US in unprecedented assault on EU tax probes

The US government has launched an unprecedented assault on the EU, saying that tax probes by Brussels involving the affairs of American companies threaten to undermine the global tax system.

It comes as the clock ticks down to decision day in the Apple tax case, the most contentious of several investigations undertaken by EU competition commissioner Margrethe Vestager, which effectively alleges Ireland struck a too-sweet deal over the tech giant’s tax affairs.

In a white paper published yesterday, the US Treasury bluntly accuses Brussels of overstepping its powers and putting at risk existing global agreements that aim to crack down on underpayments of corporate tax.

It says Brussels could undermine the multilateral process driven by the OECD under the so-called base erosion and profit-sharing (Beps) initiative to end global tax avoidance by multinationals.

In the last two years, the European Commission has launched a series of probes into alleged state aid by EU governments in their dealings with corporate giants, including Fiat Chrysler, Starbucks, and Amazon.

The Apple investigation could be decided as early as next month.

Coming as the race for the White House enters its last lap, the white paper takes on even greater importance as the US Treasury warns that the tab for any “retrospective recoveries” imposed on US companies could likely end up in the lap of the country’s taxpayers.

The Us Treasury also says that the European Commission’s probes are counter to EU case law and are “inconsistent with international norms and undermines the taxation system”.

“First, we highlight that the commission’s approach is new and was unforeseeable by the relevant companies and EU member states”, says the Treasury.

“Second, we emphasise that the commission should not seek to impose recoveries under this new approach in a retroactive manner because it sets a bad precedent for tax policymakers around the world.

“Finally, we explain that the commission’s approach undermines US tax treaties and international transfer pricing guidelines already accepted broadly in the global tax community” and undermines the work done as part of the Beps project.

Treasury says US president Barack Obama plans “a robust” tax reform and shares the commission’s concerns over multinationals’ tax affairs.

“We are concerned that the European Commission’s state aid investigations threaten to undermine progress in this area and could create an unfortunate international tax policy precedent,” it says.

“These investigations have major implications for the United States. In particular, recoveries imposed by the commission would have an outsized impact on US companies.

“Furthermore, it is possible that the settlement payments ultimately could be determined to give rise to creditable foreign taxes.

“If so, US taxpayers could wind up eventually footing the bill for these state aid recoveries in the form of foreign tax credits that would offset the US tax bills of these companies.”

A spokesman for the Department of Finance said Ireland had strongly supported the process driven by the Paris-based OECD, which aims to reform the way international companies pay their tax.