Uncertainty Fair Price to Pay for State Aid, Says EU Official

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By Linda A. Thompson

A degree of uncertainty for businesses investment is a fair price for countries to pay when they give special tax rulings to specific companies, according to the official in charge of the European Union’s state aid enforcement.

“Some uncertainty, I’m afraid, is inevitable in these circumstances,” Gert-Jan Koopman, the European Commission’s deputy director general for state aid, said at a Feb. 1 seminar on state aid rulings in Brussels. “Then again, some uncertainty is maybe simply the price to pay for a situation which also, from a state aid point of view, had gotten out of control somewhat,” he added.

EU Competition Commissioner Margrethe Vestager has prioritized the fight against countries’ special tax treatment for selected companies, arguing that it amounts to illegal aid from the government.

Last August, the commission ordered Apple Inc. to repay a record 13 billion euros ($14 billion) in unpaid tax, plus interest, to Ireland. In a worst-case scenario, the interest on the unpaid tax could reach 1.5 billion euros, according to estimates by Matt Larson, a Bloomberg Intelligence technology analyst.

Business Climate

At the Feb. 1 seminar, organized by the Brussels-based think tank Bruegel, Koopman both rejected and acknowledged criticisms that the recent European Commission decision on Apple contributed to business uncertainty and a shaky investment climate.

Describing Apple as the world’s most profitable company, he said the iPhone maker had set up “a system” that resulted in an effective tax rate of 0.0005 percent in Europe.

“To invoke protest at the unpredictability of the European Commission’s enforcement of state aid rules in this particular setting, I must say, I find somewhat surprising,” he added.

The EU official made the statement in response to a comment by Clemens Fuest, president of the Munich-based Ifo Institute for Economic Research, that more clarity from the commission is needed on the “scope of state aid and its underlying concept” in view of the cost of the uncertainty brought about by decisions such as the one in the Apple one.

State Aid Policy

The commission published a notice in May 2016 on how the regulator will police state aid, and more guidance will be offered in coming months as other state aid investigations move forward, Koopman said at the Feb. 1 seminar.

At the event, Koopman responded to criticism from an audience member that the Apple decision retroactively reversed a tax ruling given by Irish tax authorities several years ago. The comment, he said, fails to acknowledge the fundamental role of the European regulatory body.

“The fact that illegal state aid might be found incompatible by the commission after a number of years is simply the consequence of the legal order which we have created where the commission is the guardian protecting other member states against the consequences” of granting illegal state aid, Koopman said. He also noted that this has been the case since 1957, when the European Economic Community, the European Union’s predecessor, was created.

‘Act with Caution.’

James Watson, director of the economics department of Business Europe, told Bloomberg BNA in a Feb. 1 interview that the business lobby group recognized that state aid rules are a legitimate issue for the commission regarding taxation.

But “the important thing is that the commission recognizes when applying and taking forward action in this area the potential that this could have for businesses regarding uncertainty,” he said, adding that investments could be affected.

It’s critical that European regulators “act with caution and measure to make sure that it tries to keep to a minimum that uncertainty.”

State Aid Investigations

Along with Apple, facing scrutiny of its tax structure in Ireland, McDonald’s Corp., Amazon.com Inc. and a subsidiary of car maker Fiat Chrysler Automobiles NV have all faced investigations over their taxes in Luxembourg. In October 2015, the Brussels-based commission also identified Starbucks Corp.’s tax structure in the Netherlands as illegal state aid.

In a Dec. 21 ruling, meanwhile, the European Court of Justice upheld an appeal from the European Commission in response to a verdict from the EU’s second-highest court that the commission incorrectly judged tax breaks that Spanish companies—including Banco Santander SA—received from buying shares in foreign entities as government aid.

In the full written judgment, the European Court of Justice said the commission must begin to identify a member state’s “normal” tax system and demonstrate how the tax measure identified as illegal state aid differs from it.

The ruling may prompt countries and taxpayers in state aid cases to strengthen their arguments about how they haven’t either provided or benefited from state aid.

To contact the reporter responsible for this story: Linda A. Thompson in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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