Cantillon: Taxing times ahead for multinationals

If the corporate world is in any doubt that the international tax environment is changing, they will get clear evidence of it in the days ahead. The EU Commission is due to issue rulings on the tax affairs of Starbucks and Fiat which will say that they were given illegal state aid which must be repaid.

The governments involved – the Netherlands for Starbucks and Luxembourg for Fiat – are unlikely to want the cash, and the cases may well be appealed to the European Court of Justice, potentially tying them up for years. The rulings relate to letters of comfort provided to the companies by the two countries, which the EU Competition Commission, led by Margrethe Vestager,will rule as illegal.

The Financial Times reports today that the sums of money will not be enormous, about €30 million possibly for Starbucks and a bit more for Fiat, but nothing like the billions which some analysts said were in play in bigger cases, notably the case against Apple and the Irish government, where a ruling is due in the coming weeks.

The Government here will be watching closely. It appears that the EU Commission will not state what sums of money are required to be repaid, but instead will indicate a way they believe this should be calculated. This same approach is also likely to be adopted in the case of Apple, which the Commission believes got illegal state aid from Ireland. However the crux, of course, is what method of calculation it points to and how much money this implies that Apple may owe.

The Apple case will almost certainly be appealed and Government sources point out that this will tie the whole thing up for years. Would Apple be tempted to settle if the amount involved was less than the telephone numbers speculated? Sources believe there were some contacts between the company and the Commission, but there is no sign that the company is prepared to settle the case. Meanwhile Government sources here express confidence about the prospects of taking the case to the European Courts.

For the EU Commission it is probably more about setting down a precedent than about expecting vast amounts of tax to be repaid. The movement of royalty income, in particular, has been used as an aggressive tax avoidance manoeuvre which the EU wants to shut down. With the new OECD rules also coming on stream, times are changing for multinationals, though how much more they will end up paying remains to be seen.