Image © European Union
Brussels, 26 October 2017: As part of a 3 ½ year Commission investigation into individual tax rulings and schemes, subsequently extended to all EU member states in December 2014, the European Commission has formally announced that it has opened an in-depth investigation into the United Kingdom’s use of a tax exemption measure, first introduced in 2013, to selectively offer some companies a better tax treatment than others.
Competition Commissioner Margrethe Vestager said:
“All companies must pay their fair share of tax. Anti-tax avoidance rules play an important role to achieve this goal. But rules targeting tax avoidance cannot go against their purpose and treat some companies better than others. This is why we will carefully look at an exemption to the UK’s anti–tax avoidance rules for certain transactions by multinationals, to make sure it does not breach EU State aid rules.”
The Commission’s taxation investigations have already generated a huge blaze of publicity, not least with the Commission’s August 2016, conclusion that Ireland granted undue tax benefits of up to €13 billion to Apple, failure by Ireland to make adequate progress in recovery of the unlawful aid, led to it being referred to the European Court of Justice by the Commission earlier this month.
Less high profile, but no less significant, have been DG-Competition’s October 2015 negative State Aid in decisions against Luxembourg and the Netherlands for their tax agreements with Fiat and Starbucks respectively. In January 2016, the Commission concluded that selective tax advantages granted by Belgium to at least 35, mainly EU, multinationals under its “excess profit” tax scheme were similarly unlawful under EU State aid rules.
Only a matter of weeks ago, the Commission concluded that the Luxembourg tax authorities had granted undue tax benefits of up to €250 million to Amazon. Indeed, Luxembourg continues to bear the weight of DG-Competition’s scrutiny with two ongoing in-depth investigations into concerns that tax rulings may give rise to State Aid issues in respect of McDonald’s and natural gas distributor GDF Suez (now Engie).
It is within this context that the Commission’s decision to open an in-depth investigation should be viewed, albeit yesterday’s decision is likely to be seized upon the ideological proponents of Brexit in the United Kingdom as more example of Brussels’ interference in domestic taxation arrangements, an area of Member State competency that is jealously guarded despite repeated Commission led attempts over the years to move to tax harmonisation within the EU Single Market.
This issue is tackled head-on in the Commission’s official press release, which explicitly recognises the United Kingdom’s (and. by extension, each Member State’s) right to organise its internal tax affairs,whilst also clearly referencing that, for as long as the UK is an EU Member State, it has all the rights and obligations of membership. In particular, the statement continues, “EU competition law, including EU State aid rules, continue to apply in full to the United Kingdom and in the United Kingdom until it is no longer a member of the EU”.
Under Article 108(2) TFEU, the decision to initiate an in-depth investigation is sent to the relevant Member State, in this case the UK. It summarises the factual and legal bases for the investigation and includes the Commission’s preliminary assessment, outlining any doubts as to the measure’s compatibility with EU state aid rules.
The opening of formal investigations allows the Member States’ authorities to further explain their practices and for the Commission to gather further information from interested third parties. Member States and interested third parties have one month from the date of publication of the decision in OJEU to submit comments. The The Member State concerned will, in turn, invited to comment on observations submitted by third parties.
Whilst there is no legal deadline to complete an in-depth investigation, and its actual length depends on many factors, broadly speaking there are three possible outcomes:
- Positive decision: where the measure is no aid or the aid is compatible with the internal market.
- Conditional decision: the measure is found compatible, but its implementation is subject to the conditions stated in the decision.
- Negative decision: The measure is incompatible and cannot be implemented. The Commission in principle orders the Member State to recover aid that has already been paid out from the beneficiaries (e.g. notably in the case of the Republic of Ireland and Apple). Where the decision is on existing aid, the Commission cannot order the recovery of aid already given, but will prevent the Member State from granting future aid.
A decision to open an in-depth investigation does not prejudge the outcome of the investigation, and all decisions and procedural conduct of the Commission are subject to review by the General Court and, ultimately, by the ECJ.