Brussels rules Starbucks, Fiat tax deals unlawful

Less than two weeks ago, it was revealed that Facebook had paid just 4,327 pounds ($6,647) in United Kingdom corporation tax in 2014 – paying less tax previous year than the average British worker. The amounts to recover are €20 – €30 million for each company.

Both Luxembourg and the Netherlands have opposed the ruling and questioned the European regulators’ criteria in making the decision. But there is no fair competition when a few companies profit from preferential tax deals that aren’t available to their rivals.

The Organization for Economic Co-operation and Development estimates that loopholes allow companies to dodge as much as $240 billion in taxes per year. “Billions of euros could be at stake”.

The decision could also have a few consequences for the handful of deals being discussed between big multinationals with headquarters or units across Europe. It is also probing Belgium’s excess profit ruling system. Ms Vestager says the Netherlands will have to recoup the unpaid taxes from Starbucks and Luxembourg from Fiat. “They are illegal”, she said.

In Fiat’s case, Vestager said that if the tax bill truly reflected market conditions, “the taxable profits declared in Luxembourg would have been 20 times higher”.

Wednesday’s ruling was the first big decision to emerge.

She stressed the companies involved are not “the poster children of bad taxing behavior”. “All companies, big or small, multinational or not, should pay their fair share of tax”.

Furthermore, the Commission continues to pursue its inquiry into tax rulings practices in all EU Member States. It isn’t yet clear when those cases will be decided.

In the case of Starbucks, the Commission said: “Starbucks Manufacturing pays a very substantial royalty to Alki (a UK-based company in the Starbucks group) for coffee-roasting know-how [and] it also pays an inflated price for green coffee beans to Switzerland-based Starbucks Coffee Trading SARL”, noting the margin on these beans had more than tripled since 2011. Starbucks has paid an average global effective tax rate of roughly 33 percent, well above the 18.5 percent average rate paid by other large United States companies.

Starbucks said it would appeal the decision since it followed all the necessary tax rules.

Luxembourg said it would explore all legal options.

The Dutch government said it was “somewhat surprised” by the decision. The ministry said it was “convinced that actual worldwide standards are applied”.

Fiat Chrysler Finance (FCF), meanwhile, denies any account of receiving any state aid from the Luxembourg government.

Minister for Finance Michael Noonan announced during last week’s budget that Ireland will be one of the first countries to require companies operating here to declare to authorities how much tax they pay, and where. But governments have been hampered by a requirement that they all agree on any changes to the EU’s tax laws.

This latest ruling will have the directors of hundreds of companies trembling.