Fiscal State Aids, Tax Base Erosion and Profit Shifting

Abstract:

In this article, the author describes the application of State aid rules in reviewing EU Member States' tax measures for multinationals providing possibilities for tax arbitrage (Base erosion and profit shifting - BEPS). The author provides examples of measures favouring tax arbitrage which are identifiable as State aid if analysed from that perspective and explains how the application of State aid rules is theoretically justifiable and even more appropriate from an EU perspective rather than the use national anti-abuse rules. The author suggests that State aid review is a more effective instrument to tackle abusive tax planning in the EU, because a supranational regulator, subject to EU judicature control, manages it. The author considers that the power of the tax administrations to correct the taxpayers' determinations of their taxable income and fix them on the basis of independent criteria is intrinsically discretional and that transfer-pricing corrections may be cast into legal uncertainty. Accordingly, a new procedural framework is required to restore legal certainty to an area of State aid control which puts into question the proper implementation of the transfer-pricing power of correction by the competent tax administrations. With the grant of an advance ruling a tax administration provides advance certainty about the acceptable determination of the taxable income that a taxpayer should follow; which the author considers to be a sui-generis special right within the meaning of Article 106(1) TFEU. The article accordingly suggests that the Commission adopts a directive under Article 106(3) TFEU to define the conditions under which individual rulings can be granted in respect of undertakings enjoying special rights such as the multinationals being the recipients of transfer-pricing adjustments.