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Ireland: Hearing in tax rulings case (EU General Court)

Ireland: Hearing in tax rulings case (EU General Court)

The EU General Court on 17 and 18 September 2019 held a hearing concerning a 2016 decision of the European Commission that two transfer pricing rulings granted by Ireland to a U.S. multinational group constituted illegal state aid.


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The EC found the rulings endorsed a way to establish the taxable profits for two Irish incorporated group companies that did not correspond to economic reality because:

  • Almost all sales profits recorded by these companies were internally attributed to each company’s head office and not to their respective Irish branches.
  • The profits allocated to the head offices were not subject to tax in any country under specific provisions of Irish tax law (legislative measures that were no longer effective).

Read TaxNewsFlash

Both the taxpayer and Ireland appealed the EC’s decision before the General Court.

EU General Court’s hearing

During the hearing, the parties argued that state aid law was not an appropriate route for addressing a situation that fundamentally relates to a mismatch in international tax law and that Irish law was applied properly. They further explained that the branches in Ireland only carried out routine functions and that there were no intellectual property-related activities in Ireland. Therefore, it was contended that the very substantial profits deriving from this intellectual property were not attributable to the Irish branches. Finally, they contended that the EC misapplied the arm’s length principle, given that it was not part of EU or Irish law. 

After hearing the parties’ arguments, the General Court requested clarification of a number of matters, including the EC’s legal grounds that there was state aid.

The General Court also challenged the multiple lines of argument presented and how these arguments changed during the various stages of the proceedings. It also questioned the lack of factual evidence presented by the EC on the existence of an advantage. The General Court disputed the lack of documentation supporting the discussions between the Irish tax authorities and the taxpayer, and the need for a ruling if there was no departure from Irish law. 

KPMG observation

Yesterday’s decisions by the EU General Court (with regard to tax rulings granted by Luxembourg and an advance pricing agreement by the Netherlands) appear to provide clarification as to whether the EC is entitled to refer to the arm’s length principle when pursuing state aid investigations. These judgments may affect currently pending transfer pricing analysis, including the Irish case.

Read a September 2019 report prepared by KPMG’s EU Tax Centre

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