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European Commission Probes into National Tax Rulings on Transfer Pricing

The European Commission ("EC") has long sought to eliminate so-called harmful tax competition, which it sees as undermining the integrity of the internal market, fair competition and the fiscal sustainability of the Member States. Although the EU Member States remain sovereign in this area, over the years there have been numerous initiatives to tackle this problem at the EU level, such as attempts to introduce a 'Common Consolidated Corporate Tax Base', or the 'Code of Conduct on Business Taxation', under which Member States commit to eliminate regimes deemed to be harmful.

Following a number of media reports into significant tax reductions granted to some multinational companies, the EC has recently stepped up its efforts, this time using EU State aid rules. It has taken the exceptional step of creating within its Competition Directorate-General a 'task-force' dedicated to investigating national tax rulings which validate advantageous calculations of the taxable basis, based on transfer pricing arrangements. Competition Commissioner Almunia has made it clear that he means business.

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