EC Rules On Corporate Tax Aid Schemes

by Ulrika Lomas, Tax-News.com, Brussels

20 February 2003

The European Commission confirmed on Tuesday that three corporate tax aid schemes offered by Belgium, the Netherlands, and Ireland are incompatible with EU state aid rules and must be phased out.

In a statement released following the EC's decision, Competition Commissioner, Mario Monti announced that:

'Yesterday's decision on the co-ordination centres and international financing activities are economically the most significant amongst all the 15 measures we investigated since July 2001. The negative decisions taken by the Commission today herald the definitive end of these tax-breaks. Today's action is a key element in the fight against harmful tax competition, a fight launched in 1996 when I was internal market commissioner.'

The three countries have been given until 2010 to phase out the preferential tax regimes which have been deemed 'harmful' under EU state aid rules. However, in Ireland's case, the abolition of favourable tax treatment on the profits of multinationals located in Dublin's IFSC is unlikely to impact greatly on the country's economy, given that according to the Commission: 'Currently, there are only three companies that might benefit from the scheme and only one of them ever used the licence to do so.'

The EC statement went on to add that: 'Furthermore, with respect to the remaining tax arrangements currently in place, the Commission noted that the general corporate tax rate has progressively fallen in Ireland until its current level of 12.5%. As the foreign tax [payable by the multinationals] exceeeds this rate, the companies that still have a valid exemption licence do not gain an additional tax saving anymore.'

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