Showing papers in "Journal of European Competition Law & Practice in 2016"

EU State Aid Law and Transfer Pricing: A Critical Introduction to a New Saga

Abstract: It is undisputed that advance pricing arrangements (‘APAs’) whereby transfer pricing of related party transactions is confirmed by tax administrations can constitute state aid under Article 107 TFEU since any relief from tax is inevitably financed by the State or granted through state resources if they confer an economic advantage on a selective undertaking/group of undertakings/goods that distorts competition and effects interstate trade. The European Commission (‘Commission’) has recently stepped up their scrutiny of certain practices of tax administrations vis-à-vis APAs in various Member States. It has launched investigations into transfer pricing arrangements of Apple, Starbucks, Fiat Finance and Trade, Amazon, and McDonald’s agreed with tax administrations of Member States and recently reached a conclusion in the Belgian ‘Excess Profit’ case. These investigations fall under the Commission’s broad priority of ensuring fairness and equality of the corporate tax system within the EU. They are linked to the widely held concern that multiple Member States appear to be using APAs as a means of allowing multinational corporations to take advantage of their tax systems (by providing opportunities for such corporations to reduce their overall tax burden) and that such practices may put other undertakings at an effective competitive disadvantage. The Commission alleges that APAs could be state aid because they confer a selective economic advantage on the companies concerned by lowering their tax liabilities in certain jurisdictions. The Commission having no powers of its own under the Treaties to legislate on tax, but it has the discretion to investigate whether national tax administrations make rulings or issue APAs that infringe Article 107 TFEU. To that extent, the Commission’s state aid investigations are aligned with the OECD/G20 Base Erosion and Profit Shifting (BEPS) project Action 5. That said, AG Kokott has warned that ‘too broad an understanding of the

Can Computers Form Cartels? About the Need for European Institutions to Revise the Concertation Doctrine in the Information Age

Abstract: Traditionally, the European Commission and the European courts have considered that a concertation arises as soon as information is exchanged among competitors. That approach creates difficulties on information based markets where computers and more generally machines systematically organise such exchanges and may thus give rise to allegations of cartel infringement for their operators, despite the absence of any fraudulous intention whatsoever on the part of the latter In our opinion, such development emphasizes the need, for the European institutions, to revisit their doctrine, and their jurisprudence, on the formation of anticompetitive coordination.

Post Danmark II: The Emergence of a Distinct ‘Effects-Based’ Approach to Article 102 TFEU

Abstract: A system of standardised, ‘all-unit’ rebates implemented by a dominant firm is contrary to Article 102 TFEU if an analysis of the nature and operation of the scheme and of the features of the relevant market reveals that it is likely to have an exclusionary effect.

State Aid and the Banking System in the Financial Crisis: From Bail-out to Bail-in

Abstract: • States has traditionally faced banking crisis through the so-called bail-out tool: public resources have been used for a long time in order to rescue banks, putting the burden on taxpayers. • Since the beginning of the crisis, the European Commission (Commission) has adopted special State aid rules for the rescue of banks, providing guidance on the use of bail-out principles but without any precise exit strategy. • In order to reduce public support to banks, the Banking Communications and the new Bank Recovery and Resolution Directive introduced the bail-in (or burden-sharing) tool, putting the burden of bank rescue on shareholders and subordinated creditors while minimising the burden on taxpayers. • On July 2016, the European Court of Justice, in the Kotnik case, declared the compatibility with European Union Law of burden-sharing measures, which however must comply with the general principle of proportionality, especially with regard to subordinated creditors.

Will Its Provisions Serve Its Goals? Directive 2014/104/EU on Certain Rules Governing Actions for Damages for Competition Law Infringements

