On Friday 20 November, the Tax Law and Policy Discussion Group at Oxford had the privilege of hosting Conor Quigley QC for a talk entitled ‘Tax and State Aid Law: Recent Experiences’. Conor is the foremost expert on State Aid Law and just two months ago released the 3rd edition of his textbook ‘European State Aid Law and Policy’. Discussion inevitably turned to recent European Commission investigations into the alleged selective tax treatment provided by the tax authorities in Ireland, Netherlands and Luxembourg to Apple (IRE), Starbucks (NE), Fiat (Lux) and Amazon (Lux). The revenue authorities in these cases blessed Advanced Pricing Arrangements for intra company transactions which the Commission suspects to be overly generous.
The talk confirmed what many of us had suspected, namely, that applying State Aid law to APAs with revenue authorities could create more problems than it solves. Will it be possible for third parties in separate Member States to those in which the Aid was allegedly granted to initiate proceedings against the revenue authorities in those countries, Quigley pondered? For instance, say that the Irish Revenue Commissioners blessed in advance an advantageous transfer pricing arrangement for Facebook in Dublin. Would it be possible for a third party in Germany to challenge the arrangement by raising the issue of State Aid in the National Court?
More pertinently and practically, Conor Quigley QC having stressed this in the latest edition of his book, how exactly does this matter square with a necessary delegation of competences between the Commission and the Member State? Is it for the Commission to act as a supervisory body to all revenue authority actions which involve some exercise of judgment or discretion (which all transfer pricing arrangements necessarily will as the calculation pivots on hypothetical assessments)? Ought it be correct that the Commission’s jurisdiction should be engaged to correct any and all historic mistakes of the revenue authorities? This would appear to be the Commission’s understanding: “Every decision of the administration that departs from the general tax rules to the benefit of individual undertakings in principle leads to a presumption of State aid and must be analysed in detail”. On the basis of the apparently extremely broad jurisdiction, I previously rhetorically asked whether there was any scope for avoiding the gaze of the Commission?
At least one of these investigations will be contested before the Court of Justice of the European Union. A win for the Commission may well prove to be a poisoned chalice. This is to be regretted. A summary glance at the details of the APAs which are under investigation will bring up the sense that there is something a bit “iffy” about the arrangements which were agreed. The Commission went so far as to say that the Apple deal seemed to have been “reverse-engineered” to produce a result amenable to the multinational (para 62).
So there certainly is a case for “something to be done”, but it is equally important that any action undertaken be done in a suitable manner.
To my mind, a more conceptually coherent route could have forged through the deployment of Article 102 TFEU, which proscribes an undertaking from abusing its dominant position. The Commission is the guardian of the internal market and is authorised to cleanse distortions caused by such abuse. This is a two-stage test-the first is the establishment of dominance and the second is proving that there is an abuse. What will be categorised as abuse is related to the concentration of dominance. Put another way, in order to stay on the right side of competition laws, what an SME with little market share in a fiercely competitive market may be entitled to do will be different from that of a quasi-monopolist. Discounts and rebates to distributors are a classic example of behaviour which is not facially problematic for competition law, but may become abusive depending upon the level of dominance and whether any “iffy” elements (like preventing distributors from seeking other suppliers) are present. Within this framework accordingly could hypothetically fit “iffy” deals struck with tax authorities in Member States.
At the very least, investigating the APAs within Article 102 would make more sense from a jurisdictional perspective, as the Commission seeks to tackle distortions of the market (“the elimination of unfair tax competition” being somewhat stretched as justification, as this inexorably leads to the suggestion that harmonisation of all taxes in the EU is what must be done to eliminate distortions). This could allay concerns about third party instigation of aid issues and duplicity also, with a framework for allocating competence in relation to Article 102 having already been relatively set between Member States and the Commission. Moreover, the Article 102 framework would eschew the moral complication that those Member States who granted Aid reap the fruits not only of the multinationals presence, but also recovering any Aid previously granted to incentivize such presence. Art 16(1) of Council Regulation 2015/1589 provides that the Commission shall decide to order recovery by the Member State concerned when it finds that there has been unlawful aid. The amount recovered will go into the pockets of that Member State. If it is opined that the offending parties in relation to the Aid investigations are the Member State authorities themselves rather than the undertakings, then it is quite perverse that it is the Member States who should doubly benefit by acquiring the recovered aid (as has been recognised recently by the Commission, see: para 95). Article 102 TFEU fines for abuse of dominance on the other hand go directly to the EU budget, thereby avoiding this intrinsic moral obfuscation.
In June 2013, I considered, but decided against, writing my masters’ thesis on this potential framework as a means to deal with tax practices harmful to competition. When the Commission opened its State Aid investigations the following June, I realised I’d missed an important opportunity. Whilst regrets in life might be ubiquitous, I could not have predicted that my choice of dissertation topic would come back to haunt me.