Competition commissioner warns MEPs of state aid investigation delay

Margrethe Vestager has met with MEPs to update them on ongoing state aid investigations.

By Julie Levy-Abegnoli

05 May 2015

European competition commissioner Margrethe Vestager has met with members of parliament's tax rulings and other measures similar in nature or effect special committee (TAXE) to discuss the ongoing investigation into state aid in member states.

The committee was set up following November's 'LuxLeaks' scandal, which uncovered preferential tax deals struck up between the Luxembourgish government - headed at the time by current commission president Jean-Claude Juncker - and various multinationals.

MEPs have been given an initial mandate of six months to look into EU countries' tax rulings dating back to 1991 and present its recommendations to parliament's economic and monetary affairs committee on ways to improve transparency and cooperation in terms of national tax rules.


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The commission defines state aid as "an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities". This could mean a grant, preferential tax treatment or government holdings of all or part of a company, and is offered to a particular firm or a business in a specific region, in such a way that could distort competition or influence trade between member states.

While technically state aid is prohibited, the commission says that, "in some circumstances government intervention is necessary for a well-functioning and equitable economy". In such cases, governments are required to notify the commission and get approval before any state aid measures can be implemented. However, countries sometimes fail to seek permission for state aid. 

Vestager told MEPs that "member states have the right to decide their company tax structures and their rates - that is not being questioned". Yet she stressed that "this does not allow member states to hand out selective tax advantages to companies or industries".

On her team's current enquiry, she revealed, "we have identified 65 state aid cases that fall within the scope of the TAXE committee's mandate", adding that these cases concerned 15 member states.

She also highlighted that last December, the commission "asked all member states to provide us information on tax rulings and three still haven't delivered".

The Danish official underlined, "we will not sacrifice the rule of law or the quality of our work to speed up the process".

She explained that "obtaining information is challenging and time consuming. We do not get the information we ask for the first time, nor the second time. Therefore, we will not meet our initial deadline of the second quarter. […] Obviously fast is always better than slow, but just is always best, therefore we will not be giving a new deadline".

She highlighted that "there are limitations to what state aid tools can do", calling for "another medicine to cure problems of tax avoidance - we lack coordination in corporate tax systems, and that is why debate on further European measures for tax transparency is crucial".

"Transparency should not be a choice - it should be obligatory", she added.

Parliament's co-rapporteur on the special committee's findings Michael Theurer admitted that he was "not happy with the pace of the committee - it took us two months to call for documents. The public has a right to know and as a committee we must put our finger on the sore spot".

Co-rapporteur Elisa Ferreira asked Vestager why the commission does not immediately consider state aid illegal if member states do not notify it of such measures before implementing them, "as it happens with so many other issues - why is there a reverse burden of proof that puts the commission in a secondary position in relation to other entities such as the house of commons or even the press?"

The UK's house of commons had previously revealed US firm Google's elaborate tax avoidance scheme, whereby the company claimed its sales to UK clients were carried out by employees based in Ireland, and should therefore not be subject to UK corporation tax.

EPP deputy Luděk Niedermayer said, "I firmly believe that companies and people should pay tax where their activity takes place", pointing out that "these practices are limiting for competition on the market".

Vestager explained that "if member states do not think [their measures qualify as] state aid, they do not notify the commission". In order to better tackle the issue, she called for "a common corporate tax base".

The EU competition chief pointed out that "the state aid tool has its limitations because we [investigate] case by case and we can't [look into] every case in the world, we can't redo any tax rulings but we can find cases we think are deeply problematic and hopefully from that, inspire member states to change their legislation".

In addition, "we find different ways of moving profits from one tax jurisdiction to another such as pricing arrangements, managerial arrangements [managers based in a different country than the activity they are in charge of], financing, lending from one part of a company to another - it's complicated and some of it may conform to market rules and therefore be acceptable, some of it might not".

But Vestager was unable to convince all members of the TAXE committee, with Greens/EFA MEP Sven Giegold saying, "from our perspective, what we have seen is a massive failure of public authorities to act upon aggressive tax avoidance and failure to follow European competition law and European state aid rules".

EFDD deputy Marco Zanni believed that "a critical point is the lack of resources in the commission and within member states' tax administrations".

Concluding the dialogue, Vestager cautioned MEPs that, "even if we get the perfect situation in Europe, there is a world outside Europe as well".

 

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