June 2016 - Edition 107Quoted

The European Commission’s 2016 Approach towards State Aid in Tax Matters

32

In this edition

1. Introduction

2. State aid in a nutshell

2.1. Procedure and recovery

2.2. Thedefinitionofstateaid

3. Selected issues

3.1 Tax rulings

3.2 Co-ops

3.3 Collective investment vehicles

3.4 Tax settlements

3.5 OtherissuesidentifiedbytheCommission

4. Attributiontopermanentestablishments

5. Concluding remarks

3

(v) depreciation and amortization rules, (vi) fixed basis

regimes,liketonnagetaxregimes,(vii)anti-abuserules,

(viii) excise duties and (ix) tax amnesties. Exempting

permanent establishments (PEs) will be addressed in

paragraph 4. Some concluding remarks will follow in

paragraph 5.

Three recent recovery decisions involving tax rulings

(Starbucks,FIATandtheBelgianExcessProfit rulings)

havebeenpublished.Totheextentthe2016documents

and those prior decisions lead to different or more

nuancedoutcomes,thosewillbesignaledhereaswell.

2. State aid in a nutshell

State aid rules have been applicable in the European

Union (EU) since 1958.4 Its definition hasbeenwritten

tocoverclassicsubsidiestobeginwith,buttheCourtof

JusticeoftheEU(CJEU)madeitclearthatthestateaid

rulesmustalsobeappliedtootherkindsofgovernment-

fundedbenefitsincludingtaxbenefits.

2.1. Procedure and recovery 5

State aid rules prevent a Member State from granting

financial benefits to a specified group of companies

or a single company, as this may affect free and fair

trade and competition between companies in the EU’s

internal market. Specifically, state aid rules aim to

create a level playing field within eachMember State.

Should the Commission find out that specified tax

benefitshavebeengranteddespiteof theobligation to

notify the Commission of any plans to do so ex-ante,

it generally must order the recovery of tax benefits.

Even ifallconditionsofnational lawhavebeenfulfilled

in order to be eligible for certain incentives, or even if

all the conditions agreed upon in a tax ruling or APA

1. Introduction

The current European Commission (Commission) has

theobjectivetocloseloopholesthatenablemultinationals

toshiftprofits for taxavoidancepurposes.Tobring tax

reformforwardtheCommissionaimstousealltoolsatits

disposal,includingenforcementofstateaidrules,aiming

at establishing fair tax competitionwithin theEU.1 The

ultimate example of this is the Commission’s ongoing

effort to assess the tax rulingpracticesofEUMember

States, which led to the investigation of over 1000

individual tax rulings. Some of these investigations led

the Commission to conclude that tax rulings issued had

beenunlawful,whichendedupinarecoveryorderwhich

obliges the relevantEUMemberStates to redressany

specialtaxbenefitsenjoyedbyacompanyretroactively.

InMay2016theCommissionpublisheditsNoticeonthe

notionofStateaid(theNotice).2TheNoticereflectsthe

Commission’s position on how it intends to apply state aid

rulesto,forinstance,taxincentivesandtaxrulings.The

Noticealsoprovidesvaluableinsightswithrespecttohow

the Commission will handle cases involving tax rulings

infuture.InJune2016anadditionalworkingpaperwas

published.3 These 2016 documents can provide useful

guidance. However, it is important to stress that some

positionstakenbytheCommissionareyettobetestedin

frontoftheEU’sCourts.

Paragraph2ofthiseditionofQuotedwillprovideashort

overview of the state aid framework and its general

definition.Paragraph3 will focuson themost relevant

issues the Commission singled out in respect of tax

measures and which it discusses in more detail in the

Notice. These are (i) tax rulings, including advance

pricing agreements (APAs), (ii) cooperatives (co-ops), (iii)

collective investment vehicles (CIVs), (iv) tax settlements,

1 LetterbyCommissionerVestagertoUSSecretaryoftheTreasuryLewof29February2016.

2 Seehttp://ec.europa.eu/competition/state_aid/modernisation/notice_of_aid_en.pdf.ThisQuotedonlycoversaselectnumberofissuesrelevant

to state aid in tax matters.

