Jenny Wong explains why the US is concerned about the European Commission's recent state aid investigations.
I read a White Paper published by the US Department of Treasury on 24 August 2016 expressing the concerns with the European Commission’s (EC) recent state aid investigations; state aid broadly being subsidies in one form or another granted by a Member State, which is meant to advantage one group of businesses over others. The investigations involved certain transfer pricing rulings given by Member States to particular taxpayers that may have violated the EU’s restriction on state aid.
The White Paper expresses the concern with the EC investigations on the US government directly and for US companies in the form of potential lost tax revenue and increased barriers to cross border investment. The White Paper also says these investigations also undermine the multilateral progress made towards reducing tax avoidance.
The US Secretary to the Treasury set out 3 main concerns to the EC’s President on the recent State aid investigations:
The US Treasury’s key concern is how the Commission’s State Aid outcomes interact with US tax law. The EC brings a state aid case against a country e.g. Ireland and not a company (Apple). The country in turn is obligated to claw back the illegal state aid from the company. If Apple is obliged to repay the taxes to Ireland they should have paid, but didn't, then those companies will turn around and argue that these are foreign taxes that should be creditable in the US and reduce the US tax bills. The US Treasury therefore strongly calls for international tax cooperation on this matter.
The US White Paper is worth a read. It’s not out of the question for Australian Government to have the same concerns as the US in relation to Australian multinationals operating through the EU Member States, though the EU is currently focused on the major multinational players at the moment.