Bigger states to feel heat as tax deals probed

Larger member states will begin to feel pressure over their sweetheart tax deals as the European Commission announces it is extending its enquiries and has asked them for details.

Currently Ireland’s agreement with Apple, the Netherlands deal with Starbucks and Amazon, and Fiat Finance tax arrangements with Luxembourg are under the EU spotlight.

Now Competition Commissioner Margrethe Vestager is extending enquiries to all 28 member states and has asked for a list of all companies to which they have given tax rulings.

The rulings — letters confirming special tax arrangements for the future — may not be in line with the EU’s competition policy, giving some companies advantages that are contrary to state aid rules.

“We need a full picture of the tax rulings practices in the EU to identify if and where competition in the Single Market is being distorted through selective tax advantages.

“We will use the information received in today’s enquiry as well as the knowledge gained from our ongoing investigations to combat tax avoidance and fight for fair tax competition”, Ms Vestager said in a statement.

Some countries may contest the Commission’s right to request the details, as Luxembourg has in taking them to court claiming their request is a fishing exercise.

Ms Vestager’s announcement comes a day after Commission president Jean Claude Juncker announced an action plan to move tax being paid in the country of sales rather than headquartered.

Economics Commissioner Pierre Moscovici has promised a directive on the automatic exchange of tax rulings in the new year, and they are also hoping to advance plans for setting a cross-border corporate consolidated tax base.

Spain put the tax issue on the agenda for tomorrow’s EU leaders’ meeting in Brussels.

An EU diplomat said that “countries are looking for a level playing field and transparency from the big member states”.

An Irish source said they would be very interested to “see what the bigger countries have on their files”.

Studies show that while France and Germany have high corporate tax rates, the effective rate being paid by multinationals is just a fraction.

The Luxembourg leaks revelations about special tax arrangements for more than 400 Luxembourg-based companies, concluded while Mr Juncker was finance and prime minister, has put pressure on him to act at EU level.

While countries are co-operating with the OECD to reduce corporate tax avoidance — estimated to cost member states at least €70bn annually — they are reluctant to lose their advantages.

The results of official state aid investigations into Ireland, the Netherlands and Luxembourg that opened in June are expected to be released in the spring.

The Commission has asked Belgium for details of specific tax rulings while 10 countries have been asked for details of their patent box tax regimes.

Ireland, under pressure globally, has said it will hold off finalising its planned patent or knowledge box until the Commission reports and has announced a six-year lead-in period to abolish the ‘double Irish’.