By Richard Slimmen of Quantera Global
Posted: December 02, 2015
On 21 October 2015 the European Commission declared that Luxembourg and the Netherlands have granted selective tax advantages to Fiat and Starbucks, respectively. These practices are illegal under EU State Aid rules.
The Dutch government has responded last Friday (27 November 2015) to the said violation stating that it fully supports the fight against tax avoidance, that it however is of the opinion that no State Aid was involved and that it greatly values its practice of offering tax certainty in advance. The Dutch government will therefore appeal the decision of the European Commission.
Three (English) press releases were made by the Dutch government last week:
- Brief English overall response
- English translated response of the Dutch government
- English summary of the decision from the European Commission concerning the Starbucks tax ruling
The summary reveal several statements made by the European Commission regarding the Advance Pricing Agreement (APA) but does not provide a proper transfer pricing analysis on why the APA was not at arm’s length.
For example, statements include:
…”do not fulfil the arm’s length principle. More specifically, this concerns:
- the choice to apply the transactional net margin method (TNMM) in order to forecast a taxable profit, while the OECD guidelines and the Transfer Pricing Decree show a preference for the Comparable Uncontrolled Price Method (CUP);
- if the CUP was applied, then the taxable profit of SMBV would be substantially higher …”
While the CUP may be a preferred method, it is widely known among TP professionals that it is rarely possible to find a proper CUP, while the TNMM is by far the most applied TP method. The summary does not provide any insight into the considerations that have led to the recognition of a CUP and this also applies to other statements made by the European Commission. It will be interesting to see what detailed response the Dutch government will get from the European Commission in this respect.
It remains unclear as to how the appeal of the Dutch Tax Authorities (DTA) will turn out but some press releases indicate that the DTA believe the European Commission does not convincingly demonstrate DTA’s direct deviation from the statutory regulations or that state aid was provided.
The Dutch Tax Authorities further indicate that they are taking action to step up supervision of financial service companies, current APAs and Advance Tax Rulings (ATRs), and increase transparency in the context of the EU Code of Conduct to counter international tax avoidance.
By: Richard Slimmen
Richard Slimmen
Managing Director
M: + 31 6 50 88 94 37
E: r.slimmen@quanteraglobal.com
Media Contact
Quantera Global Corporate Communications Office
Kurt Urbanozo
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