Business Irish

Tuesday 24 April 2018

EU's hard line a wake-up call for Irish businesses

European Commissioner Margrethe Vestager
European Commissioner Margrethe Vestager

Marco Hickey

EUROPEAN Commissioner for Competition Margrethe Vestager assured the world that the Apple tax decision was not political - but it appears that the Commission is increasingly flexing its muscles in the area of competition policy.

This fervour includes the pursuit and sanctioning of cartels. Only recently, it imposed a record fine of €2.93bn on several of the EU's biggest truck manufacturers for participating in a cartel for 14 years.

The Commission found that MAN, Volvo/Renault, Daimler, Iveco, and DAF colluded on truck pricing and on passing on the costs of compliance with stricter emission rules.

The total amount of the fine was twice the previous record, €1.4bn levied in respect of a TV and computer monitor tubes cartel in 2012.

Ms Vestager stated that the fines were justified on the grounds that the cartel involved entities holding a large market and that it continued for a long time. Daimler received the largest fine of €1.1bn, while DAF, Volvo/Renault and Iveco were fined €752.7m, €670.4m and €494.6m, respectively.

The trucks case has been received as reflecting the strong stance of the Vestager Commission to competition enforcement. The basis for the fines was the EU prohibition on agreements which have as their object or effect the distortion of competition in the EU internal market.

Cartels, virtually by definition, are not efficiency enhancing and do not benefit consumers. At a local level, businesses and individuals found guilty of so-called hard-core cartel offences can face criminal penalties, including fines and imprisonment.

Regarding state aid, the Commission has been investigating the tax ruling practices of Member States since June 2013. In October 2015, the Commission concluded that Luxembourg and the Netherlands had granted selective tax advantages to Fiat and Starbucks, respectively. In January 2016, the Commission concluded that selective tax advantages granted by Belgium to least 35 multinationals, mainly from the EU, under its "excess profit" tax scheme, are illegal under EU state aid rules.

The Commission is also carrying out two in-depth investigations into concerns that tax rulings in Luxembourg may have given rise to the provision of illegal state aid to Amazon and McDonald's.

While Ireland acknowledges and accepts the Commission has a legitimate role, under the Treaties, in enforcing competition rules, the Department of Finance has stated it is "not appropriate that EU state aid competition rules are being used in this new and unprecedented way in the area of taxation, which is a Member State competence and a fundamental matter of sovereignty".

There are concerns surrounding the approach of the Commission, which some believe is undermining the international consensus, impeding reform and creating uncertainty for business and investment in Europe. To bolster this point, the US Treasury has raised significant concerns in its recent White Paper on the European Commission's state aid investigations. The US Treasury has stated that: "The Commission's new approach is inconsistent with international norms and undermines the International tax system."

Finance Minister Michael Noonan has "disagreed profoundly" with the Commission's decision in the Apple case, stating that "our tax system is founded on the strict application of the law, as enacted by the Oireachtas, without exception." On an appeal, he said: "This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign Member State competence of taxation."

The Commission decisions regarding Amazon and McDonald's in Luxembourg are still pending. However, the Starbucks Netherlands, Fiat Luxembourg and Belgium tax scheme cases, as well as the record-making truck cartel cases against MAN, Volvo/Renault, Daimler, Iveco, and DAF, reveal a hard-edged approach on the part of the Commission's which has divided opinions.

In terms of compliance, Irish businesses must be aware of competition rules in their dealings with national tax and grant aid authorities but also when interacting with competitors.

The proactive approach of the European Commission is likely to be replicated at the domestic level, so businesses seeking special treatment from state authorities or cooperating, rather than competing, with their rivals do so at their peril.

Marco Hickey is partner and head of the EU, competition and regulated markets team at LK Shields

Irish Independent

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