EU demands Starbucks, Fiat pay back illegal state aid

“It seems to us to be a serious matter for the commission to suggest that any revenue authority might issue any ruling which does not reflect economic reality”.

Vestager said Fiat’s taxes “would have been 20 times higher if calculations had been done at market conditions”. Luxembourg-based Fiat Chrysler Finance Europe has obviously paid only 1 percent effectively in corporate taxes instead of the regular 29 percent.

The European Commission polices state aid and antitrust laws and has been tightening loopholes in EU legislation that have allowed individual EU countries to attract multinationals with advantageous tax deals. The amounts to recover are €20 – €30 million for each company. The bigger impact lies ahead for global corporations whose strategies to avoid tax are under attack on various fronts from cash-strapped governments. It is also probing Belgium’s excess profit ruling system. No decision has been announced yet in the third case.

Luxembourg’s government said it disagreed with the EU’s decision “and reserves all its rights”. It engages in many different transactions with Fiat group companies in Europe.

Starbucks is expected to get off the lightest, facing back taxes of a few 30 million euros ($34 million).

But for Fiat, it ought to turn out a much costlier affair. The tax strategies the Commission is now calling illegal state aid are used by many companies, he said.

As a result, Fiat Finance and Trade has only paid taxes on a small portion of its actual accounting capital at a very low remuneration.

Luxembourg said it disagreed with the commission, but would analyse the ruling first. The royalty therefore mainly shifts to Alki profits generated from sales of other products sold to the Starbucks outlets, such as tea, pastries and cups, which represent most of the turnover of Starbucks Manufacturing. Under European Union law, the Commission can only order the recovery of state aid plus interest.

Today’s decision sets a precedent and may determine the outcome of other ongoing probes such as the two-year tax investigation into Apple and Amazon.

The decision by European Competition Commissioner Margrethe Vestager forms part of a crackdown by regulators worldwide against tax avoidance. Eva Joly, a Green MEP and long-time critic of tax rulings, warned that Luxembourg and the Netherlands were hardly alone in abusing the practice. Philips and Lite-On also were fined as was a joint venture established by the two companies, but they had the punishments waived because they were first to reveal the existence of the cartel.

“It’s all about competition fairness and justice”, he said.

Representatives from Fiat or Luxembourg’s national tax authority were not immediately available for comment.