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Vestager makes bid to decide the future of EU tax policy
European Competition Commissioner Margrethe Vestager could become the next president of the European Commission (EC) as voting commences, but state aid remains on her agenda no matter what the result.

The Alliance of Liberals and Democrats for Europe (ALDE), or
‘Team Europe’ as the press have dubbed it, is bidding to either take the helm
or be a key coalition partner for the next EC president. Vestager is standing
for the presidency on behalf of the ALDE party, but it is unlikely the US would
welcome her rise as good news.
Vestager has become the face of EU state aid cases, but she
actually inherited the cases and the regulatory framework from her predecessors.
Nevertheless, Vestager is a controversial figure among US business leaders and
US President Donald Trump has also dubbed her as “the tax lady” because of the
decisions against companies such as Starbucks, Amazon and Apple.
All eyes are on the European Parliament elections because of
Brexit and the rise of populism across EU member states. Those voting across
the 28 member states between May 23 and 26 elections will decide who will
succeed EC President Jean-Claude Juncker and what the next commission will look
like.
If the ALDE comes out on top, Vestager is likely to push
much harder to get two things done: the common consolidated corporate tax base
(CCCTB) and the digital services tax (DST). This is despite the fact that the
CCCTB and the DST could work against the interests of smaller European
countries like Denmark.
These two policies have been on the drawing board for a
while, but the next Parliament will be a decisive period to make either one or
both proposals reality. Even the CCCTB alone would mean the end of the
arm’s-length principle in the EU and this would create great challenges for
businesses trying to plan ahead.
Vestager is just one of the possible candidates to takeover
after Juncker leaves in November, but even if she does not succeed Juncker, she
could get a second mandate as the EU’s trustbuster-in-chief. There is still
plenty of work to do in policing European competition standards.
“I’d like to reclaim my mandate for a second term, but
that’s up to the Danish government and not up to me,” Vestager told International Tax Review last year.
“It may sound naïve but I think if you’re already thinking of the next job you
want after your current job, you may not be so good at your job right now.”
The poison chalice
Vestager may have to stick to challenging multinationals on
their practices if history is anything to go by. The ALDE coalition could make
gains, but the alliance has not been in a position to take control of the
European Commission for more than three decades.
The European People’s Party (EPP) has dominated the
commission for many years and its candidate of choice is the German conservative
Manfred Weber. At the same time, the Progressive Alliance of Socialists and
Democrats (S&D) is fighting to become the biggest party in the European
Parliament. This would mean Frans Timmermans, Juncker’s deputy, would become
president.
One source close to the European Commission described
Weber’s candidacy as a “nightmare”.
“I’d much prefer Barnier, but he can’t run directly because
he’s in the same political family,” the source said. “He has impressed everyone
from left to right with how he has handled Brexit.”
“Germany will still fight for its man to get the top job,”
the source explained, “but whoever takes over will be handed the poison chalice
of Brexit”.
The future of state aid
No matter who succeeds Juncker, the European competition
regime will stay in place. Yet there are calls to change the state aid rules
and the key advocates are France and Germany, the two biggest players in the
EU.
Following the rejection of the Siemens-Alstom merger, the
French and German governments have argued that competition reform should be on
the table. The two countries want to revise the EU rules on state aid to ensure
European companies can hold their own against US and Chinese competition.
There are concerns about the long-term future of European
businesses and whether companies like Apple and Huawei will take over the
market. As French Finance Minister Bruno Le Maire explained in February “in
order to create a new European champion, it is necessary to change the European
regulatory framework”.
Italy, Poland and Spain are interested in backing the
proposal, but there has been no shift in EU legislation. It may take some time
to revise state aid laws given the fact that the competition standards have
been so effective.
As one tax director at a FTSE 250 company told TP Week: “State aid is a powerful
weapon. I can’t see why the EU would change those rules if it meant taking a softer
line.”
It may seem unlikely that the rules would be overhauled. However,
the EU’s shift towards a common tax base and a digital tax regime might mean
the rules have to change. State aid laws presuppose the arm’s-length principle
and the erosion of this standard could mean more change will have to follow.
The proposal sounds like a nightmare for US multinationals
that have long complained about the EU’s state aid laws. The European
Commission has defended its competition standards on the basis that they are
not protectionist and do not discriminate against foreign business.“We hear
from critics that we are looking at some countries and not others, but we are
looking at any country which grants tax rulings,” one EC official said. “The
European Commission has started an investigation into the tax rulings of every
EU member state since 2013.”
State aid investigations have targeted European corporations
like Fiat and IKEA, as well as a range of schemes in Belgium, Luxembourg and
the UK. Outgoing President Juncker insisted the commission “will never play
favourites”.
What’s less clear is how the next commission will adapt
state aid law if it wants to go ahead with the CCCTB and abandon arm’s-length
pricing. It is possible Vestager could find herself implementing some very
different rules, whether she succeeds Juncker or not.
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