European Parliament Examines EU Tax Ruling Practices

The European Parliament set up a special committee to investigate tax deals for international companies across the European Union (EU). Tax ruling practices in place as far back as January 1, 1991, could be subject to scrutiny.

According to the parliament’s news release, the special committee is being set up in response to the series of investigations launched by the European Commission (EC) into tax rulings that have been granted to multinationals in Luxembourg, Ireland, Belgium and the Netherlands. The news release also noted the committee will look at how the EC treats state aid and the extent to which member states are transparent about tax dealings.

Background

Since June of 2013, the EC has been investigating the tax ruling practices of EU member states. The EC is in charge of ensuring that state aid complies with EU rules. State aid is defined as any advantage conferred on a selective basis to undertakings by national authorities. The Treaty on the Functioning of the European Union generally prohibits state aid unless it is justified by reasons of general economic development.

The EC opened formal state aid investigations in four cases: Apple in Ireland, Starbucks in the Netherlands, and Amazon and Fiat Finance and Trade in Luxembourg. Recently, the EC reached a preliminary decision that the tax benefits Luxembourg granted to Amazon in a 2003 transfer pricing ruling constituted state aid and publicized a 23-page letter concerning its investigation.

The EC also recently announced it had opened an in-depth investigation into a Belgian tax provision that allows certain multinational groups to substantially reduce their corporate tax liability on the basis of so-called excess profit tax rulings. The Commission expressed doubt as to whether this Belgian tax provision complied with EU state aid rules.

The parliament’s special committee will not have the power to demand documents from national governments. The parliament rejected a proposal by the European Green Party to have an enquiry committee, which would have had more power to probe member state government documents.

The Road to Be Followed

The special committee will have 45 members and will:

1. Look into the tax ruling practices of EU Member States, as far back as January 1, 1991.
2. Review how the EC treats state aid in EU Member States, including the extent to which tax rulings are transparent.
3. Ascertain the negative impact of aggressive tax planning on public finances.
4. Produce two reports that will include suggestions for new legislation.

©2015