In its Working Paper on State aid and tax rulings, the European Commission suggests that tax rulings allowing for tax deductions without a corresponding cash payment could be contrary to the principle of equal treatment under Article 107(1) of the TFEU. This position appears to be inconsistent with the approach that the Commission itself has followed in a number of recent decisions on fiscal State aid. In our view, the principle of equal treatment, as interpreted by the Commission, does not prohibit Member States from applying such tax deductions, but actually requires them to do so in certain circumstances. The Commission’s stance on this issue seems to confuse the arm’s length principle with certain types of anti-abuse rules, thereby opening the door to direct challenges under State aid rules against mismatches between tax systems of different countries. This could lead to a regulatory overreach without a legal basis.
Keywords: Tax Rulings; Virtual Payments; Multinationals; At Arm’s Length Principle.