The European Commission is currently examining whether the Dutch system of tax rulings – in particular rulings concluded with multinational companies – is fully compatible with EU state aid rules. The Dutch State Secretary of Finance recently stressed that Dutch tax rulings do not represent state aid. The European Commission may, however, hold a different opinion. In that case a recipient (i.e. taxpayer) will have to repay the unlawful aid together with interest. It is therefore prudent for companies to review whether their Dutch tax rulings are in accordance with EU state aid rules.

State aid might lead to the distortion of competition in the market of the European Union. Article 107(1) of the Treaty on the Functioning of the European Union (TFEU) therefore prohibits state aid to undertakings, unless it is justified by reasons of general economic development. It defines state aid as “aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings (…), in so far as it affects trade between Member States”.

The definition of state aid can be broken down into the following elements:

  • an advantage: a company is to receive an economic benefit which it would not have obtained under normal market conditions. Tax concessions can thus form an advantage
  • by a state or through state resources: the advantage can be received in many forms, such as interest and tax reliefs or state guarantees
  • distortion of competition: state aid is only prohibited if it distorts or may distort competition between companies
  • favouring certain undertakings: the intervention only qualifies as state aid if it confers an advantage to the recipient on a selective basis, for example to a specific company or to companies located in specific regions. General measures open to all undertakings are not selective
  • affecting trade between member states: national matters are outside the scope of the TFEU.

State aid can be granted by virtue of law or through individual agreements with the Dutch Tax Authorities. A Dutch tax ruling may therefore contain state aid if and to the extent it provides a selective advantage to a specific company or group of companies, as described above.

The Dutch State Secretary of Finance recently stressed that all Dutch tax rulings are concluded within the limits set by Dutch (case) law. In his view, Dutch ruling practices do not lead to a different treatment of certain taxpayers, let alone a more favourable treatment. Dutch tax rulings thus do not constitute state aid in his opinion.

Yet, the European Commission (EC) may be of the opinion that certain tax rulings create selective advantages, although it is not likely that the EC will consider Dutch tax ruling practices as a whole as incompatible with the EU state aid rules. Potentially, the EC might even argue that the Dutch tax ruling practice as such creates a selective advantage to multinational companies, since these companies mainly benefit from the tax ruling system.

If the EC were to establish that certain Dutch tax rulings qualify as state aid, the Netherlands will be obliged to recover the unlawful aid from the recipient plus interest, even if the recovery leads to financial distress or to the bankruptcy of the recipient. Unlawful state aid can be recovered up to ten years after it has been awarded to the beneficiary. Dutch statutory time limits do not constrain the obligation to recover those advantages.

The possibility that the EC may consider specific Dutch tax rulings to be a form of state aid should not be ruled out. We therefore advise Dutch corporate taxpayers with Dutch tax rulings to review whether their rulings are fully in accordance with EU state aid rules.