EU rules Starbucks, Fiat tax deals are illegal

BRUSSELS - Reuters

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The European Commission ruled on Oct. 21 that Starbucks and Fiat benefited from illegal tax deals with the Dutch and Luxembourg governments, in cases with major implications for the taxation of multinational companies.

Antitrust commissioner Margrethe Vestager said all firms must pay a “fair share” and ordered the Netherlands to recover 20-30 million euros ($23-34 million) in back taxes from the U.S. coffee shop chain. Luxembourg must recover a similar amount from Italian-U.S. carmaker FiatChrysler Automobiles, she said.
Starbucks immediately said it would appeal, echoing the Dutch government in accusing the European Union executive of significant “errors” in its assessment. Luxembourg, where much of the economy has been built on attracting multinational firms, said it disagreed and reserved its right to appeal.

Fiat denied receiving any aid from the Luxembourg state.

Vestager, a Dane who has denied accusations of anti-American bias in launching other tax probes into Apple and Amazon and competition inquiries into Google, took care to avoid intruding on EU governments’ jealously guarded rights to set their own tax rates. The issue, she stressed, was firms being treated differently within the same national system.

“The decisions send a clear message,” she told reporters in Brussels. “National tax authorities cannot give any company, however large or powerful, an unfair competitive advantage compared to others. For most companies, especially the small and medium-sized, I hope this is a reassuring message.”

The Commission said Starbucks benefited from a tax ruling -- an assurance of future tax levels -- from Dutch authorities in 2008 and Fiat from a ruling in Luxembourg in 2012. It concluded that the taxable profits for Fiat’s Luxembourg unit could have been 20 times higher under normal market conditions.

The precise amount of tax to be recovered must now be determined by Luxembourg and the Netherlands on the basis of the Commission’s methodology.

Marc Sanders of tax advisers Taxand said the ruling would “rock the corporate world to its very core”.

“Whilst multinationals were lured to EU states with offers of low tax rates as an incentive, little did they know that, despite having agreement at the highest national level, this would come back and bite a decade later,” he said.