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WASHINGTON—The U.S. Treasury Department said it is "closely" reviewing a never-used 82-year-old law that would impose retaliatory double taxes on European Union companies and individuals.

The law is being investigated following objections from the Treasury and a bipartisan group of senators to the European Commission's "state aid" investigations, which the U.S. officials contend disproportionately target U.S. firms in an effort to claw back European tax breaks.

The retaliatory double tax represents the most concrete—and confrontational—way the U.S. could respond to the EU investigations.

The Treasury said it is studying Section 891 of the Internal Revenue Code, which allows the president to double U.S. taxes on individuals and corporations from countries that are deemed to have subjected U.S. citizens and companies to "discriminatory or extraterritorial taxes."

"We are reviewing this provision and its history closely, and we are continuing to consider all modes of engagement to convey our strong view" that European officials should reconsider their approach to the issue, wrote Anne Wall, the assistant Treasury secretary for legislative affairs, in a letter dated March 2.

In the letter, which was a response to a January request from Senate Finance Committee Chairman Orrin Hatch (R., Utah), Ron Wyden (D., Ore.), Rob Portman (R., Ohio) and Charles Schumer (D., N.Y.), the Treasury also noted that no president has ever invoked this portion of the code.

EU officials have said they are applying long-standing legal principles and they aren't disproportionately targeting U.S. companies. The probes include investigations of Apple Inc. and Amazon.com Inc., as well as non-U.S. companies, such as BP PLC and BASF SE.

European regulators have been investigating whether tax breaks in individual countries, such as Belgium, Ireland and Luxembourg, violate rules against excessive government aid to companies. If deemed illegal, European officials could then press the countries to recover corporate funds related to the tax breaks.

When U.S. companies pay taxes abroad, they receive tax credits against their eventual U.S. tax liability. They pay the residual U.S. tax when they repatriate they money—but U.S. lawmakers are considering a mandatory one-time tax on foreign profits as part of a major revamp of the tax system

"While Treasury has clearly signaled a sense of disappointment and concern regarding the European Union's state aid investigation, it's imperative the administration stays the course," Mr. Hatch said on Friday in response to the Treasury's letter.

"Treasury should remain vigilant in oversight and be prepared to take action to ensure American businesses do not fall victim—retroactively—to a novel legal theory that undermines the U.S.-EU tax treaty network and disproportionately targets U.S. companies," he said.

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

March 04, 2016 15:15 ET (20:15 GMT)

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