EU State Aid Investigations Undermine Treaties, Treasury Says

Over the last several months, Treasury Secretary Jacob J. Lew and his staff have engaged extensively with the Commission to express our concerns related to its State aid investigations. Secretary Lew wrote to Commission President Jean-Claude Juncker in February urging the Commission to reconsider these new actions while reaffirming our commitment to continued collaboration through the BEPS project.

These investigations have major implications for the United States. In particular, recoveries imposed by the Commission would have an outsized impact on U.S. companies. Furthermore, it is possible that the settlement payments ultimately could be determined to give rise to creditable foreign taxes. If so, U.S. taxpayers could wind up eventually footing the bill for these State aid recoveries in the form of foreign tax credits that would offset the U.S. tax bills of these companies. The investigations have global implications as well for the international tax system and the G20's agenda to combat BEPS while improving tax certainty to fuel growth and investment.

Given these significant implications, today the Treasury Department is releasing a white paper outlining the Department's concerns with the Commission's approach.

First, we highlight that the Commission's approach is new and was unforeseeable by the relevant companies and EU Member States. Second, we emphasize that the Commission should not seek to impose recoveries under this new approach in a retroactive manner because it sets a bad precedent for tax policymakers around the world. Finally, we explain that the Commission's approach undermines U.S. tax treaties and international transfer pricing guidelines already accepted broadly in the global tax community, and undermines the work done as part of the BEPS project.

A strongly preferred and mutually beneficial outcome would be a return to the system of international tax cooperation that has long fostered cross-border investment between the United States and EU Member States. The U.S. Treasury Department remains ready and willing to look for a path forward that achieves the shared objective of preventing the continued erosion of the corporate tax base while ensuring our international tax system is fair for all.