The Business, Entrepreneurship & Tax Law Review


Tomislav Krmek


Multinational entities are shifting their profits from jurisdictions with high tax rates to low tax jurisdictions that result in sovereign governments losing millions of dollars and euros. Profits are moved away from the jurisdictions in which the economic activity occurs and sovereign governments face difficulties in exercising their right to taxation. The most common method employed for artificially (but legally) shifting profits is the transfer of intangibles (intellectual property). This article will discuss this legal tax avoidance in the European Union by multinational entities using that common technique: shifting of goods and services between affiliates (transfer pricing). Companies are getting more self-confident in doing this because of the advanced tax rulings issued by national tax authorities, especially of particular member states of the European Union, that provide legal certainty for their corporate structures. This article will introduce to the U.S. readers (potentially) “harmful” tax practice exercised in the European Union by one of the world’s largest multinational companies. It will examine the rules of the European Union on state aid (Art. 107 and 108 of TFEU) and the European Commission’s investigation and their effect on such practice that is allegedly breaching the internal market of the EU. The discussion will then move on to comparison of “harmful” tax practices in the United States. Measures that international community, especially OECD, is implementing to fight tax avoidance will also be considered followed by June 2015 European Commission’s Action Plan on Fair and Efficient Corporate Tax System in the EU and its January 2016 proposal for Anti-Tax Avoidance Directive. This article provides U.S. readers a basic overview of the EU rules; it is not aimed at European practitioners.

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