Bespoke Tax Rulings and Profit Shifting in the European Union : Assessing the EU’s Options

Widely publicised profit-shifting cases in Europe against multinationals such as Starbucks, Fiat, Apple and Amazon have caught the attention of Australian scholars and tax officials with the revelation of the direct involvement of Australian subsidiaries such as Apple in the arrangements. The profit-shifting arrangements in question are all based on favourable private rulings from tax authorities in a select group of European countries. While in theory European Union (EU) authorities have three potential weapons that can be used to attack the arrangements, to date, the European initiatives to attack the profit-shifting schemes have focused on one primarily, the EU prohibition against state aid. This article reviews the options available to EU officials seeking to combat profit-shifting arrangements. The experience to date reveals the limitations to the ability of tax authorities in Europe and Australia to curb profit-shifting arrangements as long as the global system of profit allocation rests on a conceptual foundation of fictional transactions between parts of a single economic entity