The European Commission today reported it has opened an in-depth investigation to examine whether tax rulings granted by the Netherlands to a multinational corporation provide “an unfair advantage over its competitors” in breach of EU state aid rules. The tax rulings endorsed a method to calculate the amount of royalty to be paid by two Dutch companies for the use of intellectual property.
As reported in today’s EC release, the formal investigation concerns the tax treatment in the Netherlands of two taxpayer group companies based in the Netherlands.
The EC’s concern is that “the royalty payments endorsed by the rulings may not reflect economic reality. They appear to be higher than what independent companies negotiating on market terms would have agreed between themselves in accordance with the arm's length principle.” A preliminary analysis of the companies' activities found that:
The EC’s investigation will focus on whether the Netherlands' tax rulings endorsing these royalty payments may have unduly reduced the taxable base in the Netherlands of the two Dutch operating companies since 2006 and whether the Netherlands may have granted a selective advantage to the taxpayer group by allowing it to pay less tax than other stand-alone or group companies whose transactions are priced in accordance with market terms. If confirmed, this would amount to illegal state aid.
The opening of an in-depth investigation affords the Netherlands and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.
Read a January 2019 report prepared by KPMG’s EU Tax Centre
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