Commission stands firm on tax crackdown following US threat of retaliation

By Annie Harrison-Dunn contact

- Last updated on GMT

©iStock/antos777
©iStock/antos777

Related tags: Eu member states, European union

The European Commission is standing firm on its EU-wide investigation into member state tax schemes, despite a threat of retaliation from the US government.

In a white paper​released at the end of August, the US Treasury Department said it continued to “consider potential responses”​ should the Commission continue with its crackdown which hit headlines again this week after the publication of a €13bn tax bill to be repaid by Apple in Ireland.  

“A strongly preferred and mutually beneficial outcome would be a return to the system and practice of international tax cooperation that has long fostered cross-border investment between the United States and EU Member States,”​ the US report concluded.

“The US Treasury Department remains ready and willing to continue to collaborate with the Commission on the important work of ensuring that the international tax system is fair, efficient, and predictable.”

Nutrition names

Several nutrition firms have been entangled in the Commission’s EU-wide crackdown on what it says is tax evasion, albeit state-sanctioned.

In the Belgian arm of the investigation, the  Commission ruled that an estimated €700 million in tax breaks granted by the Belgian government to at least 35 multinationals constituted as illegal state aid and must therefore be repaid retroactively.

Several of these companies, including US-headquartered supplement capsule maker Capsugel – which negotiated a 60-80% net profit before tax (NPBT) exemption – are now challenging the Commission in the EU courts.

German chemical giant BASF told us it had filed a law suit against the Commission but declined to give more details.  

UK healthcare company Omega Pharma also benefited from the state-backed scheme with a NPBT exemption of 40-60%.

'No rules have changed'

Yet discussing the issue this week in the wake of the Apple development, the EU’s competition commissioner Margrethe Vestager stood firm on the investigations and rejected the insinuation that this had come out of the blue for companies and governments.

“No rules have been changed. Not one rule has changed. This is a question of paying unpaid taxes. That’s the thing. No rules have changed. No retroactivity - just unpaid taxes to be paid,” ​she said in a press conference in Brussels.  

The commissioner elicited laughs when she said of the Apple case: “I would have the feeling that if my effective tax rate would be 0.05% falling to 0.005%, I would have felt that maybe I should have a second look at my tax bill.”

Beyond tax

She denied that this crackdown would jeopardise investment in the EU.

“I see reasons to invest in Europe pilling up. Very good, strong, substantial reasons,”​ she said, citing the Commission’s investments in creating a strong single market and member state’s work to improve national infrastructure and skill offerings.

She also rebuked claims that US multinationals had been targeted nor that smaller member states had been targeted because of their tax haven reputation. 

Related topics: Regulation & Policy

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