U.S. Treasury's Lew Challenges EU on Corporate Tax Investigations
February 11 2016 - 8:10AM
Dow Jones News
WASHINGTON—The U.S. stepped up a spat with European officials
over their investigations of U.S. companies' tax practices, warning
in a letter from the Treasury secretary that they are creating a
"disturbing" precedent.
U.S. Treasury Secretary Jack Lew in the Thursday letter asked
European officials to rethink the investigations, saying they
"undermine the well-established basis of mutual cooperation and
respect that many countries have worked so hard to develop and
preserve." U.S. companies whose tax practices are under
investigation include Apple Inc. and Amazon.com Inc. Non-U.S.
companies have also been affected.
European regulators have been investigating whether individual
countries' tax breaks for certain companies violate rules against
excessive "state aid." If deemed illegal, European officials could
then press the countries to recover corporate funds related to the
tax breaks.
In the letter to European Commission President Jean-Claude
Juncker, Mr. Lew said those investigations appear to be
"disproportionately" targeting U.S. companies and seeking much more
money in those instances. In some cases, Mr. Lew wrote, the
Europeans are trying to target income they have no right to
tax.
The EU "appears to be adopting an entirely new legal theory and
applying it retroactively in a broad and sweeping manner," Mr. Lew
wrote in his first extensive comments on the EU-U. S. tax dispute.
"This raises serious concerns about fundamental fairness and the
finality of tax rulings throughout the entire European Union."
The EU rejected accusations it was discriminating against U.S.
companies in their tax probes.
"EU law applies indiscriminately to all companies operating in
Europe—there is absolutely no bias against U.S. companies,"
European Commission spokesman Ricardo Cardoso said.
"In its state aid decisions on tax rulings to-date, the
commission has ordered member states to recover unpaid taxes mostly
from European companies," he added.
EU officials have said they didn't think the investigations into
the tax practices would make Europe a less attractive destination
for companies to invest in because the bloc's single market of 500
million consumers remains a major draw.
The EU investigations and potential taxes on U.S.-based
companies represent a risk to the U.S. tax base. The more taxes
U.S. companies pay overseas after investigations, the more U.S.
foreign tax credits they get and the less money the U.S. might get
if and when they repatriate foreign profits. While Mr. Lew is
taking the side of U.S. companies in one respect, he said he is
concerned about U.S. companies' ability to book profits in low-tax
countries and leave them there.
Mr. Lew testified Wednesday at the Senate Finance Committee and
the issue didn't come up. In January, four members of that panel,
including Chairman Orrin Hatch (R., Utah) asked Mr. Lew to consider
applying a little-known section of the tax code that would allow
the U.S. to impose retaliatory double taxes on European citizens
and companies.
Mr. Lew's letter mentions congressional concerns but not the
double tax.
Natalia Drozdiak contributed to this article.
Write to Richard Rubin at richard.rubin@wsj.com
(END) Dow Jones Newswires
February 11, 2016 07:55 ET (12:55 GMT)
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