Starbucks and Fiat ordered to repay $30m in tax breaks

Starbucks has said that it will appeal against the decision

Leo Cendrowicz
Thursday 22 October 2015 01:27 BST

Fiat and Starbucks were each ordered to pay back up to €30m (£22m) in taxes after the European Commission ruled that the Netherlands and Luxembourg had granted them illegal tax breaks.

Margrethe Vestager, the EU Competition Commissioner, said Luxembourg’s sweetheart tax scheme with Fiat’s local subsidiary, and the Dutch deal with a local Starbucks entity constituted unlawful state aid. She left it to the two governments to set the precise figures.

Ms Vestager said that while specific government tax rulings are often legal, they had to correspond to real market conditions. But the schemes designed for Starbucks and Fiat “do not reflect economic reality”.

“The decisions send a clear message: national tax authorities cannot give any company, however large or powerful, an unfair competitive advantage compared to others,” she said. “I hope this is a reassuring message – for those who have paid their fair share in tax.”

In both cases, the commission detailed complex arrangements that put artificial price tags on transactions between companies in the same group. In Starbucks’ case, its Dutch unit paid vastly inflated royalties for coffee-roasting know-how from the UK arm, and overpaid for green coffee beans from Switzerland-based Starbucks Coffee Trading. The scheme helped Starbucks in the Netherlands pay less than €600,000 in tax while Fiat’s Luxembourg subsidiary paid less than €400,000.

Appeals against the rulings are expected. The Dutch government said it was “surprised” by the decision and insisted its arrangements met with international standards, while Starbucks said it would appeal. Luxembourg said it disagreed with the commission, but would analyse the ruling first.

The rulings suggest bad news for Amazon and Apple: the commission is investigating them over similar schemes. The NGO ActionAid welcomed the ruling, but warned that it was just the tip of the iceberg: “ActionAid estimates that developing countries lose at least $138bn per year to special tax breaks,” it said.

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