The US Treasury department has fired a warning at the European Commission ahead of its expected ruling on whether Ireland offered Apple a preferential tax arrangement amounting to state aid, suggesting its investigations into the technology giant and other US multinationals are undermining multilateral progress on reducing tax avoidance and are based on a ‘selective’ interpretation of transfer pricing rules
A decision in the Apple case is due in the next month, and the Treasury department ruling has released a white paper outlining its concerns with the Commission’s approach.
This focuses on what the department says are three key issues. The first is that the Commission’s approach is new and departs from prior EU case law and Commission decisions. It claims the Commission has advanced several previously unarticulated theories as to why its member states’ generally available tax rulings may constitute impermissible state aid in particular cases.
The white paper states: ‘Such a change in course, which has required the Commission to second-guess Member State income tax determinations, was an unforeseeable departure from the status quo.’
Secondly, the US Treasury argues that the Commission should not seek retroactive recoveries under its new approach. It claims this is inconsistent with EU legal principles, and would undermine the G20’s efforts to improve tax certainty and set an undesirable precedent for tax authorities in other countries.
Finally, the white paper claims the Commission’s new approach is inconsistent with international norms. The US Treasury claims that rather than adhering to the established OECD transfer pricing guidelines, the Commission asserts it is employing a different arm’s length principle that is derived from EU treaty law. It says this approach calls into question the ability of member states to honour their bilateral tax treaties, and undermines the progress made under the OECD/G20 Base Erosion and Profit Shifting (BEPS) project.
The strongly-word paper accuses the Commission of seeking to expand the role of its Directorate-General for Competition to become a ‘supra-national tax authority’ that reviews member state transfer price determinations on a selective basis.
It concludes by stating: ‘A strongly preferred and mutually beneficial outcome would be a return to the system of international tax cooperation that has long fostered cross-border investment between the US and EU member states.
‘The US Treasury department remains ready and willing to look for a path forward that achieves the shared objective of preventing the continued erosion of the corporate tax base while ensuring our international tax system is fair for all.’
The Commission’s probe into Apple started in mid-2013 and is investigating claims that the Irish tax authorities did a ‘sweetheart’ deal with the company, providing favourable tax opinions to minimise its corporation tax bill.
The US Treasury department white paper is here.