Abstract: Directive 2014/104/EU of the European Parliament and the Council “on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union” was issued at last, on November 26, 2014. In its introductory remarks, the Directive acknowledges that there are a number of differences in the rules governing actions for damages on grounds of breach of EU or national competition law before courts in the various member-states, and that the respective legal requirements are often hard to fulfill. The Directive therefore declares as its objective, firstly, to ensure that anyone who has suffered harm caused by an infringement of competition law can effectively exercise the right to full compensation, secondly, to promote a minimum level of harmonization of national rules in order to achieve equivalent protection of injured parties in the EU, and thirdly, to coordinate the enforcement of antitrust legislation by competition authorities and national courts (the public and the private enforcement). The present paper argues that the Directive contains some useful procedural rules but is mostly characterized by general and vague goal-setting provisions which are very often not applicable as such, and cannot be incorporated in the national compensation systems without further specification. Instead, in many critical instances the Directive simply instructs the member states to ensure that their judges will achieve a particular, often formless, justice-serving purpose, without providing an actual rule, whereby leaving great room for action (or inaction) by the national legislators and judges. Effective transposition of the Directive into national law therefore presupposes that each member state will convert the Directive goals to actual applicable provisions on its own accord. Alternatively, judges will be handed the general pleadings for justice included in the Directive and will be left alone with the heavy task of transforming them into actual rulings. In both cases, it does not seem likely that the Directive will achieve a large degree of harmonization of the national antitrust damages rules. In view of the increased complexity of some of the compensation rules it is also questionable whether we will see an overall improvement in the effectiveness of private enforcement in most member states, where it is needed. The only objective, which the Directive expressly intends to serve and might actually succeed in doing, is the coordination of private (private) and public enforcement (public enforcement) rules of competition, albeit here also with some degree of uncertainty.

How Far Can the Commission Go When Imposing Remedies for Antitrust Infringements

Abstract: This paper concerns remedies in the European Commission’s antitrust infringement decisions under Article 7 of Regulation No. 1/2003, as distinct from commitments under Article 9 of the same regulation, and remedies under the Merger Regulation. This paper tries to answer four questions: What are remedies for? When can the Commission impose them? What kind of remedies? And what is the framework for enforcing remedies?

Brexit and EU Competition Policy

Abstract: Many voters in the ‘Brexit’ referendum, myself included, are appalled at the prospect of a UK withdrawal from the European Union: whether we are a majority or a minority will not be known until the early hours of 24 June. Issues of the most profound importance are at stake, for the UK, the EU and, indeed, the wider world. A likely side effect of Brexit would be a second referendum on Scottish independence from the UK, with a high probability that the Scottish electorate would choose to leave. I do not know what the ‘new’ state to emerge from this process would be called: not Great Britain, as that expression includes Scotland; not the United Kingdom, as that is an amalgam of Great Britain and Northern Ireland; and not England, as that would exclude Wales and Northern Ireland. An inelegant—and appropriate— working name is ‘the Residual UK’, as unattractive as the prospect itself. What impact would Brexit have on the competition policy of the EU, the Residual UK and Scotland? Assuming that the UK were to leave the EU, the EU would have to decide what future relationship it wishes to have with the Residual UK. The EEA option? The Swiss option? The Turkish option? The Canadian option (a Comprehensive Economic and Trade Agreement was agreed between the EU and Canada on 29 February 2016)? Specifically in relation to competition policy, Brexit, absent some new arrangement, would bring an end to one-stop merger control under the EU Merger Regulation (and the associated case-reallocation mechanisms in Articles 4, 9, and 22 of that Regulation). The competition authority of the residual UK would also be able to investigate antitrust infringements independently of the European Commission’s own investigations under Articles 101 and 102 TFEU. This extra layer of control will not be welcomed by business as it will involve extra expense and uncertainty, and would involve unnecessary duplication of work on the part of competition authorities. A different effect of Brexit would be the departure of the UK from the European Competition Network and the termination of its role in the development of EU competition law and policy. I hope that it is neither presumptuous nor arrogant to suggest that British lawyers, economists, officials, and academics have made positive contributions in this sphere over the years and that the absence of the UK would be a loss. To give two examples of British influence, the UK made major contributions to the debate about the reform of the EU Merger Regulation in the early years of the 2000s and again to the complex issue of the ‘reform’ of Article 102 TFEU later in that decade. Of course, the Residual UK would continue to be heard in the OECD and the ICN (assuming it were to be admitted!); and a cooperation agreement of some kind could be negotiated with the EU, in the same way that the EU has agreements, for example, with the USA, Canada, and Switzerland. However, a cooperation agreement would be very different from being a major player within the current institutional framework of the EU. At the level of the Residual UK and Scotland, I assume that an independent Scotland would establish its own competition regime: indeed, to be admitted as a new Member State of the EU, it would be required to do so; Scotland would then become a member of the ECN. There is something quite attractive about the creation of a Scottish Competition Tribunal, which would inevitably become known as ‘SCOT’: however, Brexit is a high price to pay for this verbal pleasantry. As for the Residual UK, on day one of Brexit, the Competition Act 1998 would remain in place. But if the more extreme Brexiteers were to come to power, I assume that section 60 of the Competition Act, which requires the competition authorities and the courts of the UK to maintain consistency with the general principles and the jurisprudence of the Court of Justice and to have regard to the decisions of the European Commission, would have to be repealed. Many Brexiteers hold the utmost contempt for the Court of Justice, as also for the European Court of Human Rights (which a distressingly large number of people assume to be an institution of the European Union). It seems unlikely that people of this disposition would be willing to leave section 60 in place since Brexit is about the restoration of national sovereignty and freedom from the ‘meddling’ in internal affairs by the Courts in Luxembourg and Strasbourg. Repeal of the European Communities Act 1972 would, of course, bring

