U.S. Treasury's Lew Challenges EU on Corporate Tax Investigations

WASHINGTON—The U.S. stepped up a spat with European officials over their investigations of U.S. companies' tax practices, warning in a letter from the Treasury secretary that they are creating a "disturbing" precedent.

U.S. Treasury Secretary Jack Lew in the Thursday letter asked European officials to rethink the investigations, saying they "undermine the well-established basis of mutual cooperation and respect that many countries have worked so hard to develop and preserve." U.S. companies whose tax practices are under investigation include Apple Inc. and Amazon.com Inc. Non-U.S. companies have also been affected.

European regulators have been investigating whether individual countries' tax breaks for certain companies violate rules against excessive "state aid." If deemed illegal, European officials could then press the countries to recover corporate funds related to the tax breaks.

In the letter to European Commission President Jean-Claude Juncker, Mr. Lew said those investigations appear to be "disproportionately" targeting U.S. companies and seeking much more money in those instances. In some cases, Mr. Lew wrote, the Europeans are trying to target income they have no right to tax.

The EU "appears to be adopting an entirely new legal theory and applying it retroactively in a broad and sweeping manner," Mr. Lew wrote in his first extensive comments on the EU-U. S. tax dispute. "This raises serious concerns about fundamental fairness and the finality of tax rulings throughout the entire European Union."

The EU rejected accusations it was discriminating against U.S. companies in their tax probes.

"EU law applies indiscriminately to all companies operating in Europe—there is absolutely no bias against U.S. companies," European Commission spokesman Ricardo Cardoso said.

"In its state aid decisions on tax rulings to-date, the commission has ordered member states to recover unpaid taxes mostly from European companies," he added.

EU officials have said they didn't think the investigations into the tax practices would make Europe a less attractive destination for companies to invest in because the bloc's single market of 500 million consumers remains a major draw.

The EU investigations and potential taxes on U.S.-based companies represent a risk to the U.S. tax base. The more taxes U.S. companies pay overseas after investigations, the more U.S. foreign tax credits they get and the less money the U.S. might get if and when they repatriate foreign profits. While Mr. Lew is taking the side of U.S. companies in one respect, he said he is concerned about U.S. companies' ability to book profits in low-tax countries and leave them there.

Mr. Lew testified Wednesday at the Senate Finance Committee and the issue didn't come up. In January, four members of that panel, including Chairman Orrin Hatch (R., Utah) asked Mr. Lew to consider applying a little-known section of the tax code that would allow the U.S. to impose retaliatory double taxes on European citizens and companies.

Mr. Lew's letter mentions congressional concerns but not the double tax.

Natalia Drozdiak contributed to this article.

Write to Richard Rubin at [e-mail]

(END) Dow Jones Newswires

February 11, 2016 07:55 ET (12:55 GMT)

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