Wielding a new brand of aggressive investigations, the European Commission is unduly targeting U.S. businesses to fill the budget holes of European Union countries.
Through these state aid investigations, the executive branch of the EU is overriding settled international law, as well as the laws of EU member countries, to impose retroactive tax hikes on American companies operating in Europe.
U.S. Treasury Secretary Jack Lew framed the issue clearly in a recent letter to European Commission PresidentJean-Claude Juncker, writing, "While we recognize that state aid is a longstanding concept, pursuing civil investigations — predominantly against U.S. companies — under this new interpretation creates disturbing international tax policy precedents."
The Europeans themselves should be wary, as the EU's actions could turn the region into an economic dead zone by depriving business of the certainty it needs to invest there.
Illustrating how far afield these investigations have gone, the EU has now threatened to launch a state-aid investigation amid allegations that terms of a tax audit were too favorable. Their approach is brazen: First the member state assesses a tax the company didn't believe it owed, and then, the EU hauls the company in for a second bite by focusing on why the company paid only the amounts assessed.
The U.S. government is not standing by idly – nor can it – as the EU goes after U.S. taxpayers in this unprincipled way. Leading members of the House Ways and Means Committee and the Senate Finance Committee have also expressed strong concerns with the EU's investigations. In fact, a bipartisan group of senators has asked the administration to consider using the president's authority to impose retaliatory taxes on taxpayers of European Union countries that discriminate against U.S. companies.
The United States is not alone in its objections. The EU is overriding the sovereignty of its member countries by appointing itself the ultimate arbiter of national tax laws. As the Dutch Finance Minister wrote on one such case overturning Dutch law, the EU Commission "applies its own new criterion for profit calculation, which is incompatible with domestic regulations and the OECD framework." In the process, the EU is also overriding U.S. treaties with EU member countries, calling into question whether EU member states are competent to enter into treaties with the U.S. government.
It is one thing to change the rules going forward and to apply them to all companies – U.S. and EU – but it is another to apply rules both selectively and retroactively against American companies. Retroactive taxation may not be unusual in the developing world, but it is unacceptable from developed nations and leading economies of the world. Such behavior will chill cross-border investment, weakening both EU and global economic growth.
If the EU imposes a new layer of retroactive taxes on the foreign earnings of U.S. companies – extending back 10 years – it will reduce U.S. tax revenues as American companies claim additional foreign tax credits. To put it simply, the EU is using unsound state aid cases that seek to drain the U.S. Treasury to satisfy its desire for more tax revenues.
Immediate action is needed to halt the EU's discriminatory, retroactive assessments against U.S. companies and taxpayers. President Obama has authority under existing law to impose retaliatory tax measures, a Treasury official has already flown to Brussels to put the EU on notice, and Treasury Secretary Lew's letter called on the EU to take another course.
We encourage the EU to halt such discriminatory actions and work constructively with the U.S. government to avoid escalating the situation. Discrimination couched as state aid investigations violates national laws and bilateral treaties, and is an injustice that the United States must vigorously fight.
Commentary by John Engler, president of the Business Roundtable, an association of CEOs of leading U.S. companies that produce $7 trillion in annual revenues and employ more than 16 million people.
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