3 BackgroundpapertotheHighLevelForumonStateAidof3June2016.

4 Articles107-109TreatyontheFunctioningoftheEuropeanUnion(TFEU)providethecoreprovisionsonstateaid.Somewhatsimilarprovisions

apply in the European Economic Area (EEA).

5 EURegulation2015/1589coversstateaidinvestigationandrecoveryprocedure(OfficialJournaloftheEU,L248/9of24September2015)

4 5

out that they should normally be able to determine

whethertheproperprocedurehasbeenfollowed,which

wouldhaveenabledthemtoavoidanystateaidfromthe

start.Whilethisdoctrineisnotbeyondreproach,suffice

ittosaythattheCJEUalsoheldthatbankruptcycanbe

thelogicalconsequenceofrecoveryasitwouldhelpto

restore the status-quo on the EU’s internal market.

2.2. ThedefinitionofstateaidInorderforstateaidrulestoapplyfourcriterianeedalltobe

met.Theiractualapplicationinthefieldoftaxationwillbe

addressed in more detail in paragraph 3, when we discuss

thetaxrelatedissuesidentifiedbytheCommission.

a. An advantage

Afinancialbenefitneedstobepresent.Whetherornot

suchabenefitexistswillnormallyhavetobedetermined

bycomparisontothenormaltaxregimeapplicableina

MemberState.Thatsaid,somerulesthatareconsidered

partofthenationaltaxregimemayleadtoabenefitby

themselvesaswewillseeinparagraph3.Abenefitwill

also exist in case a government tries to create a level

playingfield,forinstancebyloweringthetaxburdenina

particularsectorofindustrytothetaxburdenapplicable

toitscompetitorinanotherMemberState,asitisstillthe

nationaltaxsystemthatisthebenchmark.

It is not relevant whether the national legislator intended

thatanadvantagewasgiven.Thefactthattaxauthorities

actually granted an advantage, knowingly or unknowingly,

willnormallybedecisive.As for theadvantage it isnot

restricted to just the process of determining the tax

due.Alsotheprocessofcollectionoftaxesmayleadto

advantages,forinstanceincasetaxesarebeingwaivedor

whentaxauthoritieswouldallowforthepostponementof

paying tax contrary to normal procedures, at least without

an appropriate interest charge. In these situations the

behaviorofthetaxauthoritiesmayhavetobecompared

tothatofsimilarcreditors,inordertodeterminewhether

ornottheactionsbythetaxauthoritieswouldbeinline

with what market operators would do when trying to

collectadebtfromadebtor.

havebeenmet,aviolationofstateaidrulesmayleadto

therollbackofanytaxincentives,whichwillthenlikely

result in additional payments to the national government.

Ideallysuchpaymentswouldbequalifiedasbacktaxes,

asthismayleadtopossibleforeigntaxcreditsandthe

avoidanceofforeignanti-avoidancerules,butintheend

it is up to theEUMemberState involved todetermine

the legalbasisforrecoveryof thebenefit.Protectionof

legitimateexpectationsraisedbynationaltaxauthorities

or governments is nearly non-existent in an EU context,

asonlytheEuropeanCommissionwouldnormallybein

a position to create such expectations.

In this edition of Quoted we will focus on unlawfully

granted aid, i.e. tax incentives and tax rulings that meet

the criteria for state aid (see paragraph 2.2.) and that

havenotbeensenttotheEuropeanCommissionforprior

approval where needed. In case of unlawfully granted

aid, the Commission is empowered to order its immediate

suspensionifthatwouldbenecessarytopreventfurther

harm to fairEU tradeand competition,meaning that it

could order a tax scheme or ruling to be inapplicable

forthwith.This isstill rare in taxcasesbutnotunheard

of. After a formal investigation the Commission may

ordertherecoveryofunlawfultaxbenefitsoveraperiod

of10years.6 Inaddition, interestwillbedueinorderto

compensateforthefinancialbenefitofnothavinghadto

paytaxesfromthestart.Anyrecoveredamountwillend

upinthehandsofthegovernmentthatprovidedforthe

unlawfullygrantedstateaid.

