The Commission is re-evaluating the level of evidence needed to refer state aid cases to the European Court of Justice (ECJ) after facing criticism from the ECA in 2021 for losing certain cases. The ECA found it takes too long for the Commission to gather evidence and adopt a decision on pursuing state aid cases involving large technology companies such as Apple in Ireland and Amazon in Luxembourg.
“We really need to find the right cases where we have all the sufficient information to move forward with an infringement procedure on certain issues,” said Henrik Paulander, head of administrative cooperation in taxation at the Commission. “We need a high level of proof to convince the Court of Justice [about our positions].”
The ECA released a 2021 report about stricter enforcement of state aid policies, where it recommends that the Commission increase resources for regulatory authorities. This would help authorities improve on niche market knowledge to speed up state aid investigations, particularly in technical areas such as the finance and technology sectors.
The ECJ believes that the Commission took too long to pursue certain state aid cases. This held back the Commission in its court battles with Apple and Amazon.
In response, the court recommends the Commission revise its guidelines on state aid infringement procedures. So companies know what type of conduct is clearly not allowed. This may also aid the Commission in identifying and investigating future state aid issues more quickly.
Tax experts with the Commission also suggest that delays and gaps in evidence from earlier cases started because of shortfalls in the EU’s DAC legislation that hindered the implementation of domestic frameworks for stricter market monitoring.
This weakens the allocation of cases between the Commission and national authorities and limits the knowledge of each other’s enforcement priorities, which leads the Commission to rely on market complaints to identify state aid concerns.
“It is quite difficult to understand what is not specifically in the [DAC] directive such as data quality and use of the information,” added Paulander.
He suggested that the framework should include the taxpayer’s tax identification number (TIN) in the cross-border exchange of information under DAC as one example of improvement.
The next opportunity to address gaps in the exchange framework between tax administrations may be with the next iteration of the DAC that includes taxpayer disclosures on digital financial asset trading (DAC8).
The Commission might increase the number of infringement procedures in tax after closing gaps in evidence by making improvements in DAC8.
Closing the gaps in DAC
The ECA report highlights shortcomings in the exchange of information under DAC rules, which are not properly applied in several member states, according to Commission tax experts. There is a need for harmonised compliance measures to address non-compliance with DAC under domestic laws.
The DAC framework has been amended several times to enhance the means tax authorities have to address tax evasion, tax abuse and tax avoidance, but certain aspects of the existing exchange of information framework such as data quality still need to be reinforced.
DAC8 is an opportunity for the Commission to fix some shortcomings, including investor concerns about the legal definition of e-money and other digital assets in the EU that could lead to longer-term issues.
Particularly, there is a need for a harmonised compliance measures framework for non-compliance with the reporting obligations under the domestic law adopted pursuant to DAC. A revised compliance measures framework must avoid distortions between EU member states and result in more uniform compliance with the DAC.
However, there is still the risk of introducing more tax uncertainty and legal loopholes based on the way DAC8 legislation is implemented domestically. The DAC’s existing shortcomings, including budgetary limitations, already hinder the Commission’s market monitoring activities.
This might have led the Commission to pursue hard-to-win cases on a shorter timeline based on market complaints instead of full-fledged investigations into market competition.
“The Court believes that the Commission failed to formulate clear criteria for selecting cases with the highest risk in the internal market,” said Marc Wiggers, partner at Loyens & Loeff in Amsterdam.
Parliament will also release a report on enhancing the DAC to better monitor competition and finances in the European market by the fourth quarter in 2021.
The Commission faces the problem of gaps in information exchange and technical knowledge. This might lead to over relying on complaints instead of clear criteria in monitoring the finance and technology sectors for fair market competition as the digital economy continues to grow.
Addressing these gaps in market monitoring with changes under DAC8, including budgets and resources, could lead the Commission to open yet more state aid investigations in the future.
