The European Commission’s decision on state aid granted to Apple in the form of ‘undue tax benefits’ has shocked the tax and transfer pricing world in many ways.
The key question from a technical perspective is whether or not the Irish ruling actually granted undue tax benefits to Apple.This is very complex. In time, the European Court of Justice will tell. And this could take many years.

Where does that leave the European economy in the meantime?

The detriments of uncertainty

The Commission’s decisions on state aid have a big impact on the internal market. What resonates loudly in the business community is the painful awareness that a signature from tax authorities apparently does not give certainty on the ultimate tax treatment in a jurisdiction.

Neelie Kroes – the previous EU Commissioner for competition – has criticized her successor Margrethe Vestager for the decision in the Apple-case. Mrs. Kroes said that tax regulations should never be amended retroactively and that multinationals should be able to depend on tax rulings that they have concluded.

Maybe her recent appointments to the board of directors of Salesforce and advisory board of Uber have somewhat influenced her views in this regard. But simple economic pragmatism – maybe in spite of state aid rules – supports her views.

Where signatures from authorities are not respected, trust is lost.

Where trust is lost, uncertainty is found.

And uncertainty is detrimental to the already struggling European economy. For example, it could lead to less inbound investments in Europe.

The European Commission can help

For rulings that have already been concluded, there appears to an uncertainty that taxpayers will simply have to deal with. I’m not advocating that tax rulings should be respected, regardless of their compliance with state aid rules.

But looking ahead, the European Commission can play a more positive and proactive role than it currently does.

Too many taxpayers (and probably also tax authorities) the precise boundaries of what constitutes state aid in the field of transfer pricing is still not clear. This is apparently different for the Commission’s Directorate-General for Competition. It is able to judge a tax ruling on its state aid merits very quickly. How do we know that? The DG claims to have looked at over 1,000 tax rulings since the end of 2014 (

Therefore, I call upon the European Commission to take its responsibility for the European economy and the internal market by opening the possibility of obtaining certainty in advance on state aid elements in tax rulings.

The process could be simple: tax authorities and/or taxpayers submit draft tax rulings for review by the European Commission. The Commission could respond within 3 – 6 months with an overview of elements in the ruling that constitute state aid.

Pros without cons

Of course there is no legal obligation for the European Commission to give certainty in advance. But depriving taxpayers of the possibility to obtain certainty in advance on this tremendously important topic could be considered ineffective and even counterproductive.

There is, on the other hand, a significant economic upside in creating the opportunity for taxpayers to once again obtain ‘real’ certainty through tax rulings.

I would assume there is no additional workload for the Commission. It needs to look into all these rulings at some point in time anyway. Better to do it upfront.