Tax rulings: how to approximate market prices

---

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

---

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.

---

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

---

Other Tax Transparency chapters

---

• 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

---

Mandatory exchange of tax rulings proposal: a "missed opportunity” say MEPs

The EU Commission proposal to make it mandatory for EU member states to exchange information on their tax rulings received only a lukewarm welcome in Parliament’s Economic and Monetary Affairs Committee on Tuesday. However, the report by Markus Ferber (EPP, DE), voicing dismay at the directive’s limited scope and late entry into force, has already been overtaken by last week's ECOFIN Council deal, which watered down the Commission proposal even further. 

The report was approved by 49 votes in favour, 0 against and 6 abstentions.

  "Disappointed"

 Parliament’s rapporteur Markus Ferber is disappointed about the Council agreement:

"If this is the final text, member states will have missed a great opportunity to create more transparency in taxation. National budgets will continue to suffer.

We need an EU-wide systematic and mandatory procedure. For the moment, member states' tax authorities would not realise that tax ruling deals forged in other member states are undermining their own tax bases.

Tax authorities should be obliged to exchange information on tax rulings and make them available to a central database at the European Commission. There is also a competition side to tax rulings. This is why the Commission must be empowered to access and use the data to investigate tax avoidance and dumping practices and to assess whether they are in line with state-aid rules. 

Why are member states clearly denying the Commission access to these data? Are they hiding something?"

What MEPs want, compared to what the Council agreed

Limited scope

MEPs would prefer the directive to apply to all tax rulings, not just "cross border rulings and advance pricing arrangements", given that purely national transactions can also have cross-border effects. The Council made the directive’s scope "cross-border only".

Commission not in the loop

The Council also ensured that the European Commission is explicitly not allowed to do anything with the information - to which the Commission only has very limited access - other than overseeing that it conforms to the directive, and that the directive is properly applied.

 No retroactive effect

The Commission says that the mandatory exchange mechanism should apply to tax rulings issued in the ten years before it enters into force, whereas MEPs say it should apply to all rulings that are still valid on the day the directive enters into force. The Council agreed that the directive would apply only to rulings, amendments or renewals of rulings after 31 December 2016.

 Start sooner

MEPS want the automatic exchange of information to start as soon as possible, whereas the Commission proposes that it should start on 1 January 2016. The Council agreed on 1 January 2017.

Exchange faster

MEPs insist that the information should be communicated "promptly after the ruling or price arrangement is issued" rather than "within one month following the end of the quarter during which the ruling was issued" as the Commission proposes. The Council deal says that the information should be provided "within three months following the end of the half of the calendar year during which the ruling was issued". This means that if a ruling is issued in January, the mandatory exchange of information can take place until 30 September.

Next steps

The procedure for amending this Council directive is consultation. The Council struck its informal deal on the Commission proposal at the 6 October meeting of Economy and Finance (ECOFIN) ministers.

The directive is to be adopted at a forthcoming Council meeting, once the European Parliament has given its opinion and it has been finalised in all official languages. The new rules are to apply from 1 January 2017. Until then, existing obligations to exchange information among member states will stay in place.

Source: Mandatory exchange of tax rulings proposal: a "missed opportunity” say MEPs