The European Commission (EC) has ruled that a deal between Starbucks and Dutch tax officials five years ago is unlawful state aid, effectively over-ruling a sovereign nation’s legal jurisdiction in favour of its own decree.
A separate agreement between Fiat Chrysler and Luxembourg’s tax authorities also violated European state aid rules, the commission decided.
The two companies are expected to face tens of millions of euros in additional tax bills but have indicated they will appeal today’s ruling.
The judgement is part of a Brussels crackdown on private tax deals some member states strike with large multinationals. Commission officials are looking at similar deals secured by Amazon in Luxembourg and Apple in Ireland.
Margrethe Vestager (pictured above), the EC competition commissioner, believes such arrangements violate the principle that all companies should pay tax at source. She said: “Tax rulings that artificially reduce a company’s tax burden are not in line with EU state aid rules. They are illegal. I hope that, with today’s decisions, this message will be heard by member state governments and companies alike. All companies – big or small, multinational or not – should pay their fair share of tax.”
Starbucks claimed significant errors in the ruling will be exposed by its appeal. While the decision was technically against the Dutch state for endorsing Starbucks’ controversial structure, the Seattle-based coffee firm said those accused of receiving illegal state aid were entitled to appeal in the European courts and they would be pursuing that course.
The commission estimates that since 2008 the Dutch tax ruling allowed Starbucks to avoid tax of between €20m and €30m (£14m-£22m). The same sum was estimated to have been avoided again at Fiat in the last three years.
Last year, Starbucks’ Dutch unit paid less than €600,000 in tax while Fiat’s Luxembourg subsidiary paid less than €400,000.
In its two decisions, the commission set out the methodology to calculate the value of the undue competitive advantage enjoyed by Fiat and Starbucks, i.e. the difference between what the company paid and what it would have paid without the tax ruling.
This amount is €20 – €30 million for each of Fiat and Starbucks but the precise amounts of tax to be recovered must now be determined by the Luxembourg and Dutch tax authorities on the basis of the methodology established in the Commission decisions.
The Dutch government said it was “somewhat surprised” by the decision and would study it before deciding whether to lodge an appeal. “Within the Dutch tax system profit is taxed where value is created.”
A Starbucks spokesman said: “Starbucks shares the concerns expressed by the Netherlands government that there are significant errors in the decision, and we plan to appeal, since we followed the Dutch and OECD rules available to anyone.”
The Luxembourg Ministry of Finance said the Commission had “used unprecedented criteria in establishing the alleged state aid”.
“Luxembourg disagrees with the conclusions reached by the European Commission in the Fiat Finance and Trade case and reserves all its rights,” it said.
Vestager affirmed the decisions in relation to Starbucks and Fiat sent “a clear message: national tax authorities cannot give any company, however large or powerful, an unfair competitive advantage compared to others”. As well as ongoing investigations into Apple’s affairs in Ireland and Amazon’s deal with Luxembourg, she said: “More cases may come, if we have indications that EU state aid rules are not being complied with.”
However, she added that state aid investigations were “just one part of a wider package that needs to come together to effectively address corporate tax avoidance”.