Recent developments

The EC has concluded that various tax rulings provided by EU Member States to multinationals constitute unlawful State aid under EU law and will continue to assess existing and future tax rulings. Identified State aid must be repaid in full by the beneficiary, with compound interest, within a recovery period of 10 years.

Implications for multinationals with (prospective) tax rulings with EU Member States

In the past couple of years, the EC has intensified and extended its investigation into the tax ruling regimes of all EU Member States. The language used by the EC in some of these recent decisions seems to suggest a departure from the mainstream interpretation of the arm's length principle, although this is not yet clear as the non-confidential versions of these decisions are still to be published. The financial impact of a State aid decision made by the EC on existing tax rulings may be significant, but it is also important to carefully weigh the State aid risk factors before entering into new tax rulings in the EU.

What the law/policy says

The State aid rules of the EU must ensure a level playing field for companies that operate within the EU. The Treaty on the Functioning of the EU generally prohibits State aid as it distorts competition. A measure will qualify as State aid if all of the following four conditions are met:

  • the measure is an intervention by the State or involves State resources, which can be imputed to the State;
  • the intervention confers a selective advantage;
  • the measure distorts competition (or threatens to distort it); and
  • trade between EU Member States is affected.

The EC is in charge of ensuring that EU Member States comply with the EU rules. The real issue in the tax ruling cases is whether the measure provides a selective advantage. How the criterion of "selectivity" should be applied to the tax ruling cases is unclear, absent any specific legal precedents in European case law.

The EC requires any EU Member State that has extended illegal State aid to recover the aid with compound interest from the beneficiary. This obligation to recover applies regardless of whether the EC decision is appealed at the EU Court of Justice in Luxembourg. The amount of State aid that must be repaid is the difference between the tax paid and the tax that should have been paid in absence of the State aid, including compound interest. There is a limitation period of 10 years for recovery.

Actions to consider

The flow of information available to jurisdictions and the EC on taxation is rapidly increasing as a result of various initiatives, such as the mandatory exchange of tax rulings within the EU (Directive 8/12/2015) and country-by-country reporting requirements. In addition, taxation has been and will likely continue to be a focal point of media attention and scrutiny (see, for example, the recent so-called Panama Leaks). The EC will have increasing amounts of information and tax rulings at its disposal to assess whether tax rulings give rise to State aid considerations. Considering this troubled landscape, the following fundamental takeaways should be taken into account:

  • Collaboration among tax and competition team members is critical if you find yourself under investigation. There is a considerable risk that tax advisors looking at State aid in isolation apply a "tunnel vision" approach based solely on their previous reference framework for tax matters. State aid in tax ruling cases should be considered holistically, not solely from a tax perspective.
  • If you have a material tax ruling from an EU Member State, assess your risk level based on risk indicators (e.g., lack of TP documention, insufficient substantiation of choice for TP method or a seemingly negotiated ruling) and begin planning mitigation strategies.
  • Consider State aid principles in negotiating any audit settlements with EU Member States and when concluding new tax rulings.
  • Continue to monitor State aid developments closely as the entire process evolves, including the pending EC investigations and the reaction of the US government to these developments.


Investigations by the EC into tax rulings concluded by multinationals with EU Member States have become a focal point of EU policy in the fight against harmful tax competition and the efforts to boost EU Member States' budgets. If the EC finds a tax ruling unlawful under EU law, it must be repaid in full by the beneficiary, with compound interest, over a recovery period of 10 years.

Ruling aid risk factors identified in the Commission’s Opening Decisions

  1. Lack of TP documentation (SA 38944, SA 38373)
  2. Insufficient substantiation of choice for TP method (SA 38944, SA 38373, SA 38374)
  3. Indirect method chosen whilst a direct one potentially more appropriate (SA 38375)
  4. Ruling seemed to have been negotiated (SA 38373)
  5. Benchmark lacking proper comparables (SA 38944, SA 38375)
  6. Reverse engineering to arrive at certain amount of income (SA 38373)
  7. 7. TP study targets fixed amount of income making abstraction of possibility that activities fluctuate (SA 38375)
  8. APA with a long duration or no fixed term (SA 38944, SA 38373)
  9. Ruling granted within 11 working days from first request (SA 38944)
  10. Lack of motivation of classification of taxpayer, f.i. as “low risk toll manufacturer” (SA 38374) or as “most complex party” (SA 37667)
  11. 11. Concerns about how royalty was calculated (SA 38374)
  12. Downward adjustments not observed on the market (SA 38944, SA 38374)
  13. TP reduction based on hypotheticals / projections (SA 37667)
  14. Unilateral downward adjustment whilst no evidence of double taxation (SA 37667)
  15. 15. Advantage only available for (large) multinationals (SA 37667
  16. Reduction of margin motivated by employment considerations (SA 38373)
  17. Advantage seems dependent on relocation of activities or new investments in the country (SA 37667)

SA 37667: Belgian Excess Profit System
SA 38373 : Apple
SA 38374: Starbucks
SA 38375: Fiat Finance and Trade
SA 38944: Amazon