Fiat Finance and Trade and Starbucks by Luxembourg and the Netherlands respectively have been deemed illegal by the European Commission has been met with a slew of criticism from stakeholders.
The EC was accused of “playing to the gallery” in its decision by Institute of Directors head of EU and trade policy Allie Renison, who said the commission had misused its powers.
“State aid rules are there to prevent governments from protecting certain companies to the detriment of competition, and the commission has made a very political move by using them to retrospectively attack the tax systems of two member states,” she said.
In particular, advisers are warning that multinationals attracted to the EU by the promise of low taxes could be driven away because of the threat of restrospective action.
“All taxpayer agreements, rulings, settlements of litigation with every international business could potentially be seen as state aid,” Taxand Netherlands partner Marc Sanders said. “A sword of Damocles looms over corporate taxpayers’ heads, with this decision creating either an extra compliance layer to all future tax matters in the EU or a requirement of advance clearances from EC.”
There are concerns, too, the ruling infringes states’ tax sovereignty, with some tax professionals alarmed that the EU Competition Commissioner’s statement gives an opinion on the appropriate use of tax rulings. National taxation issues are outside of the remit of the EU, law firm Pinsent Masons said in a statement.
But Baker Tilly senior tax partner George Bull suggested the move constitutes a clampdown on harmful tax competition – a key plank of the OECD’s BEPS project, which was announced earlier this month to much positivity.
Bull added: “In an era of greater tax transparency, national tax authorities must understand that they can’t just boost their tax takes by luring multi-national corporations to their shores with selective offers of favourable treatment.”
Stakeholders agree, however, that further scrutiny of tax structures is to follow, with multinationals Amazon and Apple likely to face similar rulings, while there remains a distinct possibility that Fiat and Starbucks will appeal this week’s ruling.
“We expect that these cases will end up being appealed to the ECJ, so it is likely to be some time before we have a definitive view on the operation of state aid rules in this context. Until then, there is now considerable uncertainty about whether existing tax agreements with members might be overruled so that companies find themselves liable to retrospective taxation,” ICAEW tax faculty head Frank Haskew said.
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