Past Event

State Aid and Tax Rulings

When do national tax rulings violate EU state aid rules? Does the European Commission's approach raise concerns about Member State Sovereignity and what is the impact on corporate investments in Europe?

Date: February 1, 2017, 12:30 pm Topic: Innovation & Competition Policy


Multinational companies pay taxes in different jurisdictions which have different tax rates. Hence, to maximize their after-tax profits, they may have the incentive to allocate a high share of profit to low tax jurisdictions and a low share of profit to high tax jurisdictions. National tax authorities may give companies specific rulings relevant to their business models to clarify how their corporate tax will be calculated. While such tax rulings are legal in general, they may violate state aid rules if they use methodologies to establish transfer prices with no economic justification and which unduly shift profit to reduce the taxes they pay.

On August 30th 2016, the European Commission concluded that Ireland granted undue tax benefits of up to €13 billion to Apple. Clemens Fuest kicked off the seminar by reviewing available information on the geographical distribution of Apple’s economic activities and its tax payments, highlighting an increasing divergence between the two. According to Fuest, Apple is a good example of multinational tax planning made possible by the existing system, acknowledging that is a borderline case for state aid control. In fact, the Apple case should be considered and analysed as a conflict between countries for taxing rights, and only to a lesser extent as a “traditional” friction multinational company vs. governments. He argued that an international reform of multinational companies taxation is necessary, but he also warned that a thorny issue remain the distribution of taxing rights among countries. There is, indeed, a deep controversy between those that corporate profits should be taxed in the country where the value is created (in the case of large multinational companies operating in the digital sector would be the country of IP production) or in the country of final consumption.

Gert-Jan Koopman presented the position of the Commission on the Apple case and more generally on tax rulings. After reviewing the ownership and transactions structure of Apple in the EU, he summarized the main legal arguments according to which the selective tax treatment of Apple in Ireland has been considered illegal according to the investigation of the Commission. In particular, he discussed why the artificial internal allocation of profits within Apple Sales International and Apple Operations Europe had no factual or economic justification under EU state aid rules. In this regards, the so-called ‘cost-sharing agreement’ of the IP expenditures between Apple Inc. and the two controlled companies played a crucial role and, according to Koopman, made the case a relatively straightforward one, at least from a legal perspective. Being asked whether this enforcement action may affect the business climate in the EU, he dismissed major concerns that the Apple ruling would affect US investment in Europe. However, he concluded that, while some uncertainty is inevitable, it is the necessary price to pay to a situation in which out of control.

Damien Neven complemented the debate with several observations on the cost-sharing agreement under the US tax law. In economic terms, the ultimate consequence of the ruling combined with specific features of US tax system determined a “great unbundling”: taxes were paid only on a notional profit on the plastics and the electronic component acquired by the Irish branch, while the value brought by the brand name (intangible) and the IP was untaxed outside the US. Hence, according to Neven, the Commission used a “clumsy” instrument to address a problem eventually created by US tax law (and Irish tolerance). In terms of consequences for international taxation, the Commission decision seems to ensure that taxes are paid where the value is created and strangely not following a territoriality principle. He concluded that all of this is a poor substitute for a proper coordinated reform of taxes on multinationals. But it may be the best option available

 Nicole Robins firstly outlined how the increasing number and scope of investigations on tax rulings by the Commission increased awareness about the importance of tax state aid compliance among private companies. She then reviewed the different methodologies under the OECD guidelines on transfer pricing to estimate the (potential) economic advantage related to tax ruling. With a pre-emptive perspective, she pointed out that state aid risk can be significantly mitigated through a transfer pricing report, prior to the start of the ruling, based on robust financial and economic analysis.

 Guntram Wolff concluded the discussion highlighting that the issue of corporate income taxation in Europe will become even more relevant when the foreseen tax reform by the new US administration will be implemented. In this regards, he noted that the requirement of unanimity in the EU decision-making process on taxation issues will certainly affect the ability of the EU to counteract any change coming from the US.

Event notes by Filippo Biondi, Research Assistant.

Video and audio recording

Event materials

Clemens Fuest – Presentation

Damien Neven – Presentation

Nicole Robins – Presentation


Feb 1, 2017


Check-in and lunch



Clemens Fuest, President and Director, CESifo Group Munich



Gert-Jan Koopman, Director General, European Commission, DG BUDGET

Damien Neven, Professor of International Economics at the Graduate Institute of Geneva

Nicole Robins, Principal Consultant, Oxera


Discussion and Q&A

Chair: Guntram B. Wolff, Director




Clemens Fuest

President and Director, CESifo Group Munich

Damien Neven

Professor of International Economics at the Graduate Institute of Geneva

Gert-Jan Koopman

Director General, European Commission, DG BUDGET

Nicole Robins

Principal Consultant, Oxera

Guntram B. Wolff


Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Matilda Sevon

[email protected]

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