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Abstract: 

The E.U. concept of state aid is being applied by the European Commission to challenge tax rulings granted by E.U. Member States. Any ruling that derogates from domestic tax rules or, in the case of transfer pricing or the attribution of profits, from the arm’s length principle, may be challenged. Recent cases and decisions show that the Commission is arguably developing and applying its own arm’s length principle when assessing whether tax rulings constitute unlawful state aid. This approach has garnered criticism, including from the U.S. Treasury Department and the Senate Finance Committee. Multinationals should review any existing tax rulings in light of the Commission’s new and evolving approach.

Keywords: multinational businesses, Treaty on the Functioning of the European Union, state aid, tax, European Commission, transfer pricing, cross-border arbitrage, arm’s length principle

Affiliations:  1: Sullivan & Cromwell LLP; 2: Sullivan & Cromwell LLP.