What tax ruling means? Do multinationals pay their fair share of taxes? The European Commission is not convinced; it has launched investigations targeting member states that in its view give multinationals preferential tax treatment. European Parliament decided to conduct its own inquiry by setting up a special committee on tax rulings.
What is a tax ruling?
Tax ruling is a document issued by a tax authority, setting out in advance how a corporation’s tax will be calculated and which tax provisions will be used. They are perfectly legal and no-one is proposing to get rid of them.
The Parliament’s role
A 45-member strong tax ruling committee is being set up in the wake of a series of investigations launched by the European Commission into tax rulings for multinational companies in Luxembourg (Fiat, Amazon), Ireland (Apple), Belgium and the Netherlands (Starbucks). In December 2014, the Commission increased the scope of the inquiry into tax rulings to cover all member states, saying:
“A number of member states seem to allow multinational companies to take advantage of their tax systems and thereby to reduce their tax burden.”
What’s the problem?
When drawing up tax rulings, tax authorities have wide discretion. The Commission is worried that in some member states they are used to alleviate the tax burden of certain corporations, allowing them to pay less tax and thus giving them a competitive edge. If this is done in a selective manner (e.g. only for multinationals, but not for domestic firms), it could amount to state aid, which is prohibited.
Tax ruling Context
As budget cuts takes their toll, it’s particularly important that large companies also pay their fair share of tax. The Commission says that up to a trillion euros in taxes are lost each year due to tax evasion and avoidance, which includes aggressive tax planning by corporations.