Incaseofarecoveryorderanappealwouldbepossible

at the EU’s General Court and then at the CJEU. Such an

appealwillnotnormallyleadtosuspensionofrecovery.

TotheextenttheCommissionordersaMemberStateto

calculate the benefit that needs to be recovered, such

calculationsmayalsobecomethesubjectofaprocedure

in a national court.

Upon recovery, companies may not argue that they had

tax planning alternatives that they would have used had

theybeenawareofanystateaidrisks.TheCJEUpointed

6 AsthisperiodstartstorunuponactionstakenbytheCommissionvis-à-visaMemberState,likeaskingquestions,theactualrecoveryperiod

maybelongerthan10years.

5

c) Selectivity

Stateaidrulesdonot intendtopreventMemberStates

fromprovidinganattractivetaxregimetoallcompanies.

Theyonlyapplyincasebenefitsarerestrictedtoasingle

companyortoaselectgroupofcompanies,whichmight

be companies within one particular sector of industry.

Even if the amount of beneficiaries within one sector

would cover several thousand companies, it would not

takeawaytheselectivenatureofameasure.Sometimes

the special characteristics leading up to selectivity are

ratherbroad.Forexample, inonecase theCJEUheld

that a tax regime specifically targeted to benefit the

offshore-industryas suchalready led to selectivity.Tax

benefits restricted to companies located in a particular

part of aMemberStatemayalso be considered to be

(regionally) selective, although local governments that

havetaxingrightsoftheirownmayhavedifferentgeneral

taxregimesfromonemunicipalityorprovincetothenext.

d) It (threatens to) distort(s) trade and competition

within the EU

This criterion is why the EU gets involved in state aid in the

firstplace.Averylighttestwillbeappliedhere;itissafe

toassumethatthiscriterionwillbemetinnearlyallcases

whereabenefithasbeengranted.Someexceptionsmay

applyincaseofabsolutelegallyguaranteedmonopolies

and very local activities which are unlikely to attract any

(future)competitorsfromtheEU.

The European Commission has issued a ‘de minimis’

regulation which decrees that aid up to € 200.000 per

3fiscal yearswill bedeemednot tohaveanoticeable

impact,8 andhencebeexcludedfromthescopeofstateaid

procedure.Asanykindofaidbyanylevelofgovernment

needstobetakenintoaccounthere,includingsubsidies,

state guarantees and alike, reliance on this criterion to

avoid state aid rules is not recommended in respect to

most tax schemes.

Inthecontextoffiscalstateaid,anadvantagemayoccur

inanytax.EventhoughtheCommission’scurrentfocus

is on corporate taxation, advantages may occur also with

regard to dividend withholding taxes, value added taxes

(VAT), wage or payroll taxes and alike.

An advantage can be granted both directly as well

as indirectly. State aid rules only apply to entities that

carryoutaneconomicactivity fromanEUperspective,

regardlessoftheirdomesticlegalstatus.Itmaytherefore

cover public or limited companies, partnerships, self-

employedpersonsbutalsonon-profitentities,investment

fundsandalike.7Personswhoreceiveabenefitintheir

non-commercial capacity, like private persons and

employees,will not themselves be subject to state aid

rules.Thatsaid,taxbenefitsthattargetemployeesina

particularsectorofeconomyorthatwouldtriggerprivate

investors to invest in certain companies may lead to

indirect state aid. I.e. the investor or employee receiving

abenefitwouldthenbetheintermediarywhoseactions

wouldbenefitacompany(likeeasier/cheaperaccessto

capitaloravoidingawage increasebecauseof the tax

reductionalreadyoffered).

