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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Press Release - Starbucks decision has negative impact on dutch investment climate | AmCham

"This decision is a staggering," says Arjan van der Linde, Chairman of AmCham’s Tax Committee and fiscal spokesman for The American Chamber of Commerce in the Netherlands (AmCham).

"By disregarding OECD rules, the European Commission is creating considerable uncertainty about the tax implications for foreign investment in the Netherlands. This has a direct effect on new investments and future employment. Uncertainty about such a fundamental component of an investment is unacceptable for many companies," predicts Van der Linde.

He also highlights the expertise of the Dutch tax authorities,

"The Dutch tax authorities have years of experience with the application of OECD rules and work thorough and carefully in considering transfer pricing requests.  A separate APA practice exists.  In addition, the Dutch tax authorities are consistent in their approach, with all sorts of coordination groups looking over the shoulder of the inspector. This thorough approach cannot simply be cast aside."

AmCham urges the Dutch government to appeal the decision of the European Commission. To prevent interim uncertainty regarding the application of the OECD rules in the Netherlands, AmCham also urges the Dutch government to enter into direct dialogue with the European Commission. Van der Linde:

"The starting point should be that the Commission commits to harmonization of direct taxation within the EU on the basis of an anti-BEPS-directive and not through a disruptive autonomous interpretation of the widely accepted OECD rules."

Read further: Press Release - Starbucks Decision Has Negative Impact on Dutch Investment Climate | AmCham

• EU Commission State Aid Starbucks Decision – low adjustment is a wash out
• A Mysterious Study in the Code of Conduct Report 1999 and a Rumoured French Connection

Commission welcomes agreement reached by Member States on the automatic exchange of information on tax rulings

The Commission has welcomed today's unanimous agreement by Member States on the automatic exchange of information on cross-border tax rulings, just seven months after the presentation of the Commission's ambitious proposal on the subject. 

The new rules should lead to greater cooperation between Member States on tax matters and act as a deterrent from using tax rulings as an instrument for tax abuse. All Member States will be equipped with the information they need to protect their tax bases and effectively target companies that try to escape paying their fair share of taxes. The agreement was reached at a meeting of Economic and Financial Affairs ministers in Luxembourg. Following the announcement of the agreement, Jean-Claude Juncker, President of the European Commission said:

"I warmly welcome today's agreement as a major step forward. The automatic exchange of information on tax rulings will provide national authorities with insight on aggressive tax planning. It marks a leap forward in our efforts to advance on tax coordination and tax harmonisation. The current system of corporate tax rules is unjust and unfit for purpose. There is a plethora of national rules that allows some companies to win, while others lose out. This unfair competition is anathema to the principles of fair competition within our Internal Market."

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said:

"All EU Member States have today agreed to share more information on tax rulings given to companies which operate cross-border. This is a major step in combating aggressive tax planning, creating greater transparency in corporate taxation and in providing fairer competition for both businesses and consumers. I see today's agreement as an important signal that Member States are ready to deliver on our common goal of fair and effective taxation. The EU will continue to work to implement these transparency rules worldwide."

What are the key elements of the new rules?

Currently, Member States share very little information with one another about their tax rulings. It is at the discretion of the Member State to decide whether a tax ruling might be relevant to another EU country. As a result, Member States are often unaware of cross-border tax rulings issued elsewhere in the EU which may have an impact on their own tax bases. The lack of transparency on tax rulings can be exploited by certain companies in order to artificially reduce their tax contribution.

To redress this situation, the new rules agreed today will require Member States to automatically exchange information on their tax rulings. The directive will remove Member States discretion to decide on what information is shared, when and with whom.

These rulings - defined widely so as to capture all similar instruments and irrespective of the actual tax advantage involved - will have to be exchanged every six months. The agreement will also cover existing rulings of the past five years. Member States will then be able to ask for more detailed information on a particular ruling.

The automatic exchange of information on tax rulings will enable Member States to detect certain abusive tax practices by companies and take the necessary action in response. It is expected that this initiative will deter tax authorities from offering selective tax treatment to companies once this is open to scrutiny by their peers. This will result in much healthier tax competition.

In addition, the Commission will regularly receive the information it needs in order to monitor the implementation of this directive and ensure that Member States are complying with their responsibilities.

Member States will have to transpose the new rules into national law before the end of 2016, meaning that the Directive will come into effect on 1 January 2017.

More information

Tax Transparency Package of 18 March 2015 (IP/2015/4610)