EU: State-aid investigations of “tax rulings” | KPMG | GLOBAL

EU: State-aid investigations of “tax rulings,” response to US concerns

EU: State-aid investigations of “tax rulings”

The European Commission issued a letter to respond to concerns expressed by the U.S. Treasury Secretary about EC state aid investigations of “tax rulings” issued by EU Member States to multinational companies.


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The European Commission has focused on tax evasion and tax fraud, giving these top priorities. As a result, “tax rulings”—including for example advance pricing agreements (APAs)—have increasingly become the center of attention. In December 2014, the EC launched a general investigation into the tax ruling practices of all EU Member States.

Since then, in-depth investigations have been opened concerning tax rulings granted to certain multinational companies by some EU Member States and concerning the Belgium excess profit ruling system. In October 2015, the EC 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.” In January 2016, the EC further announced an intention to examine a recent tax settlement negotiated by a multinational company with the UK tax administration.

U.S. concerns

Certain U.S. politicians and officials have expressed concerns that the EC state aid investigations are 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. Lew’s letter asserting that such unilateral moves represented disturbing precedents. In his letter, Secretary Lew referred to testimony presented by a senior international tax officer of the U.S. Treasury at a December 2015 hearing of the U.S. Senate Finance Committee, and asserted that the EC:

  • Is seeking to impose penalties retroactively based on a new and expansive interpretation of state aid rules
  • Appears to be targeting U.S. companies disproportionately
  • Is adopting an approach that appears to target, in at least several of its investigations, income that EU Member States have no right to tax under international tax standards
  • Could undermine U.S. tax treaties with EU Member States


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EC response

European Commissioner Vestager on 29 February 2016 wrote in reply to Secretary Lew on behalf of President Juncker. In her February 2016 letter [PDF 252 KB], Commissioner Vestager:

  • Countered that the EC shared the U.S. agenda to curtail base erosion and profit shifting (BEPS) practices
  • Wrote that of the approximately 170 decisions ordering recovery of illegal state aid from companies since 1999, only a handful concerned U.S. companies
  • Replied that the European state aid rules concern fair competition in the EU single market and allow EU Member States to tax profits generated by companies operating in their territories and do not put into question the U.S. tax system or the tax treaties concluded by the EU Member States
  • Referred to application of the arm’s length principle in support of the standard that EU Member States cannot give multinational groups a more favorable tax treatment than stand-alone companies

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