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22nd Jul 2018

EU: Starbucks and Fiat must repay €20-30mn on illegal tax deals

Starbucks and Fiat have to pay millions of euros in back taxes to the Netherlands and Luxembourg, because their tax deals amounted to illegal state aid, the EU Commission said on Wednesday (21 October).

The bloc’s executive ruled the companies’ sweetheart deals with the Netherlands and Luxembourg tax authorities artificially lowered the tax they have to pay into the states’ budgets.

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In its ruling, the Commission ordered Luxembourg to collect €20-30 million in taxes from Fiat’s financial subsidiary, Fiat Finance and Trade, and for the Netherlands to do the same with Starbucks.

“Tax rulings that artificially reduce a company’s tax burden are not in line with EU state aid rules. They are illegal,” Margrethe Vestager, the European anti-trust commissioner, said.

The Commission noted that Starbucks’s coffee roasting subsidiary in Amsterdam was given selective advantage by a 2008 tax ruling issued by Dutch authorities, and reduced its tax burden by €20-30 million.

The 2008 rulings allowed lowered tax rates for Starbucks in two ways.

It paid a substantial royalty to Alki (a UK-based company in the Starbucks group) for coffee-roasting know-how, and paid an inflated price for green beans to Switzerland-based Starbucks Coffee Trading SARL, the Commission said.

The Commission said the Fiat subsidiary also enjoyed an advantage as a Luxembourg tax ruling in 2012 unduly reduced its tax burden by €20-30 million.

The EU executive said the capital base calculated by the tax ruling is much lower than Fiat’s actual capital, and the estimated remuneration of the tax for this lower capital is also much lower compared to market rates.

Starbucks to appeal

The companies, Luxembourg, and the Netherlands all deny breaching EU state aid rules.

Starbucks plans to appeal the ruling, arguing they adhered to the rules of the Netherlands and the OECD, the Paris-based club of the world's 33 richest countries.

A spokesperson for the US company said they agree with the Netherland’s assessment that there are “significant errors” in the decision.

An EU source argued, however: “We are not the police of the OECD, they have their own rules.”

The Netherlands was “surprised” by the decision, and said “it raises a lot of questions.” It added in a statement: “The Netherlands is convinced that actual international standards are applied.”

Luxembourg also disagrees with the Commission’s ruling, it said in a statement. It claimed the Commission has used “unprecedented criteria” in establishing the state aid decision.

While the tax authorities of the two member states made the schemes possible, EU state aid rules do not allow the Commission to fine member states for illegal behavior.

However, if member states fail to recover the illicit state aid, then the Commission could take the country to court and then the court could impose a fine.

US giants Apple in Ireland and Amazon in Luxembourg are also under scrutiny by the EU Commission and Wednesday’s decisions could be bad omen.

But Vestager insisted they are different cases.

“These are very different cases and will be assessed on their own merit. The outcome today does not prejudge the next decisions we will eventually take,” the Danish commissioner said.

It is not clear yet when those investigations will close.

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