Thelevelofadvantagemayhavetobedeterminedatthe

levelofaneconomicentity(agroupofcompaniesasa

whole, to the extent they engage in the same economic

activitytogether),whichmaygobeyondthelegalentity

thatwouldnormallybeidentifiedfortaxpurposes.

b) Granted by a Member State or out of state

resources

Taxbenefitsbydefinitionwill begrantedbysomekind

of public body. “State” aid rules not only apply to the

national or federal government, but also to any lower

level of government. This criterion does imply that the

government had some active involvement in granting

theaid.Thisexcludesthegrantingoftaxexemptionsor

lowertaxratesthatmayresultfromaclearandprecise

obligationofEuropeanLaw, for instance in theareaof

VAT.

7 Hereinafter‘companies’ismeanttorefertoanyentitythatiseconomicallyactivewithintheEU.

8 Regulation1407/2013,OJL352/1of24December2013.

6 7

prices.Thoseconditionseffectivelyreducetheimpactof

theOECDrulesastheCommission’sprimarytestwillbe

thatofa‘reliableapproximation’evenifthiswouldmean

going beyond what current OECD guidelines provide

for. In theprecedingBelgianExcessProfitdecision the

CommissionusedfarclearerlanguagetoputtheOECD

guidelines aside.

In the Belgian decision the Commission pointed out

that downwards adjustments of profits, without a

corresponding pickup abroad, would run afoul of the

Commission’s at arm’s length standard.9 Then again, it

seemsthatthisconsiderationmustbereadinthecontext

oftheBelgianregimethatdidnotallowforanydownwards

adjustment at the time apart froma special rulewhich

was deemed state aid. In countries where (up- and)

downwardsadjustmentsarepartof thenormalprocess

of establishing a stand-alone profit this consideration

may not apply, but theEU’sCourtsmay have to shed

some light on this. This particular consideration was not

repeated in the (binding) Notice, but the (non-binding)

June 2016 working paper shows that the Commission

willstillpayattentiontoapracticeofallowingdeductions

for paymentsbetweengroupcompanies thatwere ‘not

actually made’.

In summary, the Commission points out that tax rulings

are particularly likely to confer a selective advantage

in case (i) they misapply national tax law, resulting in a

lower tax, (ii) theruling isnotavailable toundertakings

inasimilar legalandfactualsituation,or(iii)aruling is

morefavorabletowardsonecompanythantoothers,in

particularwhenendorsinga tooadvantageous transfer

priceorbyallowing theuseofamore indirectmethod

todetermine taxableprofitwheremoredirectonesare

available(likethird-partyprices,so-calledCUPs).Tothe

extent indirectmethodsneedtobeused, in itsworking

paper theCommission’s staff points out that traditional

methods (like cost-plus or resale-minus) are to be

preferredover transactional profitmethods (likeTNMM

oratransactionalprofitsplit)usingtheOECDGuidelines

as guidance.

3. Selected issues

Withthebasicdefinitionofstateaidinmind,thisparagraph

will address some of the tax issues the Commission

discussedindetail.Fiscalstateaidcantakemanyforms

andgofarbeyondtheissuesdiscussedhere.

3.1 TaxrulingsWhile acknowledging that tax rulings (including APAs)

maybeauseful instrumenttoprovidelegalcertaintyto

taxpayers, the Commission emphasizes that a ruling may

notendorsearesultthatwouldbecontrarytothenormal

applicationofthetaxsystem.Totheextentrulingsinvolve

transferprices,thereshouldbe“areliableapproximation

ofamarket-basedoutcome”.

The Commission takes the position that EU state aid

lawprovides for itsownatarm’s lengthprinciplewhich

applies regardlessofwhetherandhow thisprinciple is

incorporatedintheapplicablenationaltaxlaw.Itreasons

thatunequaltreatmentof(multinational)groupcompanies

versusstandalonecompanies isprohibitedas theyare

in a similar legal and factual situation froma state aid

point of view. This point of view is very controversial

andwillhavetobetestedinfrontof theEUCourts,as

the Commission seems to disregard that the normal tax

system and its existing (and not the ideal) anti-avoidance

frameworkshouldbetheproperbenchmarkforanalysis.

