In June, the European Commission (“EC”) announced the opening of three investigations into tax rulings in Ireland, Luxembourg and the Netherlands and, in particular, into tax rulings applied by Ireland to Apple, by Luxembourg to Fiat Finance and, last, by the Netherlands to Starbucks. In October 2014, the EC announced the opening of a fourth investigation into the application of tax rulings of Luxembourg to Amazon. Most recently, the EC ordered Spain to recover money from companies that benefited from rules that encouraged merger activity outside of the country.

We understand that the EC also has requested that Luxembourg produce all tax rulings that were issued in 2010, 2011, and 2012.  Luxembourg has not complied with this request, and the matter will be heard by the EU Court of Justice.  Companies with tax rulings that do not withstand challenge can be responsible for up to ten years of tax liabilities.  In essence, the EC is investigating whether certain tax practices of Member States have conferred prohibited selective advantages on multinational companies via tax reductions.

The four investigations relate to tax rulings which validate transfer pricing agreements, also referred to as advance pricing agreements (APAs). Transfer pricing relates to the prices charged for commercial transactions between parts of the same corporate group (intra-group commercial transactions) e.g., the prices set for goods sold or services provided by one subsidiary of a corporate group to another subsidiary of the same group.  APAs are agreements that determine an appropriate set of criteria, or methodology, for the determination of the transfer pricing for intra-group commercial transactions. Since the prices set for these intra-group transactions will be accepted by the taxing authority that enters into the APA, APAs affect indirectly the allocation of taxable profits to that taxing jurisdiction and the tax paid by the corporate group in that jurisdiction.

The four investigations concern the calculation methods of certain APAs as negotiated between Member States and the various affected companies as set out in the tax rulings.  In particular, the investigations concern the compatibility of these calculation methods with internationally agreed standards as well as with the arm’s length principle.

The risk for the companies involved is that, in case the aid is considered to be incompatible, the Member State is required to claim the financial advantage back from the benefited company.  In addition to the companies already under investigation, other companies may well become the target of additional investigations.  As a result, any company with an APA from an EU member state should determine ― and assess ― the State aid risk.  They should then consider whether any changes to the company’s trading structure may be merited.

Photo of Johan Ysewyn Johan Ysewyn

Johan Ysewyn is widely respected as a highly skilled European competition lawyer, advising on complex competition issues, including on merger control, anti-cartel enforcement, monopolisation cases and other conduct investigations. He acts as Co-Head of the firm’s Global Competition group and as Managing Partner…

Johan Ysewyn is widely respected as a highly skilled European competition lawyer, advising on complex competition issues, including on merger control, anti-cartel enforcement, monopolisation cases and other conduct investigations. He acts as Co-Head of the firm’s Global Competition group and as Managing Partner of the Brussels office.

Clients turn to Johan when they need cutting-edge competition and regulatory advice. He has been advising some of the world’s leading companies for over 30 years on their most complex competition issues. Johan is “an exceptional lawyer who is solution-oriented, has a remarkable ability to rapidly understand our business and has excellent reactivity.” (Chambers Global) Johan “attracts considerable praise for his reliable practice, as well as his great energy and insight into cartel proceedings.” (Who’s Who Legal)

Johan represents clients from around the world in dealings with competition authorities as well as in court litigation. He has in-depth knowledge of regulatory procedures and best practices as well as longstanding relationships with key regulators, in particular at the European Commission. He has also an active advisory practice covering a range of areas of interest to corporates, including the interplay between ESG goals and competition law, the impact of competition law enforcement on digital markets and broad strategic compliance issues.

Johan’s experience spans many industry sectors, with recent experience in telecoms and information technology, media, healthcare, consumer goods, retail, energy and transport. He has advised on several of the most major merger investigations in recent years. In addition, he has represented clients in many conduct investigations.

Johan’s practice also has a strong focus on global and European cartel investigations. He has acted for the immunity applicants in the bitumen and marine hose cartels, and acted for defendants in alleged cartels in financial services, consumer goods, pharmaceuticals, chemicals, consumer electronics and price benchmarking in the oil sector. He has acted for the European Payments Council in the first European Commission investigation into standardisation agreements in the e-payments sector. Johan has written and lectured extensively on international cartel and leniency-related issues. He co-authors the loose-leaf European Cartel Digest and lectures on cartel law and economics at the Brussels School of Competition.

Johan is also one of the leading experts on EU State aid issues, working both for beneficiaries and governments. He has advised a number of leading banks and governments, as well as represented major European airlines. From the cases that can be publicly disclosed, he has been involved in the Fortis, KBC, Dexia, Arco, Citadele, airBaltic and Riga Airport State aid cases.