EC ruling renews concerns over BEPS consensus and rise in tax disputes

Having continuously raised the need for effective dispute resolution mechanisms following the publication in October 2015 of the Organisation for Economic Co-operation and Development (OECD) Reports on Base Erosion & Profit Shifting (BEPS), the world business organization said the need has become even more apparent over the past year.

Following an investigation launched in June 2014, the EC concluded on Tuesday that Ireland granted undue tax benefits to Apple worth up to €13 billion and that the firm had received illegal state aid. Apple was found to have paid 1% of tax on its European profits in 2003 and about 0.005% in 2014. Both Apple and the Irish government have stated that they will appeal the EC’s decision.

Expressing concern about the broader impact the ruling may have, including a possible breakdown in the consensus on BEPS the ICC Commission on Taxation said that such a unilateral approach casted doubt over the collaborative efforts made to date between the European Union (EU) and United States (US). This could give rise to increased tax competition and disputes in relation to tax treaties among nations, and especially between the US and other EU countries. Furthermore adverse reactions by tax administrations could undermine trade negotiations between the EU and US and have negative effects on foreign direct investment in the EU.

While we respect the enforcement of state aid rules by the EC, we believe that the Commission should ensure the integrity and legal certainty of the tax system which remains critical for businesses seeking to invest in the EU.

“While we respect the enforcement of state aid rules by the EC, we believe that the Commission should ensure the integrity and legal certainty of the tax system which remains critical for businesses seeking to invest in the EU,” said Christian Kaeser, Global Head of Tax at Siemens and Chair of the ICC Commission on Taxation.

ICC believes that coherent and co-ordinated implementation of the internationally agreed guidelines across all countries and in close cooperation with business is imperative in order to align tax systems, protect government revenues and safeguard cross-border trade and investment.

ICC has also expressed concern regarding an EC proposal for public disclosure of tax data, which falls outside the consensus reached within the BEPS proposals. The agreed proposals opt for tax transparency measures related to the automatic exchange of financial information between national tax offices, with the explicit provision that this information remains confidential. Should the EC publish tax data of US companies, as in this case, this could further undermine the consistent implementation of BEPS measures. In turn, the US could refuse to comply with recommendations outlined under Action 13 on Country-by-Country Reporting.

This ruling brings to the forefront the ever-more pressing need to have effective dispute resolution mechanisms in place to address potential tax disputes and strengthen global efforts to establish a consistent international tax landscape.

Mr Kaeser said: “Business fears the potential precedent and the legal uncertainty set by rulings of this nature as well as the possibility of counter actions that could undermine the consensus approach achieved within the context of the BEPS project and thus negatively impact cross-border trade and hamper foreign direct investment.”

Paul Morton, Vice-Chair of the ICC Commission on Taxation, said: “This ruling brings to the forefront the ever-more pressing need to have effective dispute resolution mechanisms in place to address potential tax disputes and strengthen global efforts to establish a consistent international tax landscape.”

ICC continues to work with the OECD and the United Nations to provide business input and expertise in these areas.