Here there isamajorcontrastwith tax lawwhereanti-

avoidance rules, including the application of an at

arm’slengthtesttointra-grouptransactions,havebeen

introduced exactly because of the inherent legal and

factual difference between standalone companies and

groupcompanies.Takingthereportedprofitsofthelatter

forgrantedmightleadtoprofitshiftingintheabsenceof

such rules.

In the Notice the Commission does point out that a

transfer pricing arrangement that complies with the

OECDTransferPricingguidelinesisunlikelytogiverise

tostateaid,butonlyiftheguidanceonthechoiceofthe

mostappropriatemethodisbeingfollowedandtheend

result still produces a reliable approximation ofmarket

9 DecisionSA.37667of11January2016,Paragraphs150and177-179.

7

3.3 CollectiveinvestmentvehiclesThe Commission indicates that tax measures that try

tocreate taxneutralitybetweendirect investmentsand

investmentsviaCIVsshouldnotbeconsideredselective

perse,asthenatureandgeneralschemeofthetaxsystem

might justify a regime providing for fiscal transparency

allowingtheresultsoftheCIVtobetaxedinthehandofits

participantsinstead.Taxmeasuresthatwouldgobeyond

creating transparency and would make investment via a

CIVmoreattractivethandirectinvestmentcouldstillbe

at odds with state aid rules, as would measures restricted

to specific types of (specialized) investment funds like

nationalventurefunds.10

This section ismainly of relevance toCIVs inMember

Stateswhoeitherallowinvestmentfundstoreinvestpre-

taxprofits,wheresuchoptionwouldbeabsentincaseof

directinvestment,aswellastothoseinMemberStates

thathavemorethanonefundregimewithintheirterritory.

3.4 TaxsettlementsWhile the Commission does acknowledge the relevance

of tax settlements allowing tax authorities to avoid

extensive legal disputes in domestic courts, it still is on

thelookoutforsettlementsthatprovideadisproportional

benefittotaxpayers.Asettlementmaynotleadtoamore

favorable treatment of companies compared to other

companies in a similar legal and factual situation. Nor

may it lead to a contra legem settlement leading to a

lowertax“outsideareasonablerange”.

Thispart isbyfarthemostvague.Giventheambiguity

oftheCommission’slanguageitisnotclearatthistime

whether a settlement covering several legal issues will

havetobescrutinizedonthemerits itemby itemoras

a whole. The Commission does implicitly seem to allow

thatasettlementmayleadtoagiveandtakeifseveral

issuesare tobesettled,as longas theoutcome isnot

disproportionatelyinthefavorofthetaxpayer.Ifapartof

thesettlementwouldviolateapplicablelaws,thequestion

iswhether this isduetoadifferent interpretationof the

factsorofthelaw.Thereferencetoa“reasonablerange”

As for (ii) it should be clarified that limited access to

advance tax rulings as such does not lead to a selective

advantageiftherulingsthatdogetissueddonotprovide

afinancialbenefit.

As the Commission’s resources are limited it is committed

to focusoncasesshowinga ‘manifest’breachof itsat

arm’s length principle. Still, its working paper indicates

acontinuedwillingnesstoengageinin-depthtestingof,

forinstance,marginsforfinancingcompaniesandrulings

confirmingaCUPwithout(adequate)comparablesbeing

presented.When aTNMM is used (in linewithOECD

recommendations),particularattentionwillstillbepaidto

adequateperformanceindicatorsbeingusedastobest

capturethecommercialvalueofactivitiesperformed.

3.2 Co-opsThe Commission reiterates a 2011 CJEU judgement

that points out that those cooperatives that are in a

similarlegalandfactualsituationasregularcommercial

companies may not be excluded from the normal tax

systemjustbecauseoftheir legal form.TheCJEUdid

recognize that traditional cooperativesmay be in need

ofaspecialtaxregimetodealwiththeircharacteristics.

