Corporate tax breaks could be classed as illegal aid, warns EU competition chief

12.02.14 @ 12:07

  1. By Benjamin Fox
  2. Benjamin email

BRUSSELS - The European Commission will assess whether governments re-writing their tax laws to offer corporate tax breaks amounts to illegal state aid, the bloc's competition chief said on Tuesday (11 February).

  • Regimes allowing companies to pay small tax bills could be classed as government aid, Almunia warned (Photo: stumayhew)

Speaking at the European Competition Forum in Brussels, EU commissioner Joaquin Almunia said he would investigate whether moves by national governments to tailor their tax laws to allow companies to avoid paying tax had the same effect as a subsidy.

Subsidising certain businesses could be deemed as anti-competitive, breaching the bloc's rules on state aid.

"Because of the gaps in national tax laws, many of the largest multinational companies pay very low taxes, and they don’t need to break the law to do it," said Almunia.

"In those cases where national laws or tax-administration decisions permit or encourage these practices, there might be a State aid component involved and I intend to go to the bottom of it."

The remarks by the Spanish commissioner's, who described the practice of "aggressive tax planning" as going against the principles of the EU's single market, are the latest in a series of salvos by EU officials aimed at clamping down on corporate tax avoidance.

In November, the bloc's taxation commissioner Algirdas Semeta unveiled plans to re-write the EU's rules on the tax status of parent and subsidiary companies to prevent firms from setting up 'letter-box' companies in different countries to slash their tax bills.

The practice has been widely publicised in recent years.

For example, coffee shop giant Starbucks paid UK corporation tax of £8.6 million between 1998 and 2011 on sales of over £3 billion.

Meanwhile, US-based software giant Apple was revealed to be paying a tax rate equivalent to 1.9 percent on their profits made outside the US by designating its office in the Irish city of Cork as the firms' international headquarters.

Internet companies Facebook, Google and Amazon are also prominent names in the list of companies taking advantage of Europe's patch-work tax regimes.

The European Commission is already examining corporate tax arrangements in several member states and has requested information from authorities in Ireland, the Netherlands and Luxembourg.

"A limited number of companies actually manage to avoid paying their proper share of taxes by reaching out to certain countries and shifting their profits there," said Almunia.

He added that the practice "undermines the fairness and integrity of tax systems" and was "socially untenable."