Why EU state aid is not the right tool to fight tax avoidance

The US government has expressed concerns about this approach warning that it expands the commissions role beyond enforcement of competition and State aid law under the Treaty on the Functioning of the European Union (TFEU) into that of a supra-national tax authority.

We all agree on the need to tackle tax avoidance, but such reform should come from a transparent legislative process within the EU and through consensus building in international fora, such as the OECD. Once the new rules are in place, they can be applied to every taxpayer.

But you cannot change the rules of the game through ad hoc state aid enforcement, and then seek retroactive recovery for unpaid taxes. Doing so would be fundamentally unfair and would harm competition, growth and tax income in Europe. And it raises serious questions about legal certainty and the rule of law.

Anyone who has filled out a tax return knows that tax rules can be complex. This is even more so for companies operating in multiple jurisdictions. Tax authorities issue tax rulings, or advance opinions, in order to explain how local tax rules will be applied in individual cases, and companies rely on these to take investment decisions. But if such rulings can now be second-guessed by Brussels years or even decades later, that value is lost.

It is a fundamental principle of tax law that changes will not apply retroactively. Companies (as individuals) should know what their fiscal obligations are up front and should be able to plan with them. When tax rules change, they do so for the future only and there are strict limits to the re-opening of tax assessments for the past.

With the application of state aid rules, this changes, as the commission may order the recovery of any state aid deemed illegal for 10 years into the past. This could happen in a situation in which neither the company nor the member state have violated any tax rules nor had reason to believe that the tax assessment was illegal. I have taken note of the commissions commitment to focus its enforcement only on outliers, but I assume nobody can determine what those are. The de minimis threshold in state aid is relatively low and there is no definition of outlier cases.

Benjamin Franklin is thought to have stated that nothing in this world is certain, except death and taxes. But these recent state aid investigations have introduced uncertainty about corporate taxation.

Rather than pursuing a handful of countries and companies for the past, we should focus on shaping a fair tax system for the future. The controversy about state aid and tax rulings is not about whether companies pay their fair share, but where that share should be paid. That is an important question, but not one for state aid.

Neelie Kroes was the European Unions commissioner for competition from 2004 to 2010, and commissioner for digital agenda from 2010 to 2014. She is now special envoy for StartDelta, a tech startup development project run by the Dutch government, and sits on the public policy board of Uber and the board of directors for Salesforce