• Service: Tax, Global Transfer Pricing Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 6/11/2014

EU - Transfer pricing arrangements investigated in Ireland, Netherlands, Luxembourg 

June 11: The European Commission (EC) today announced that it has opened three investigations to examine whether tax rulings (“comfort letters”) issued by the tax authorities in Ireland, the Netherlands, and Luxembourg—with regard to the corporate income tax to be paid by certain multinational corporations—comply with the EU rules on state aid.

According to today’s EC release, this investigation was opened under the EU state aid rules, to examine certain tax practices in EU Member States following media reports alleging that some companies have received significant tax reductions by way of "tax rulings" issued by national tax authorities.

Tax rulings—i.e., “comfort letters” issued by the tax authorities giving a specific company clarity on how its corporate tax will be calculated or on the use of special tax provisions—may involve state aid within the meaning of EU rules if they are used to provide selective advantages to a specific company or group of companies.

Transfer pricing arrangements to be examined

Today’s EC release explains that tax rulings have been used in particular to confirm transfer pricing arrangements.

The EC reported that it will examine if three transfer pricing arrangements validated in three specific sets of tax rulings involve state aid to the benefit of the beneficiary companies:

  • Rulings issued by the Irish tax authorities on the calculation of the taxable profit allocated to the Irish branches of a company
  • A ruling issued by the Dutch tax authorities on the calculation of the taxable basis in the Netherlands for manufacturing activities of another company
  • A ruling issued by the Luxembourgish tax authorities on the calculation of the taxable basis in Luxembourg for the financing activities of a third company

The EC, in a preliminary analysis, expressed concerns that the rulings could underestimate the taxable profit and thereby grant an advantage to the respective companies by allowing them to pay less tax.

In parallel to these three formal investigations, the EC will continue a broader inquiry into tax rulings, which covers more EU Member States.

Contact a tax professional with KPMG's Global Transfer Pricing Services.

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