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US Treasury Paper Criticizes EU State Aid Inquiries

by Mike Godfrey,, Washington

26 August 2016

The US Treasury Department has released a white paper outlining the Department's concerns with the European Commission's recent state aid investigations.

The paper, which was released on August 24, says that the Commission's approach is new and was unforeseeable by the relevant companies and EU member states. It states: "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. 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."

The Treasury said: "The Commission is seeking to recover amounts related to tax years prior to the announcement of this new approach – in effect seeking retroactive recoveries. Because the Commission's approach departs from prior practice, it should not be applied retroactively. Indeed, it would be inconsistent with EU legal principles to do so. Moreover, imposing retroactive recoveries would undermine the G20's efforts to improve tax certainty and set an undesirable precedent for tax authorities in other countries."

Finally, the paper says the Commission's approach undermines US tax treaties and international transfer pricing guidelines already accepted broadly in the global tax community, and undermines the work done as part of the base erosion and profit shifting (BEPS) project. The paper states: "Rather than adhere to the OECD Transfer Pricing Guidelines, the Commission asserts it is employing a different arm's length principle that is derived from EU treaty law. The Commission's actions undermine the international consensus on transfer pricing standards, call into question the ability of member states to honor their bilateral tax treaties, and undermine the progress made under the BEPS project."

Announcing the release of the paper, the Treasury said: "Over the last several months, Treasury Secretary Jacob J Lew and his staff have engaged extensively with the Commission to express our concerns related to its state aid investigations. Secretary Lew wrote to Commission President Jean-Claude Juncker in February urging the Commission to reconsider these new actions while reaffirming our commitment to continued collaboration through the BEPS project. These investigations have major implications for the US. In particular, recoveries imposed by the Commission would have an outsized impact on US companies."

The Treasury added: "Furthermore, it is possible that the settlement payments ultimately could be determined to give rise to creditable foreign taxes. If so, US taxpayers could wind up eventually footing the bill for these state aid recoveries in the form of foreign tax credits that would offset the US tax bills of these companies. The investigations have global implications as well for the international tax system and the G20's agenda to combat BEPS while improving tax certainty to fuel growth and investment."

The Treasury continued: "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."

TAGS: compliance | Finance | Transfer Pricing | tax | investment | business | European Commission | tax compliance | Ireland | Netherlands | tax avoidance | law | Organisation for Economic Co-operation and Development (OECD) | Luxembourg | tax credits | Internal Revenue Service (IRS) | enforcement | agreements | multinationals | legislation | tax planning | transfer pricing | advance pricing agreement (APA) | United States | G20 | tax reform | standards | regulation | trade | Europe | BEPS

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