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The European Union’s plan on putting an end to corporate tax breaks granted by
means of letter rulings ran into German privacy concerns as E.U. Finance ministers
met on June 19, 2015. The initiative, aimed at implementing an automatic exchange
of letter rulings granted by E.U. Member States, will affect E.U. businesses as well
as European operations of foreign multinationals, including those based in the United
States. Examples of the latter are already under review by the E.U. Commission
with regard to letter rulings issued by Ireland and the Netherlands, respectively, to
local operations of Apple and Starbucks. Although the E.U. Commission, the executive
body of the European Union, has no direct authority over national tax systems,
it can investigate whether certain fiscal regimes, including those that issue advance
private tax rulings, constitute an infringement of E.U. principles, in particular “unjustifiable”
State Aid to companies. Such allegedly incompatible State Aid would
comprise, inter alia, selective tax advantages granted by an E.U. Member State to
companies with operations in its jurisdiction.
The Commission is very clear on its intent to use its powers and pursue its initiative
vigorously. The financial press has widely reported a statement made by a spokesman
for Competition Commissioner Margrethe Vestager that combating tax evasion
and avoidance is a top priority of the Commission. In line with that concern, the
Commission is taking a structured approach when using its State Aid enforcement
powers to investigate selective tax advantages that distort fair competition.
The following provides an overview on the legislative framework with respect to
State Aid, developments and an outlook on the future of tax rulings in an environment
of increased tax transparency.
