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Competition Law

Analysis - debate - current awareness

Field Fisher Waterhouse , 06 OCT 2014

Not alright sweetheart

John Cassels


Not alright sweetheart
It seems that the EU Commission's investigation into 'sweetheart' tax deals are top priority, with a preliminary finding this week that Ireland may have been providing unlawful state aid to Apple for more than 20 years. Other names that are in the frame are Starbucks/The Netherlands and Fiat/Luxembourg.

The Commission has been investigating under EU state aid rules the tax practices in several Member States in connection with allegations that some companies have received significant tax reductions by way of "tax rulings" issued by national tax authorities. Tax rulings as such are not problematic: they are comfort letters by tax authorities giving a specific company clarity on how its corporate tax will be calculated or on the use of special tax provisions. However, tax rulings may involve state aid within the meaning of EU rules if they are used to provide selective advantages to a specific company or group of companies.

If tax authorities, when accepting the calculation of the taxable basis proposed by a company, insist on a remuneration of a subsidiary or a branch on market terms, reflecting normal conditions of competition, this would exclude the presence of state aid. However, if the calculation is not based on remuneration on market terms, it could imply a more favourable treatment of the company compared to the treatment other taxpayers would normally receive under the relevant Member State's tax rules.

One area of concern in the preliminary finding on Apple/Ireland, is the length of time for which the relevant tax rulings were valid. A 1991 Irish agreement with Apple lasted 16 years whereas the norm is usually no more than five years.

Preliminary findings on the other two cases are expected shortly.

If you would like to discuss these issues, please do not hesitate to contact me.

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