Obscure Liquor Maker’s Tax Case Could Hurt EU’s State-Aid Push

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By Eleanor Tyler

A recent EU court ruling for an obscure Slovak liquor maker over a government tax break could impact high-profile, high-dollar tax avoidance cases against U.S. companies like Apple Inc. and Starbucks Corp., antitrust lawyers told Bloomberg BNA.

Europe’s highest court Sept. 20 threw out the EU competition commission’s complaint against beverage maker Frucona Kosice, whose products include fruit brandies that are over 50 percent alcohol. The European Court of Justice said the commission didn’t have enough evidence to say that Frucona got anticompetitive special treatment from the Slovak government when it got a break on excise taxes.

The commission’s spokesman told Bloomberg BNA that “The commission takes note, and will carefully assess the Court of Justice’s judgment.”

There are other, bigger cases involving state aid currently on appeal to the EU courts. In the past year, the EU has accused a number of large, multinational corporations of illegally reaping billions in tax benefits. Subsidies or tax breaks that favor a specific company are illegal in the EU to keep member governments from picking favorites, like locally owned businesses or state-owned enterprises. The commission issued 13 state-aid decisions in September alone.

The important part of the Frucona decision lies in what the court said the commission needed to consider in making its determination, according to Squire Patton Boggs antitrust partner Oliver Geiss in Brussels, who assisted Frucona on its lengthy fight against the commission’s ruling.

The court left alone the commission standard for evaluating state aid, in which it looks to the “available information” in making its decision, Geiss said. But the court refined the meaning of “available information” to include “what is relevant and could have been obtained on request.”

In effect, the commission must undertake a reasonable investigation because their analysis should legally include anything they could have easily laid hands on, he said. The lower court threw out the commission’s complaint because it said investigators hadn’t obtained “additional information to verify and substantiate its conclusions.”

Geiss said that the case may have implications for the big pending state-aid cases, including any case where there is a dispute on the actual facts, because the commission has already concluded its investigations in those cases. Under the Frucona ruling, it’s an open question whether those closed investigations met the appropriate standard for considering “available information.”

The EU began focusing on state aid in 2013 when it assembled a task force to look into tax policies in member states and started attacking lax tax policies in some member states in 2014, beginning with an investigation into Ireland’s tax treatment of Apple. In addition to ordering Apple to pay back over 13 billion euros ($15.6 billion) in taxes to Ireland in 2016, the commission has also found violations by Starbucks Corp. in the Netherlands and Fiat Chrysler Automobiles NV in Luxembourg. Court appeals are pending in each of those cases, with Amazon Corp. and McDonald’s Corp. rumored to be the next commission investigations to lead to charges.

Little Fish

Frucona was in trouble and couldn’t pay its excise taxes. The local government in 2004 agreed to take payment of 35 percent of its almost $17 million tax bill. The EU competition commission decided that was illegal state aid and ordered Frucona to pay the whole original amount.

The company appealed, and the commission’s decision was thrown out in 2011. The commission issued a new decision in 2013 that again found a violation and ordered Frucona to pay up. The lower court threw out that decision in March, and the EU’s highest court affirmed the conclusion that the commission’s didn’t have sufficient facts to find that Frucona got a sweetheart deal.

To contact the reporter on this story: Eleanor Tyler in Washington at etyler@bna.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bna.com

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