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Luxembourg finance minister attacks EU on business tax uncertainty

The European Commission's use of state aid rules to challenge corporate tax agreements is causing uncertainly for businesses in Europe, Luxembourg finance minister Pierre Gramegna has said.02 Dec 2015

Gramegna told the Financial Times this week that the situation "raises so many issues about predictability and certainty".

The Commission announced in October that tax rulings issued by the Netherlands to Starbucks and Luxembourg to Fiat Finance and Trade constituted selective tax advantages that are illegal under EU state aid rules. Luxembourg and the Netherlands must now recover the unpaid tax, to remove the unfair competitive advantage that it gave.

The Commission said: "Tax rulings cannot use methodologies, no matter how complex, to establish transfer prices with no economic justification and which unduly shift profits to reduce the taxes paid by the company. It would give that company an unfair competitive advantage over other companies (typically SMEs) that are taxed on their actual profits because they pay market prices for the goods and services they use."

That approach is a concern for business, Gramegna told the Financial Times. “If the European Commission can make its own interpretation of the transfer pricing rules, others can too. This is worrying for companies and we live in a globalised world," he said.

The Luxembourg government is currently considering a possible appeal, Gramegna told the newspaper.

The Financial Times reported that the Netherlands has announced its own appeal.

At the time of the Fiat decision, tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com said that the Commission was in danger of "encroaching on member states’ sovereign rights over direct taxation matters".

"It is surprising that the Commission has chosen to comment so explicitly on national governments’ tax methodologies, particularly where the rulings were stated to be in accordance with OECD principles," she said.

"Certainty is important to businesses, and it is crucial that the work of the Commission on State Aid does not undermine this.  A well-functioning ruling system, in accordance with OECD principles, is a cornerstone of making the EU attractive to foreign direct investors," said Self.

Bob Stack, deputy assistant secretary for international tax affairs at the US Treasury, has voiced fears in recent Senate finance committee hearings that US multinationals will have to bear the price of the EU state aid investigations

European commissioner for competition Margrethe Vestager has said that the Commission will continue enquiries into tax ruling practices in all EU member states and may open new cases if it sees "indications" that rules are not being complied with.