Starbucks and Fiat Chrysler’s tax avoidance deals to be ruled illegal
Companies face multimillion-euro repayment bills after EC’s 15-month investigation. Rulings on Amazon and Apple will follow
Starbucks and Fiat Chrysler are expected to be billed for tens of millions of euros in additional taxes as the European commission prepares to rule that they had unlawful deals with the Netherlands and Luxembourg.
Starbucks has for years made the Netherlands its European hub while Fiat has based a lucrative internal financing subsidiary in Luxembourg. In both cases, the multinationals approached the local tax authorities to seek assurances that their controversial tax structures in these countries would not be challenged.
These assurances – often known as “comfort letters” – are expected to be torn up on Wednesday when Margrethe Vestager, the competition commissioner, confirms the commission has concluded that the two tax rulings constitute illegal state aid. The decision into the sweetheart tax deals follows a 15-month investigation.
At the heart of the dispute over Starbucks’s tax rulings is the amount of taxable profits the US group attributes to a bean-roasting subsidiary in Amsterdam. Because of favourable tax treatments available in the Netherlands, the coffee group’s tax planners have been keen to ensure as much of its income as possible is channelled through the country.
But the commission is expected to say Starbucks artificially inflated the internal price at which its Dutch roastery bought beans from another Starbucks company in Switzerland. The Financial Times, citing sources close to the investigation, estimated the group’s likely additional tax bill could be about €30m (£22m). The decision against Fiat’s sweetheart tax deal is expected to be more costly.
In both cases, additional tax would be payable to the authorities in the Netherlands and Luxembourg. Tax campaigners say this is inappropriate because these countries have effectively allowed the multinationals to avoid tax that should have arisen elsewhere.
Fiat and Starbucks are believed to have been paying a fraction of the headline tax rates in Luxembourg and the Netherlands for many years. Both nations are among the most successful at persuading multinationals to relocate their European hub operations within their borders.
Under European state aid regulations, investigations into tax rulings have no powers to tackle tax avoidance directly. They can only intervene if it can be demonstrated that any such avoidance was part of a sweetheart deal and therefore not available to competitor firms.
Many senior European politicians have called for stronger powers to tackle prolific tax ruling programmes in several member states. Luxembourg became the focus of criticism after the LuxLeaks scandal exposed the industrial scale on which such rulings were being granted there. The Grand Duchy felt it had been unfairly singled out, arguing it used generous tax policies to attract inward investment just as other countries did.
The commission president, Jean-Claude Juncker, who was previously prime minister of Luxembourg, responded to the LuxLeaks scandal by pressing for greater coordination on taxation between member states, ultimately allowing multinationals to file a single European tax return. Such plans are fiercely resisted by several countries, including Britain and Ireland, and are unlikely to receive the required unanimity among member states to be adopted.
The action on tax rulings awarded to Starbucks and Fiat is not expected to be the last word from Brussels’ state aid investigators. These will soon be followed by decisions on more controversial cases involving Amazon’s tax affairs in Luxembourg and Apple’s arrangements in Ireland.
Starbucks, which has shifted its European corporate headquarters in the UK, said it “continues to cooperate with the commission’s state aid investigation in the Netherlands”.
Fiat Chrysler said an agreement it reached with the government of Luxembourg was aimed only at clarifying pricing rules and “did not result in any state aid.”
