EU Urged to Ban Windfalls for Nations Giving Illegal Tax Aid

Governments that dole out tax subsidies to big companies shouldn’t be allowed to reap multibillion-euro windfalls if the European Union orders them to claw back the aid, lawmakers probing tax loopholes said.

Instead, the EU should consider changing the law so that money is shared among neighboring nations that played by the rules, according to the draft by a special committee on tax rulings in the European Parliament.

While any change would come too late for current European Commission probes into possible illegal aid to Apple Inc. in Ireland, Starbucks Corp. in the Netherlands and Amazon.com Inc. and a Fiat SpA unit in Luxembourg, it may create a fairer situation in the future, according to the document.

“The current system incentivizes harmful competition by remunerating the member state that helped companies avoid taxes,” Fabio de Masi, a German member of the special committee from the European Left group, said in an e-mail.

Apple has signaled that an adverse ruling in its EU case could involve paying “material” financial amounts. The iPhone maker and the other companies involved all deny their fiscal arrangements broke any rules. Under current EU state aid law, it’s the responsibility of countries to claw back any subsidies that are deemed to distort competition by giving specific companies an unfair advantage.

Fever Pitch

EU lawmakers created the special committee amid public outrage over corporate tax dodging that reached fever pitch after the so-called LuxLeaks shed light last year on Luxembourg’s tax arrangements with scores of global companies. The documents leaked by a consortium of investigative journalists showed some firms effectively lowered their tax burden to less than 1 percent of profit by making deals with authorities in the tiny EU nation.

The lawmakers are delving into tax practices across the EU — not just in the nations initially probed by the commission.

All indications point toward a violation of EU rules by some member states, according to the text, based on the information gathered and the interviews done by the committee over the last few months.

“There is no doubt anymore in the report, that some member states acted in breach of the law in the past,” said Michael Theurer, a German member of the parliament’s liberal group, who co-authored the draft report with Elisa Ferreira, a Portuguese socialist.

‘Aggressive Tax Planning’

“Aggressive tax planing practices in some member states have increased the national tax base to the detriment of EU partners,” said Theurer.

The EU’s Antitrust Commissioner Margrethe Vestager earlier this year told the committee that her investigations are “among our top priorities.” Vestager, not the lawmakers, is responsible for checking whether tax arrangements break the EU’s strict state-aid code.

“Our position is that there was no state aid in this case and that, in any event, state aid rules, including in relation to potential recovery of aid, are a matter for the European Commission,” Ireland’s finance ministry said in an e-mailed statement.

Dutch and Luxembourg government officials didn’t immediately respond to requests for comment.