EU efforts to tackle state-aid issues in its member nations’ tax systems could put the continent at odds with the global fight against base erosion and profit shifting (BEPS), according to senior corporate figures.
Their concerns have emerged following a European Commission verdict on Apple’s relationship with the Republic of Ireland, announced on 30 August.
Following a lengthy investigation of Apple’s tax arrangements there, the Commission concluded that Ireland had granted the tech giant “undue benefits” of up to €13bn, and “must now recover” the unpaid taxes for the years 2003 to 2014, plus interest.
It added that Ireland’s “selective treatment” of Apple “is illegal under EU state-aid rules”, because it gives the firm “a significant advantage over other businesses that are subject to the same national taxation rules”.
However, in a column for The Guardian, former EU competition commissioner Neelie Kroes – who now sits on the boards of Uber and Salesforce – argued that state-aid enforcement “is not a cure for all ills”.
She explained: “Today, there is a broad sentiment that multinational companies do not pay enough taxes, that they are using mismatches between national tax laws to lower their tax burden. State aid is not suited to deal with such mismatches.”
Kroes stressed that EU member states “have a sovereign right to determine their own tax laws”, and that state-aid swoops of the kind that the Commission has made on Apple “cannot be used to rewrite those rules”.
“However,” she wrote, “the current state-aid investigations into tax rulings appear to do exactly that, by suggesting a radical new approach to so-called transfer-pricing rules that determine where profits shall be allocated.
“By doing so, the Commission risks undermining the important work carried out within the Organisation for Economic Co-operation and Development (OECD) through its base erosion and profit shifting project.”
Under that framework, the OECD is leading 100 jurisdictions in efforts to create harmonised measures against tax-avoidance strategies that have been designed to exploit legal loopholes and mismatches – regulatory flaws that enable unscrupulous parties to artificially shift their profits to low- or no-tax locations.
“We all agree on the need to tackle tax avoidance,” Kroes added, “but such reform should come from a transparent legislative process within the EU and through consensus building in international fora, such as the OECD.”
Kroes’ stance was echoed by Christian Kaeser, global tax chief at Siemens, and chair of the Commission on Taxation at the International Chambers of Commerce (ICC).
In an ICC statement querying the EU’s consistency on BEPS, Kaeser urged EC officials to “ensure the integrity and legal certainty of the tax system, which remains critical for businesses seeking to invest in the EU”.
Concerned over the Apple ruling’s broader potential impacts, Kaeser’s Commission warned that such a unilateral approach could cast doubt over all the collaborative work that the EU and US had done to date in the tax field.
That doubt, the ICC argued, “could give rise to increased tax competition and disputes in relation to tax treaties among nations, and especially between the US and other EU countries”.
Furthermore, it noted, “adverse reactions by tax administrations could undermine trade negotiations between the EU and US and have negative effects on foreign direct investment in the EU”.
Pascal Saint-Amans – director of the OECD’s Center for Tax Policy and Administration – also weighed in, telling Bloomberg that “tax certainty is very important to multinational companies, and in the context of state-aid cases, it’s clearly on the top of the agenda”.
He added: “It’s true that the world is getting more uncertain. There are more countries acting [on tax matters, so] providing some advice, principles or common rules to reduce uncertainty is a priority.”
Saint-Amans said that the OECD hopes to come up with some practical proposals, such as improved dispute-resolution mechanisms, in time for the German G20 presidency next year.