State Aid Benchmarking and Tax Rulings: Can We Keep It Simple?

Abstract

In the Fall of 2015 and early 2016 the European Commission found that a number of tax rulings contained unlawfully granted state aid that had to be recovered. While the Commission's analysis may or may not be right, this paper will question the methodology it used.

Tax rulings and advance pricing agreements may run the risk of providing an advantage to taxpayers upon ex-post analysis. This contribution will first focus on how group companies may differ from stand-alone companies for state aid purposes. The author will argue that they are not in the same legal and factual situation, an assumption that is at the basis of recent European Commission decisions on tax rulings containing unlawful state aid. The author will also address the Commission’s potential use of secret comparables as part of a transfer pricing analysis.

A flowchart to determine when a ruling may be deemed selective is provided. The author argues that advantageous tax rulings cannot always be treated as individual aid schemes if they are part of a general tax ruling and transfer pricing practice and methodology developed in a Member State. Then mismatches will be addressed in tax treaty situations, like the (de)recognition of permanent establishments. The author focusses on the relation between national tax law, providing the necessary basis to tax, and tax treaties that may restrict taxing rights.

Lastly, the (ir)relevance of the new EU tax ruling database for state aid investigations will be discussed in light of the disclosure of state aid risks for tax and accounting purposes.

Keywords: State aid, recovery, transfer pricing, European union, tax, rulings, APA, European Commission

JEL Classification: F23, H26, K20, K34, M41