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August 25, 2016

US Treasury issues warning to EU over Apple tax probe

News: The European Commission is preparing to rule on whether Apple's Ireland tax deal violated EU rules.

By Alexander Sword

The US Treasury has issued an implicit warning to EU tax authorities over its State aid investigations that could have major implications for tech giants such as Google.

In a new white paper, the Treasury claimed that the European Commission’s investigations risked turning it into a “supra-national tax authority”.

While stating that multinational tax avoidance is a “serious concern” for the US, the Treasury stated that initiatives such as the Base Erosion and Profit Shifting (BEPS) project were being undermined by EU activities.

The Treasury is apparently considering potential responses if the Commission continues.

The intervention by the US Treasury comes as the Commission prepares to rule on whether Ireland’s tax deals with Apple amounted to state aid, which may lead to it demanding as much as $19 billion from Apple in alleged unpaid taxes.

A decision on the matter is expected in September.

EU state aid rules prohibit member states from providing impermissible aid to companies, which includes in the form of improper tax benefits.

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In January, then-UK Chancellor George Osborne touted a deal with Google that saw the company paying £130 million in tax as a success, considering the company had not previously paid tax. He was criticised by the Labour Party which claimed the effective tax rate was around 3 percent. The deal was another deal scrutinised under state aid rules.

A letter sent by Treasury Secretary Jacob Lew to EU Commissioner Jean-Claude Juncker in February highlighted the major concerns with the Directorate-General for Competition (DC COMP)’s application of state aid rules.

This included the claim that it was imposing penalties retroactively based on a new interpretation of state aid rules.

It also claimed that DG COMP “appear(ed) to be targeting US companies disproportionately”, saying that the approach was targeting income that the EU had no right to under international tax standards and that it might undermine US tax treaties with EU Member States.

In a statement the Treasury said that a “strongly preferred and mutually beneficial outcome” would be to return to a system of “international tax cooperation”.

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