• At Kemp Little, we are known for our ability to serve the very particular needs of a large but diverse technology client base. Our hands-on industry know-how makes us a good fit with many of the world's biggest technology and digital media businesses, yet means we are equally relevant to companies with a technology bias, in sectors such as professional services, financial services, retail, travel and healthcare.
  • Kemp Little specialises in the technology and digital media sectors and provides a range of legal services that are crucial to fast-moving, innovative businesses.Our blend of sector awareness, technical excellence and responsiveness, means we are regularly ranked as a leading firm by directories such as Legal 500, Chambers and PLC Which Lawyer. Our practice areas cover a wide range of legal issues and advice.
  • Our Commercial Technology team has established itself as one of the strongest in the UK. We are ranked in Legal 500, Chambers & Partners and PLC Which Lawyer, with four of our partners recommended.
  • Our team provides practical and commercial advice founded on years of experience and technical know-how to technology and digital media companies that need to be alert to the rules and regulations of competition law.
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  • With a service that is commercial and responsive to our clients’ needs, you will find our tax advice easy to understand, cost-effective and geared towards maximising your tax benefits.
  • At Kemp Little, we advise clients in diverse sectors where technology is fundamental to the ongoing success of their businesses.They include companies that provide technology as a service and businesses where the use of technology is key to their business model, enabling them to bring their product or service to market.
  • We bring our commercial understanding of digital business models, our legal expertise and our reputation for delivering high quality, cost-effective services to this dynamic sector.
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  • Our clients trust us to apply our solutions and know-how to help them make the best use of technology in structuring deals, mitigating key risks to their businesses and in achieving their commercial objectives.
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  • Our legal professionals work alongside social media providers and users in relation to the commercial, privacy, data, advertising, intellectual property, employment and corporate issues that arise in this dynamic sector.
  • Our years of working alongside diverse software clients have given us an in-depth understanding of the dynamics of the software marketplace, market practice and alternative negotiating strategies.
  • Working with direct providers of travel services, including aggregators, facilitators and suppliers of transport and technology, our team has developed a unique specialist knowledge of the sector
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  • Kemp Little is trusted by some of the world’s leading luxury brands and some of the most innovative e-commerce retailers changing the face of the industry.
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  • FlightDeck is our portal designed especially with start-up and emerging technology businesses in mind to help you get your business up and running in the right way. We provide a free pack of all the things no-one tells you and things they don’t give away to get you started.

EU commission rules that favourable tax deals may constitute illegal state aid

Multinational companies across the EU and beyond (and their advisors) will have, with much trepidation, paid close attention to the landmark ruling of the EU commission on 21 October. Margrethe Vestager, the EU competition commissioner, declared that preferential tax deals offered by Luxembourg to Fiat and by the Netherlands to Starbucks constituted unlawful state aid under EU rules.

Ms Vestager found that “comfort letters”, issued to the companies confirming approval of their tax planning in each of the relevant jurisdictions, had been used to guarantee favourable treatment.  Starbucks and Fiat were each ordered by the commission to pay up to €30 million in unpaid taxes to the relevant national authorities. The outcomes of similar investigations into tax deals given to Amazon and Apple, by Luxembourg and Ireland respectively, are still pending, though the latter could result in Apple being ordered to make a significantly higher payment in respect of unpaid tax (the Financial Times reported, on 21 October, that this could run into billions of Euros).

At the heart of the ruling are so called “transfer pricing” arrangements, used by each of the companies involved, which set the price of goods and services sold by entities to other members of their corporate group. Such arrangements have become increasingly subject to attack in recent years, with critics arguing that they allow large multinational groups to artificially shift profits to low tax jurisdictions. The commission accuses a Dutch Starbucks’ subsidiary of paying inflated prices to a Swiss sister company for coffee beans, and also to another UK group company for coffee roasting know-how, thus substantially reducing the tax charge in the Netherlands.

The commission also alleges that a Fiat subsidiary provided loans to other group companies on terms which were not arm’s length in order to shift income into Luxembourg from other higher tax paying jurisdictions. The commission found that these structures “did not reflect economic reality” and should not have been approved by the relevant member states.

Whilst the companies and jurisdictions involved are likely to appeal against the commission’s ruling (Starbucks has already confirmed that it will), it is significant for various reasons. Firstly, it represents the EU commission extending its authority into an area (taxation) which is traditionally viewed as a matter for sovereign national governments. More worryingly, the recent rulings will call into question the reliability of other comfort letter type arrangements given by EU governments to companies in their jurisdiction, and of generally accepted tax planning practices (the arrangement used by Starbucks in the Netherlands, for example, has been widely used for some time). 

However, most importantly, the commission’s decision is viewed by many as part of the early stages of a re-thinking of international tax rules in a concerted effort to clamp down on corporate tax avoidance. In recent months and years the issue has received increasing public and political attention. The European Council has recently approved a draft directive aimed at improving tax transparency across the EU.

In addition, the OECD has also just released its “Base Erosion and Profit Sharing” (BEPS) proposals, which the G20 governments are set to approve later this month. The proposals seek to ensure greater transparency, compelling companies to disclose where they generate their revenue, hold their assets and engage their employees. National governments will also receive more information on comfort letters given to companies in other jurisdictions. Many (including the UK government) have welcomed the proposals, which seek to reform an international tax system widely viewed as outdated and ill-suited to the digital age (where intangible assets such as intellectual property and goodwill, may be shifted between jurisdictions with little effort – see the Economist, 10 October 2015).  

Whatever the eventual outcome of the commission’s ruling, it’s needless to say that it will be followed by significant further developments in a rapidly changing international tax environment.  Watch this space.

For more information, please contact Adam Kuan, corporate associate