Tax rulings: how to approximate market prices

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EU - State aid - DG Competition - Internal Working Paper - 3 June 2016

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As a rule, fiscal measures of a general nature that apply to all undertakings without distinction fall within the remit of the Member States’ fiscal autonomy and cannot constitute State aid, since they do not selectively advantage certain undertakings over others.

By contrast, fiscal measures that discriminate between taxpayers in a similar factual and legal situation constitute, in principle, State aid.

The “arm’s length principle” aims to ensure that all economic operators are treated in the same manner when determining their taxable base for corporate income tax purposes, regardless of whether they form part of an integrated corporate group or operate as standalone companies on the market.

The Commission does not call into question the granting of tax rulings by the tax administrations of the Member States. It recognises the importance of advance rulings as a tool to provide legal certainty to taxpayers. Provided they do not grant a selective advantage to specific economic operators, tax rulings do not raise issues under EU State aid law.

The inquiry has focussed, in particular, on tax rulings which endorse transfer pricing arrangements proposed by the taxpayer for determining the taxable basis of an integrated group company.

The Commission has also analysed “confirmatory rulings”, which confirm the application, or the non-application, of a certain legislative provision to a specific situation.

At the end of 2015 and the beginning of 2016, the Commission adopted three negative decisions with recovery with respect to the tax ruling granted by the Netherlands to Starbucks, the tax ruling granted by Luxembourg to Fiat and the Excess Profit Scheme in Belgium.

The Commission is continuing its investigations concerning the tax treatment of Apple by Ireland, and Amazon and McDonald's by Luxembourg.

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Read more: Preliminary findings of the ruling investigation with respect to transfer pricing rulings.

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Other Tax Transparency chapters

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• Transfer pricing: surviving the new tax world
• Transfer Pricing and Customs Valuation
• BEPS 2015 Final Reports
• EU - Overview of the European Parliament's initiatives on taxation
• EU - Anti Tax Avoidance Package
• EU - Public consultation on further corporate tax transparency
• EU - Introducing public country-by-country reporting for multinational enterprises
• Fight­ing ef­fec­tive­ly against tax cheat­ing, de­vi­ous tax avoid­ance and mon­ey laun­der­ing
• OECD - Actions needed to advance global tax transparency
• OECD - Global tax and transparency
• EU - Accounting Directive - CbC reporting / tax transparency
• Draft report on tax rulings and other measures similar in nature or effect for European Parliament
• UK - Public consultation on tax transparency
• UK - Tax administration: large businesses transparency strategy
• UK - HMRC publishes tax strategy guidance
• Australia targets businesses that shift profits offshore
• Examples of public tax transparency statements
• The Tax Transparency Benchmark 2015
• BEPS and indirect tax

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Tax survey shows BEPS project driving major global tax changes

Already, 61% of respondents have been affected by BEPS-driven legislation in at least one country where they operate. While concerned about several areas of the BEPS recommendations, 33% of respondents expect country-by-country reporting to have the greatest impact. Most respondents (73%) have already begun to analyze what country-by-country reporting will mean to their company, a significant increase over last year (47%).

Transfer pricing had been the key concern in 2014 and remains the second most prevalent concern this year. In addition, one third (33%) of respondents already saw tax authorities raising audit issues that reflect BEPS areas, with 64% identifying transfer pricing as the most prevalent BEPS-related audit issue.

They anticipate making changes, particularly to transfer pricing documentation (56%) and methodology (35%), as well as financing structures (35%). In addition, 64% said they are more likely to consider using the APA process to manage risk and obtain certainty.

Other findings of the survey include:

• 83% of respondents expect upward pressure on their global tax rate within the next few years, 65% of whom see tax law changes as a primary contributor
• 83% also believe the evolving taxation of the digital economy is important to the future of overall worldwide taxation, affecting primarily nexus, permanent establishment and treaty evolution
• 27% are contemplating new operating models for digital transactions
• 66% anticipate a significant corporate transaction within the next 12 months, with 81% of those respondents expecting an acquisition
• Respondents cited India (30%), the European Union (25%) and North America (21%) as the most contentious regions for transfer pricing audits.

Source: EY tax survey shows BEPS project driving major global tax changes