EU Investigates Tax Rulings for Breach of State Aid Rules

The European Commission is currently conducting in-depth investigations into whether national tax rulings breach the EU’s competition rules. Whilst the spark for these investigations was the “Luxleaks” scandal, in December 2014 the Commission sought information from all Member States as part of a much larger campaign to attack what the Commission considers to be unfair tax competition. The latest development earlier this week was the launch of formal proceedings against Belgium in respect of its “excess profits” rulings for multinationals.

The Commission has chosen to tackle this issue using its State aid powers – rather than, for example, attempting tax harmonizing legislation or action via the OECD. This choice has major implications for companies involved. In particular, if the Commission concludes that State aid is present, it is tax paying companies and not the Member States that bear the consequences. Those consequences could include being required to pay substantial additional back taxes.