Preferentialtaxtreatmentofcooperativesmightescape

applicationofstateaidrules if thosecooperativeshave

a relationship with their members that go beyond a

purelycommercialrelationshipandmembersneedtobe

actively involved in running the co-ops business, apart

fromequitableentitlementofmemberstoprofitsmade.In

case a cooperative does not have these and other special

characteristics,thefactthatacooperativemaybeheldto

distributeallprofitto itsmembersforthwithmight justify

taxationatmember level (here theCommissionseems

somewhat more lenient than the CJEU).

Thissection isofparticular importance for taxplanning

structures involving cooperatives, where the cooperative

itselfdoesnotcarryoutatradeorbusinessandwhere–if

actingasaninvestmentvehicleorholdingcompany–the

actualpresenceandreal,activeinvolvementofmultiple

membersismissing.

10 In a 2010 case involvingREITs theCommissionwas satisfiedwith a 90%distribution of profits instead of 100% from the perspective of

transparency.

8 9

c) Anti-abuserulesmaynotincludespecificderogations

thatwouldmaketheminoperableinsituationswhere

theyaremeanttobeappliedbydesign.Essentially,

ananti-abuseruleshouldnotallowforescapesthat

would be contrary to its purpose. Themost recent

exampleofthis,stillsubjecttoappeal,isthatofrules

blockingthecarry-forwardoflossesafteratakeover.11

OneMemberStateallowedanexceptiontothisrule

incasethecompanywasinfinancialdistressanda

takeoverwouldbeneededtogetitviableagain.Here

theissuewasraisedwhynormal,viablecompanies

would not be granted the same treatment after a

takeover.

d) ExcisedutiesareharmonizedatEUlevelforthemost

part. Reducing such a duty without the authorization

necessary could lead to state aid for both the

company selling the product as well as the company

buyingtheproductforfurtherprocessing.

InrespectofVATsimilarproblemsmayoccur,even

though the Commission does not refer to VAT in

theNoticedirectly.MemberStates thatwouldallow

certain entities to deduct input VAT without a proper

basisinEUlawcouldendupinastateaidprocedure

as could cases where the reduced VAT rate is applied

to goods or services that should be subject to the

regularVATrateaccordingtoEUrules.Forthetime

being,however,theCommissionismoreinclinedto

useinfringementprocedurestorectifysituationslike

these.

e) Taxamnestiesshouldnotbedesignedtobenefitonly

apredeterminedgroupofcompaniesortobeatthe

discretionoftaxauthorities,asthiswouldlikelyresult

in selectivity.

at least seems to exclude situationswhere, objectively

speaking,bothpartiescouldnothavehadadifference

of opinion on the legal consequencesof a fact pattern

they agree to.

3.5 OtherissuesidentifiedbytheCommissionIntheNoticetheCommissionaddressessomeothertax

issues as well.

a) Early or accelerated depreciation of certain assets

usedby certain undertakings or sectors of industry

might lead to selective aid as would any discretion

in allowing more favorable depreciation by the tax

authorities. The Commission does not question the

accelerateddepreciationofleasedassetsassuch,as

longasqualifyingleasecontractscanbeconcluded

byanycompany,smallorlarge,inanysectorofthe

economy.

b) Fixed basis tax regimes may sometimes be

acceptableforadministrativeexpediencyaslongas

“on average” the fixed basis should result in a tax

burdenthat isequaltothatofothercompaniesand

thefixedbasisassuchshouldnotbenefitparticular

companiesthatareeligibleforsuchbasis.Manyfixed

basisregimesarelikelytofailthistestandhenceare

deemed to receive an advantage.

