KPMG’s Euro Tax Flash provides a summary of the European Commission’s formal state aid investigations into tax rulings granted by Ireland (Apple) and Luxembourg (Fiat). This round of investigations follows three investigations, announced 11 June 2014, into alleged state aid granted by Ireland (Apple), Luxembourg (Fiat) and the Netherlands (Starbucks) via transfer pricing rulings.
The procedure is now open for interested parties, including Member States to provide comments to the Commission.
The KPMG Euro Tax Flash and preliminary decisions (English version for Ireland, French version for Luxembourg) are attached for reference:
- State Aid – Apple; Section 3.1, par. 46: Any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favoring certain undertakings or the provision of certain goods shall be incompatible with the common market, insofar as it affects trade between Member States.
- Qualification as state aid – Apple; Section 3.1, par. 47: The following cumulative conditions must be met: (i) the measure must be imputable to the State and financed through State resources; (ii) it must confer an advantage on its recipient; (iii) that advantage must be selective; and (iv) the measure must distort or threaten to distort competition and have the potential to affect trade between Member States.
- Arm’s length pricing – Apple; Section 3.1, par. 55: The Court of Justice has confirmed that if the method of taxation for intra-group transfers does not comply with the arm’s length principle, and leads to a taxable base inferior to the one which would result from a correct implementation of that principle, it provides a selective advantage to the company concerned.
- OECD Guidelines – Apple; Section 3.1, par. 56: The OECD Guidelines are a reference document recommending methods for approximating an arm’s length pricing outcome and have been retained as appropriate guidance for this purpose in previous Commission decisions.
These formal rulings and comments by interested parties should be followed closely, especially in today’s challenging international tax environment.
EU case law and European Commission reviews have a significant impact upon the new international tax principles being established by the OECD and EU. For example, the general anti-abuse rule (GAAR) provision in the Proposal for the 2014 EU Parent-Subsidiary was ultimately not included in the final version of the 2014 Directive, one reason being that the requirements exceeded the precedents of EU case law and would not be ultimately sustained.
To the extent that new OECD guidelines provide an alternative, or exceptions, to the arm’s length principle, it should have a direct impact upon the precedence for reliance by the European Commission re: transfer pricing issues.