Luxembourg ordered to respond to tax investigation

The European Commission is using state aid rules to crack down on unfair tax competition.

The European Commission issued a public rebuke to Luxembourg on Monday (24 March) for refusing to co-operate with an investigation into whether it is using its tax regime covertly to hand out state aid to multinationals.

In a rare step, the Commission adopted a legal order against the government, demanding that it answer questions in full. Luxembourg had previously declined to provide the Commission with the information, claiming it was protected by rules on “fiscal secrecy”.

Luxembourg’s tax regime is one of several being investigated by the Commission’s state-aid control team. One of the lines of inquiry is whether Luxembourg, the Netherlands and Ireland have used tax rulings, where authorities set out (usually confidentially) how they intend to apply tax rules to a company’s activities, to give informal tax-breaks to favoured multinationals.

A second line of inquiry is how member states, including Luxembourg and the United Kingdom, tax profits that have been earned by companies on intellectual property rights. A number of member states use so-called “patent boxes” to encourage investment in research and innovation. The Commission cleared one such scheme in Spain in 2008, but it suspects that other member states have made their systems too generous.

Both inquiries are likely to scrutinise relations between member states and leading digital companies, raising issues of tax competition between EU member states.

Ireland’s low corporate tax rate, which encouraged leading digital companies including Google and Apple to set up their headquarters there, has generated public resentment in other member states, particularly Germany and France.

Amazon, which sells its products across Europe from its base in Luxembourg, has been the subject of criticism because it has undercut rivals in other member states helped by the principality’s low taxes. Both Priceline.com, which runs travel websites, and Starbucks have also generated controversy by structuring their European Union activities to channel revenues through – and pay their taxes in – the Netherlands.

If Luxembourg refuses to comply with the order, the Commission says it will take the country to the European Court of Justice for breaching EU law.

Click Here: new zealand rugby team jerseys