Vestager makes bid to decide the future of EU tax policy

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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