The Public Consultation on Regulation 1/2003: A Stronger Institutional Infrastructure for Fostering the EU Common Competition Culture

Abstract: Any strategic vision for European antitrust enforcement rests on one fundamental pillar: the continuous development of a common competition culture shared by the European Commission and national competition authorities (NCAs). In this respect, the innovative model of institutional governance for the enforcement of European Union (EU) competition law set out by Regulation 1/2003 has proved key: the achievements accomplished within the European Competition Network have probably exceeded the initial expectations in terms of scale of enforcement, its effectiveness as well as its consistency. It is indeed on this solid basis that a more far-reaching evolution and consolidation of the ‘institutional infrastructure’ in the area of competition law enforcement can be promoted and should be achieved in the EU. To this end, the public consultation that is being carried out by the European Commission has identified three sensitive areas on which convergence should be fostered: investigative and sanctioning powers, leniency programmes, and the institutional position of NCAs. All NCAs enforce the same substantive rules, and many Member States have also voluntarily aligned their procedures with those set out for the Commission in Regulation 1/2003. Soft convergence initiatives on procedural matters within the ECN have led to the adoption of a number of valuable recommendations and should continue to be pursued in the future. However, experience shows that margins for further voluntary convergence might be rapidly eroding: soft law instruments alone are unlikely to provide all NCAs across Europe with an effective competition law toolbox. There is thus scope for further legislative harmonisation of NCAs’ investigative and decision-making powers in the application of EU antitrust rules. An objective that becomes all the more important since effective enforcement in increasingly sophisticated markets cannot be achieved with blunt investigative and enforcement tools. A minimum set of powers should therefore be granted to all NCAs, including at least: the power to carry out compulsory interviews, the power to collect digital evidence, and the power to adopt structural and behavioural remedies within the prohibition decision. NCAs should also be enabled to provide assistance to each other when serving administrative acts and enforcing fining decisions upon undertakings established in a different Member State. This is essential to ensure a level-playing field for undertakings, as well as to safeguard the effectiveness of the application of European competition rules by NCAs. There is also scope for fostering a certain degree of convergence on the quantification of antitrust fines across the EU: substantially diverging approaches on the determination of pecuniary sanctions may jeopardise the acceptability of fines in all jurisdictions, and may undermine the very legitimacy of the system of parallel enforcement competences within the ECN. The harmonisation of legal rules concerning parental liability, legal and economic succession, and the ceiling of antitrust fines may contribute to achieving this objective, at least to some extent. At the same time, as some of the relevant legal notions may be further refined by judicial interpretation, it is crucial to ensure some degree of flexibility to make room for future developments. More generally, increased harmonisation does not mean that maximum convergence of existing sanctioning regimes is necessary. In fact, it is important to be aware that antitrust sanctions are only one part of broader national sanctioning regimes, which differ significantly across Member States. The existence of possible criminal sanctions applying to the same offences, the diffusion of private enforcement, and the general level of sanctions imposed for economic offences are all elements that affect the perception of the optimal level of fines, their acceptability, and, ultimately, their fairness.