Lawmakers’ Seek EU Tax Scrutiny of French Dairy Giant

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By Linda A. Thompson

EU state-aid officials are likely to investigate the tax practices of the French dairy group Lactalis following an informal call from European lawmakers.

Nine Green Party lawmakers urged EU Competition Commissioner Margrethe Vestager to examine the tax practices of the French multinational Groupe Lactalis S.A. in a Jan. 30 letter, flagging the average tax rates of Belgian and Luxembourg Lactalis subsidiaries in recent years—2.5 and 2.8 percent respectively—as deserving “particular attention.”

“It’s hard to say definitively and it would probably be contested by the commission itself, but I think that when members of parliament team up to file a complaint, that will probably more quickly draw scrutiny than when two or three private individuals send a complaint to the commission,” said Michel Maus, tax lawyer at Bloom Law Firm.

‘Harmful and Detrimental’

The lawmakers warned that the company’s tax practices warrant as much scrutiny as its health and safety policies, and told Vestager to investigate whether its tax arrangements “are harmful and detrimental to fair competition in the EU.”

The French dairy giant has been at the center of a massive salmonella scandal, recalling baby milk products around the world after the bacteria were found in one of its factories in France in December 2017. Researchers have since raised concerns that the company’s products may have been infecting people for more than a decade.

A spokesperson for Lactalis did not respond to repeated requests for comment.

Deliberately Avoiding Tax?

Molly Scott Cato, a lawmaker for the Greens who co-signed the letter, told Bloomberg Tax that while there is nothing unusual about multinationals structuring their corporate setups to minimize their tax bills, that is “not the purpose of the single market.” Such practices also undermine the “duty of sincere cooperation required under” the EU Treaty on the Functioning of the European Union, she added.

“In the case of Lactalis, it appears that they have deliberately created a corporate structure with subsidiaries in Belgium and Luxembourg for the purposes of reducing the tax they owe through an artificial transfer of profits to these lower tax jurisdictions,” she said in a Feb. 5 email.

Cato also pointed to the final report of the parliamentary investigative committee tasked with making recommendations on how to tackle money laundering, tax avoidance, and tax evasion following the Panama Papers leak. Cato was a member of the inquiry committee into the Panama Papers.

“Parliament was clear” in the report “that company structures should be for the purposes of improving efficiency of the core business, not to enable tax avoidance,” she said.

IKEA Aproach

The Greens are asking Vestager to confirm their suspicions, Cato said, pointing out that they haven’t filed a state-aid complaint and probably won’t.

“I think we’ll depend on the informal approach,” she said. “As with IKEA, we have found this effective in the past since Vestager is well on top of her brief.”

The European Green party published a report in February 2016 alleging that the Swedish furniture giant IKEA avoided around 1 billion euros in taxes between 2009-14 by shifting royalty payments to a conduit subsidiary in the Netherlands called Inter IKEA group.

The European Commission announced in December it would open a tax avoidance investigation into the company. The commission first requested information on the Dutch tax rulings granted to Inter IKEA in April 2016 “following press allegations of a potential advantageous tax treatment and the report published by the Greens/ELA group of the European Parliament,” according to a Dec. 18 news release.

‘1,000 Tax Rulings’

A European Commission spokeswoman confirmed that they had received the letter from the Greens, but declined in a Feb. 1 email to comment on the likelihood of a future investigation.

She pointed to past state aid decisions and ongoing state aid investigations as “sending a clear message that companies must pay their fair share of tax.”

“We continue to look at more than 1,000 tax rulings and other information that is made available publicly. As Commissioner Vestager has said, more cases may come, if we have indications that EU State aid rules are not being complied with,” she said.

Words of Caution

Edoardo Traversa, a professor of tax law at the University of Louvain in Belgium, warned against seeing low average tax rates as a red flag for state aid in a Feb. 2 interview.

“The mere fact that a company pays 2 percent, 5 percent, zero percent—so much less than the standard corporate tax rate—does not raise any state aid issues” in itself if there are no other elements indicating that the company benefited from selective, advantageous treatment that was not available to other enterprises in the same situation, he said.

Capital that has already been taxed in one entity and that is then paid to another entity is normally not additionally taxed, he said, “not by virtue of a tax deduction scheme but by virtue of a European directive and also by virtue of domestic tax legislation against double taxation.”

Focusing on one particular entity that is part of a larger multinational setup in that sense is “quite misleading” because of how the capital flows of European multinational corporations are taxed under the parent-subsidiary directive.

“So if you pick out a holding company that has received only dividends that qualify for the Parent-Subsidiary exemption, of course the average tax rate of that company will appear extremely low,” he said.

To contact the reporter on this story: Linda A. Thompson in Brussels at correspondents@bloomberglaw.comTo contact the editor on this story: Penny Sukhraj at psukhraj@bloombergtax.com

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