Transfer pricing rulings and (illegal) State Aid previous message

Transfer pricing rulings and (illegal) State Aid

One of the worst nightmares of tax payers is that a transfer pricing ruling is qualified as State Aid. When it is qualified as State Aid, a tax payer needs to repay all the tax benefits it received in the past, without the possibility to bring the government to court for government misconduct or wrongdoing. Tax payers in Luxembourg even seem to ‘conclude’ verbal rulings in order to avoid this risk. In addition, transfer pricing is not an ‘exact science’ and it is therefore anticipated that fewer companies are willing to obtain transfer pricing rulings from the tax authorities.

The European Commission has quite recently attacked transfer pricing agreements in the Dutch Starbucks case as well as Belgian excess profit ruling regime. The main line of reasoning is that they are qualified as State Aid, since they provide for a selective advantage to certain tax payers.

The European Commission has now confirmed that transfer pricing rulings are not likely to be qualified as illegal State Aid if the ruling respects the ‘at arm’s length’ principle. In the assessment about whether the transfer pricing ruling is in accordance with the ‘at arm’s length principle, the European Commission is explicitly referring to the guidance provided by the Organisation for Economic Co-operation and Development (‘OECD’). In particular, the ‘OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations’ are relevant.

Our observations

It is good that the European Commission provides further explanation and guidance regarding the interpretation of the State Aid principle in transfer pricing rulings. It is interesting to see that many transfer pricing professionals have largely criticised the position that was taken by the European Commission in the earlier Starbucks case. In essence the criticism relates to the fact that the European Commission creates its own ‘at arm’s length’ principle that is far away from the ‘globally’ adopted at arm’s length principle as has been established by the OECD. It will be interesting to see what the lawyers of Starbucks will do with this fact.

If you have questions or comments, please contact Guido van Asperen ( or +31 615041623)

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