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The European Commission has beefed up the investigating unit that gained fame last year for work behind its $14 billion back-tax sting on Apple Inc., a top commission official said.
The commission in August 2016 ordered Ireland to recover 13 billion euros ($14.1 billion) from Apple related to favorable Irish tax rulings that the commission deemed illegal anti-competitive state subsidies, and it invited other nations to investigate whether profits that flowed through Apple’s nonresident Irish branch should instead be taxed in their countries.
Ireland has already appealed the ruling. Meanwhile, the Task Force on Tax Planning, which did the investigation that produced the order, has been fleshed out to handle a steady stream of work, including cases involving Luxembourg state aid to Amazon.com Inc., McDonald’s Corp. and the French energy multinational Engie SA, said Gert-Jan Koopman, the European Commission’s deputy director-general for state aid.
“The task force I set up in 2013 has now been transferred into a permanent unit and has been reinforced greatly. A second unit on fiscal state aid is also looking at these cases,” Koopman said.
Koopman spoke March 28 at a global transfer pricing conference in Paris sponsored by Bloomberg BNA and Baker McKenzie LLP.
Koopman also participated in a March 28 panel discussion addressing state aid cases and other EU tax matters, during which he heard criticism from European Union-based practitioners, and Robert Stack, a former U.S. deputy assistant Treasury secretary for international tax affairs.
Stack questioned the fairness of the commission’s fiscal state aid rulings. He said companies negotiated tax rulings with member states “in good faith,” only to find themselves hit years later with reassessments for billions of euros. By wading into tax and transfer pricing matters, “the commission has gotten itself in a position of a bunch of plumbers doing electrical work,” he said, adding, “I think they have bitten off more than they can chew.”
Koopman acknowledged that the fiscal state aid investigations, founded on EU competition law, have caused “rude awakenings” for tax and transfer pricing specialists. But he said commission officials don’t fear complex transfer pricing methods or other “technical” details. They just look at member states’ tax and transfer pricing rules and assess if they have been applied unfairly to benefit particular companies.
“In the case of Apple, how is it possible that a company operates in Europe and pays hardly any tax whatsoever? It was clear something was wrong,” Koopman said.
Koopman said his unit has already provided some guidance and that he hopes the outcomes of the current cases will allow it to “provide further clarity.”
However, he said the investigations aren’t finished. “We have asked for more information from member states to update our data. And we are in discussion with a number of member states about some of their underlying practices,” he said.
Koopman noted that member states have challenged all of the unit’s “negative decisions” against them, to the European Court of Justice, which has the last word.
Practitioners said the commission’s state aid probes and efforts to implement public country-by-country reporting requirements for big multinationals and other recommendations from the international program against base erosion and profit shifting have put it too far in front of the rest of the world in the fight against international corporate tax evasion.
Stack said the EU push could “hurt international consensus” on BEPS.
Joe Duffy, a Dublin-based tax partner at Matheson, said the EU’s Anti-Tax Avoidance Directive 2 was billed as an effort to implement key anti-abuse measures from the BEPS project, “but I think it’s clear that it goes far beyond that.”
Antonio Russo, a partner at Baker McKenzie in Amsterdam, said that “because of political pressure, the EU is trying to be even better than the best in class in implementing the BEPS measures.” Instead of pushing public country-by-country reporting, which would likely harm competitiveness of EU companies, the commission “should be working on measures to help competitiveness, such as a common EU tax base” for big companies, he said.
Alfred de Lassence, Paris-based vice president for tax at Air Liquide, noted that France’s Constitutional Council recently struck down the country’s public country reporting measure, which was included in an anti-corruption law. The court rejected it on constitutional grounds that it harmed companies’ freedom to do business.
De Lassence said the EU has two anti-abuse directives floating—ATAD 1 and ATAD 2—aimed at implementing different BEPS measures. He wondered how EU member states would manage to implement them, and what the impact on companies will be. “We cannot deal with this permanent over-complexity,” he said.
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