Background
In recent years, the European Union has intensified its efforts to ensure fair competition among companies operating in its territory. These actions led to investigations into possible state aid granted to companies such as Fiat, Amazon, and Starbucks. These investigations focused on tax arrangements that might benefited these companies, which raised a debate on the fairness of Transfer Pricing and taxation.
Co Context of the Tax Investigations
Since 2013, the European Commission has been investigating tax rulings of EU Member States regarding state aid. If tax rulings confirming compliance with tax law are not problematic, those granting selective advantages to specific companies may distort competition in violation of EU state aid rules.
In October 2015, the Commission concluded that a Luxembourg tax ruling in 2012 bestowed an advantage on Fiat, reducing its tax burden by between €20 million and €30 million. Conversely, in November 2022, the Court of Justice annulled this ruling, as the Commission employed incorrect parameters in its investigation.
Regarding Starbucks, in October 2015, the Commission found that a Netherlands tax ruling 2008 granted an improper advantage of €20-30 million. Conversely, in September 2019, the General Court annulled this verdict due to the lack of evidence of the Netherlands granting a selective advantage to Starbucks.
Regarding Amazon, in October 2017, the Commission found that a Luxembourg tax ruling in 2003 (extended in 2011) unduly reduced its taxes by about €250 million. Conversely, in May 2021, the General Court annulled the verdict due to the lack of evidence of a selective advantage, and in December 2023, the Court of Justice confirmed this annulment.
European Commission Ruling
The European Commission has announced the closure of the investigations into these cases. According to the official statement, there is no sufficient evidence confirming that the tax arrangements granted by Luxembourg and the Netherlands to these companies are illegal state aid. This ruling is essential for the EU Transfer Pricing regulation and sets a precedent for future tax investigations.
Effects on Transfer Pricing
The closure of these investigations has significant implications for multinational companies. On the one hand, it reinforces the importance of maintaining Transfer Pricing policies according to international and local regulations. In addition, it sends a clear message regarding the need to document intercompany transactions properly to avoid questions from tax authorities.
Effects on Companies
Companies operating in the European Union must continue to ensure the well-founded basis and compliance of their Transfer Pricing policies with the Arm’s Length Principle. In addition, the decisions and guidelines issued by the European Commission are crucial to be closely monitored, as they may influence future practices.
Conclusion and Call to Action
The decision to close these investigations highlights the importance of tax transparency and fairness. Expert Transfer Pricing advice is essential to reduce risk and ensure compliance of multinational companies.
