On Wednesday, December 17, 2014 the European Commission announced that it would widen its investigation of the tax ruling practices of Member States of the EU. This announcement follows recent decisions by the European Commission to initiate formal state aid proceedings against Ireland, Luxembourg and the Netherlands with regard to tax rulings issued by these Member States. Given the broad authority the European Commission has in cases of state aid, including the possibility of demanding the repayment of state aid that may have been granted unlawfully, it is advisable to critically re-evaluate agreements that have been made with tax authorities within the European Union to determine whether further action is necessary.

It was also announced that in 2015 the European Commission will present a proposal for a directive that would provide for Member States to exchange information on tax rulings.


The announcement by the European Commission cannot be seen separately from the initiatives of the OECD and the European Union on alleged tax avoidance by multinationals and the desire to end harmful tax competition within the European Union. The European Commission appears to have realized that its state aid provisions are a powerful means for it to force Member States to accept their share of responsibility in combating tax avoidance by multinationals by putting an end to tax competitive measures.

Unlike the Code of Conduct initiated by the European Council of Economics and Finance Minister (ECOFIN), the state aid provisions provide a legally enforceable basis to force Member States to amend their legislation. The state aid provisions also allow the European Commission to demand, in certain situations, that aid that has already granted be repaid, up to 10 years from the date it was granted. Under the state aid provisions of the Treaty on the Functioning of the European Union (TFEU), Member States are prohibited from granting aid to certain businesses or for the production of goods if the aid disrupts or could disrupt the functioning of the internal market.

Scope of the investigation

According to the press release, the European Commission will ask all the Member States whether they issue tax rulings and, if so, to provide an overview with the names of the companies that obtained such rulings during the period 2010 through to 2013. The press release does not make clear whether this only relates to tax rulings concerning transfer pricing or whether other agreements concluded by tax authorities, in whatever form, will also be included in the investigation.

The European Commission suspects that certain Member States grant tax benefits to multinational companies by issuing tax rulings that result in a reduction of their tax burden. Partly on the basis of case law of the Court of Justice of the European Union, the European Commission believes that the issuance of such tax rulings under certain conditions can be regarded as state aid that is incompatible with the internal market.

In addition to information on the tax ruling practices, the European Commission has also requested information on intellectual property regimes (for the Netherlands: the innovation box) from the 10 Member States that have included such regimes in their legislation.

Impact on the Netherlands

The Netherlands has long been recognized as having an active tax ruling practice, which offers businesses advance certainty on the tax consequences of proposed transactions. There is every likelihood that the Netherlands will inform the European Commission about the tax rulings that have been issued, and that it will have to name the businesses involved.

In his response to the decision by the European Commission to begin a formal investigation of the Advance Pricing Agreement issued to a Dutch BV in an multinational group, the Deputy Minister of Finance indicated that he was confident that the European Commission would ultimately conclude that this was not state aid.

Recent statements by the Deputy Minister would also seem to indicate that he is just as confident about the announced investigation.

If you would like more information on this matter, our tax advisors will naturally be happy to be of assistance.

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