The European Commission is cracking down on tax advantages of individual member states. This will undermine the competitiveness of the entire continent.

Margrethe Vestager will be confirmed in her place as Commissioner for Competition of the European Union. In the last five years, the Danish politician has put forward a legal theory, suggesting that tax benefits granted to companies constitute illegal state aid under the Treaties. In this respect, Fiat and Starbucks have already been involved in controversial judgments of the EU Court of Justice in Luxembourg. A comparable Apple case will be launched in court in early 2020. Tax practices in Ireland, the Netherlands, Malta or Luxembourg are under attack.

The misuse of the anti-subsidy clause is part of Berlaymont’s dishonesty. The current legislation only refers to a total or partial exemption from the tax due (such as corporation tax and tax on insurance contracts).

Tax rulings are not an exemption from tax, but a negotiation of the rate, which according to no national legislation is rigid. The system is available to any company, and in many cases, individuals. It is not surprising that every individual tries to optimise his or her taxes: even deducting a donation is like optimising. The only system that could replace this complicated and progressive system would be a flat tax equal for all, which is ironically rejected by a large majority of European countries (it is practiced by Estonia and Bulgaria at 15% and 10% respectively).

In the absence of well-defined legislation, the European Commission selects victims at random. In the case of Fiat-Chrysler, recently condemned by the European Court of Justice (ECJ), the Grand Duchy and the car company challenged the European Commission’s decision to declare the company’s ruling as state aid. Luxembourg stated, inter alia, that the Commission had “adopted an analysis that led to disguised tax harmonisation”. It is absolutely right in that assessment.

It is clear that considerable political powers are at work. Paris has every interest in supporting Vestager in her efforts, hence the fact that the Danish woman was able to maintain her position in the new Commission, and that the Francophile Ursula von der Leyen, the new President of the Commission, granted her the title of Vice-President.

However, this system is not only a state system. In the short term, there are corporate forces that have an interest in seeing their competitors punished. The digital tax, already existing in France, is a good example. The tax only targets large American companies (as in the ECJ judgments: Starbucks, Apple, Amazon, McDonalds etc.), to the benefit of European digital companies. Does political anti-Americanism play a role? Certainly. Nevertheless, interests are more entrenched.

Luxembourg, as well as other member states, need to protect their tax advantages, and prevent the creeping move towards tax harmonisation.

This article was first published by Values4Europe.

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