European Commission notified about more than 380 potentially unlawful tax breaks in the last five years

The European Commission has been made aware of around 385 tax breaks which may be unlawful under State aid rules over the last five years, according to research. 

Research by International law firm, Pinsent Masons, also found that in the last 12 months alone, the European Commission received 51 notifications. Meanwhile, between 2007-13 there were only 80.

Pinsent Masons said EU Member State governments have been reviewing the tax treatment of multinational businesses in other Member States in recent years more closely as they look to tackle corporate tax avoidance.

“The European Commission has been taking a more aggressive stance towards possible anti-competitive behaviour and has the tax treatment of multinationals very much in its sights,” said Jason Collins, Head of Tax at Pinsent Masons.

The high number of notifications follows a number of high-profile investigations by the Commission that began in 2013 into certain tax rulings by EU Member States – in particular, in Ireland, Luxembourg and the Netherlands. The Commission argues that tax rulings that confer a selective advantage on specific businesses or are only available to specific types of business such as multinationals amount to State aid.

Favourable tax treatment

“Offering favourable tax treatment on a selective basis to multinational businesses has become an important method by which many countries attract inward investment. 
However, in this era of the war on tax avoidance this has become more controversial,” Collins said. 

Collins added that the increase is likely down to several factors around tax rule changes in EU Member States. 

“The complexities of the tax rules in some EU Member States will also likely have driven the increase in the number of notifications. Other factors, such as tax breaks provided to investments in a country’s overseas territories or to encourage investment in certain industries, could also count.”

Since 2013, the Commission has investigated favourable tax treatment of multinational businesses such as Apple, Starbucks, Amazon, ENGIE and Fiat. In all cases, the Commission found that unlawful State aid had been given and has demanded that Member States recoup the benefit of the State aid from the relevant taxpayers. As a result, Apple must repay around 13 billion euros in unlawful state aid.

Post-Brexit problems

The Commission ruled in April that the UK’s Controlled Foreign Company (CFC) rules partly contravened EU State aid rules and that the UK must require repayment from companies that have benefited.

Even though Brexit is on the horizon, UK companies could still be affected, according to Alan Davis, partner at Pinsent Masons.  

“The Commission has made it clear that any UK tax rulings found to have infringed the State aid rules before the UK’s exit from the EU will still require any unlawful State aid arising before that date to be repaid notwithstanding Brexit,” Davis said.  

“After Brexit, the position becomes less clear. On the one hand, the UK will have a domestic UK State aid regime that will be enforced by the Competition and Markets Authority and which may regulate these tax rulings at a domestic level.  But EU State aid law will no longer apply in the UK, so UK businesses will no longer be able to complain to the Commission about new and potentially unlawful tax schemes in other EU Member States,” he added.