Starbucks and Fiat: Arm’s Length Competition Law

Abstract

The EU Commission may have lost Starbucks on the burden of proof, but it has clearly won that State aid case on principle: the Commission is competent to check autonomously whether cross-border intragroup transactions conform to conditions that would obtain in open competition between independent legal entities, irrespective of whether any arm’s length principle has been incorporated in the national law of that State. Even agreement with OECD transfer pricing methods does not per se produce immunity from Commission scrutiny, as in State aid law, the arm’s length principle is not so much a principle of international division of taxing jurisdiction to protect a State’s tax base against BEPS, but rather a principle of competition law to safeguard inter-entrepreneurial and interstate equality, preventing EU Member States from selectively allocating away tax base into voids in order to attract multinationals. Apple and Ireland have thus already lost their cases on principle, but may still win on the burden of proof and the evaluation of the evidence adduced. The Starbucks and Fiat cases seem contradictory as regards the acceptability of residual calculation. State aid, arm’s length principle, EU Commission competence, residual calculation