Apart from special rules dealing with the value of

agricultural lands and their transfer for agricultural

purposes, the fixed base regime most frequently

dealt with are tonnage tax regimes. As stimulating

international maritime transport by EU-registered

vesselsisoneoftheEU’smaingoals,theCommission

has rather frequently approved of tonnage tax

regimes (conditionally) provided that ring-fencing

measures were in place as to avoid any spillover

betweenmaritimeandnon-maritimeactivitieswithin

one entity. This includes safeguards to ensure an

appropriate allocation of costs related to maritime

shipping that should not be deductible separately

fromthetonnagetaxregime.

11 GeneralCourtT-287/11HeitkampandT-620/11GFKLof4February2016.

9

current state aid practice. The Commission also questions

unilateral tax exemptions where tax treaties require

effective taxation abroad. Its approach may have a

severeimpactonthefiscalsovereigntyofMemberStates

in case their anti-abuse legislation would be generally

applicable but still inadequate,without selectivity being

present per se. The CJEU still has to rule on the validity

of theCommission’s lineof argumentation towards the

arm’slengthprincipleandexemptionofPEs.

In the meantime, it is recommended to ensure that any

taxrulingisbeingbackedupbyaproperlegalanalysis

and proper case-specific transfer pricing benchmarks,

where needed. Making sure that substantial transfer

pricingdocumentation isavailablewillbeof theutmost

importanceastominimizeexposureto(public)stateaid

investigations in future.Anychoiceofmethodneeds to

beexplainedadequately,inparticulartheuseofaTNMM

orprofitsplit.

Toconclude,the2016Noticeshouldnotimpactpositions

taken earlier in respect of audits/state aid analyses

with respect to taxes filed prior to its upcoming official

publication.Totheextentthisnoticealreadyreflectsthe

Commission’scoreconsiderationsinrecent,unpublished

decisions,itmayproviderelevantguidancealbeitsubject

to possible amendment or withdrawal once the EU’s

Courts had their say.

4. Attributiontopermanentestablishments

In a recently opened case the Commission takes the

preliminaryviewthatarulingconfirmingtheattributionof

profittoaPEabroad,wherenosuchPEisrecognizedin

theotherstate,isnotinlinewiththeobjectandpurpose

of double taxation treaties justifying an exemption.

Attributing profits to such a PE may hence result in

state aid.12 Although the Commission now seems willing

toaccept thatanexemptionmaybegiveneven in the

absenceofeffectivetaxationabroad,itwilltestwhether

the treatyconditions forsuchanexemptionhavebeen

met.Itdoes,however,arguethatiftheotherstateisnot

taxingtheincomeduetotheabsenceofaPEunderits

domestic law,noexemptionshouldhavebeenoffered.

In this ongoing case, the Commission seems troubled

bythefactthatPEincomemightbeexemptasnational

terminologyandtreatyterminologymaydiffer,whichmay

leadtoamismatchbetweencontractingstatesresulting

indoublenon-taxation.

5. Concluding remarks

ThiseditionofQuotedonlyprovidessomehighlightsof

recentstateaiddevelopments.Eventhoughsomeofthe

positions takenby theCommissionarestill thesubject

ofappealattheEU’sCourts,theissuestheCommission

discussed in-depth provide useful insights of its line of

thought. Should the Commission start investigations with

itsownguidelinesinmind,possiblepublicexposuremay

beasdetrimental to companiesas theactual outcome

of an investigation into a particular tax ruling (or the

outcomeofasubsequentappealtotheCJEU).

As far as (corporate) tax rulings are concerned – the

Commission’s current priority – it should be reiterated

that the Commission seems willing to take the next step

anduse stateaid rulesasabackupoption to national

anti-avoidance rules, should those not ensure that

multinational groups are taxed similar to independent

companies.Inthatprocessitiscreatingitsowndefinition

ofatarm’slengthtransferpricing,whichmaygobeyond

12 OpeningDecisionSA.38945of3December2015,Paragraphs87-90(McDonalds).

10

11

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mw.mr.drs.A.N.Krol

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mr. W.C.M. Martens

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mr. A.G. Wennekes

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