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Senators again express concerns about EC state-aid investigations

U.S. concerns about EC state-aid investigations

Members of the U.S. Senate Finance Committee today wrote to Treasury Secretary Jack Lew concerning European Commission (EC) state-aid investigations of U.S. companies.


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In the bipartisan letter [PDF 506 KB], Senate Finance Committee Chairman Orrin Hatch (R-UT), ranking member Ron Wyden (D-OR), and committee members Rob Portman (R-OH) and Chuck Schumer (D-NY) called on Treasury Secretary Lew to continue “aggressive engagement” with the EC with respect to tax rulings issued to U.S. companies.

As noted in a related Finance Committee release, the EC has launched a series of formal investigations into EU Member States’ tax treatment of various multinational companies. In January 2016, these Finance Committee members asked the administration to increase its engagement with the EC on the state-aid investigations, in a move to avoid unfair rulings that would impose retroactive results that would be inconsistent with international tax standards and, ultimately, cause harm to U.S. companies. While the U.S. Treasury Department has focused efforts on this issue—even considered exploring the possible implications of using section 891 to retaliate and allow the administration to impose double U.S. taxes on EU entities and individuals—the EC is continuing to pursue the investigations.

The Senators wrote:


The [European] Commission appears to be ignoring the national practice and law of its Member States and to be imposing its own new standard for transfer pricing determinations. In effect, the Commission appears to be asserting supremacy over and becoming the final arbiter of transfer pricing and other international tax determinations in the EU. As a result, we believe the United States needs to determine for itself the implications of the EC being the final arbiter of how its Member States apply international tax standards as part of their own tax laws and what actions should be taken in response. 

Accordingly, in addition to your continued review of section 891, we request Treasury to elaborate on the concerns that you have expressed, which we share, in light of the EC’s responses to date. In particular, we request that you consider the following issues:

a. Whether, in your view, the EC’s continued insistence that it is not disproportionately targeting U.S. companies is accurate?

b. Whether, in your view, Commissioner Vestager’s statement in her February 29 letter to you that “EU Courts have long established that under EU State aid rules Member States cannot give multinational groups a more favorable tax treatment than standalone companies” (i) is accurate; (ii) supports the EC’s assertion that these tax ruling investigations do not involve the application of new legal theories; and (iii) means the EC is the ultimate authority over how Member States apply international tax standards, such as the arm’s length principle, that are designed to reach appropriate profit allocation results for multinational groups?

c. Whether the EC’s investigations appear to be based on the application of international tax standards in place during the recovery period, or even those developed through the G20-OECD’s Base Erosion and Profit Shifting project?  We recognize the opacity of the EC’s process and the bases for their State aid decisions presents challenges.  However, we are troubled by indications that the EC appears to be targeting, as you said in your letter to President Juncker, “income that Member States have no right to tax under well-established international tax standards.”

d. The competency of the EC Directorate-General for Competition in applying international tax standards.

e. The implications of the EC being the final arbiter of how Members States apply international tax standards, including the impact on (i) reaching multilateral consensus with respect to such standards at the OECD; and (ii) bilateral tax treaties with Member States and the ability of the United States to rely on such treaties. [Footnotes omitted.]


The Finance Committee members urged Secretary Lew “to stay the course” and sought further clarification on the administration’s view of the state aid investigations, including the precedent they will create and their long-term implications. 

Prior letters

Read about the Finance Committee’s January 2016 letter to Secretary Lew in TaxNewsFlash-Transfer Pricing and about Secretary Lew’s subsequent letter to the EC in TaxNewsFlash-Transfer Pricing.

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