US: Treasury responds to Congress, EU state-aid “tax ruling” investigations

US: EU state-aid “tax ruling” investigations

A Treasury Department official has responded to a request from Senate Finance Chairman Orrin Hatch (R-UT) that Treasury consider whether, under Code section 891, U.S. corporations are being subjected to discriminatory taxation regarding the European Commission’s investigations of U.S. companies.

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The EC investigations have focused on state aid allegedly provided by “tax rulings” issued by EU Member States to multinational companies. The March 2016 letter [PDF 279 KB] from Treasury Assistant Secretary Anne Wall to Chairman Hatch notes that Treasury is reviewing whether section 891 applies.


EC investigations have focused on “tax rulings”—including, for example, advance pricing agreements (APAs). Among the findings:

  • The EC in October 2015 published the first two final decisions that ordered two multinational companies operating in Luxembourg and in the Netherlands to repay up to €30 million in “illegal state aid.” 
  • The EC in January 2016 announced an intention to examine a recent tax settlement negotiated by a multinational company with the UK tax administration.

U.S. politicians and officials began to express concerns that the EC state-aid investigations were unfairly targeting U.S. companies, and thereby creating potential compliance issues under current international tax standards. 

  • In February 2016, U.S. Treasury Secretary Jacob Lew wrote to the EC and requested that the European Union reconsider these state-aid investigations. Read TaxNewsFlash-Transfer Pricing
  • In late February 2016, the EC responded to Secretary Lew and countered certain points, including that of the approximately 170 decisions ordering recovery of illegal state-aid from companies since 1999, only a handful concerned U.S. companies. Read TaxNewsFlash-Transfer Pricing

Invoking section 891?

In her March 2016 letter, Assistant Secretary Wall wrote that since section 891 was enacted as part of the Revenue Act of 1934, no president has ever invoked it, but that Treasury was “reviewing this provision and its history closely…and …continuing to consider all modes of engagement to convey our strong view that the EC should reconsider its approach in these cases.”

The text of section 891 provides:


Section 891: Doubling of rates of tax on citizens and corporations of certain foreign countries

Whenever the President finds that, under the laws of any foreign country, citizens or corporations of the United States are being subjected to discriminatory or extraterritorial taxes, the President shall so proclaim and the rates of tax imposed by sections 1, 3, 11, 801, 831, 852, 871, and 881 shall, for the taxable year during which such proclamation is made and for each taxable year thereafter, be doubled in the case of each citizen and corporation of such foreign country; but the tax at such doubled rate shall be considered as imposed by such sections as the case may be. In no case shall this section operate to increase the taxes imposed by such sections (computed without regard to this section) to an amount in excess of 80 percent of the taxable income of the taxpayer (computed without regard to the deductions allowable under section 151 and under part VIII of subchapter B). Whenever the President finds that the laws of any foreign country with respect to which the President has made a proclamation under the preceding provisions of this section have been modified so that discriminatory and extraterritorial taxes applicable to citizens and corporations of the United States have been removed, he shall so proclaim, and the provisions of this section providing for doubled rates of tax shall not apply to any citizen or corporation of such foreign country with respect to any taxable year beginning after such proclamation is made.

ECOFIN meeting this week

A release from the EC today reports that at the ECOFIN Council meeting on 8 March 2016, the council representing the finance ministers of the EU Member States will be asked to reach a general approach on a draft directive on the exchange of tax-related information of multinational companies between tax administrations.

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