EU to make Starbucks, Fiat pay €30m each in back taxes

Starbucks and Fiat Chrysler must each pay as much as €30 million in back taxes after the European Union said they were handed illegal fiscal deals by the Netherlands and Luxembourg.

The coffee company and the Italian carmaker are the first two companies facing repayment orders as EU regulators seek to clamp down on tax-dodging multinationals.

The decision now sets up a showdown with Apple and Amazon, which are also embroiled in the two-year-long tax probe.

“Tax rulings that artificially reduce a company’s tax burden are not in line with EU state aid rules. They are illegal,”said Margrethe Vestager, the EU competition commissioner.

“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, Fiat, Apple and Amazon may be the tip of the iceberg after revelations of widespread use of sweetheart tax deals hit the headlines last year.

Documents leaked by group of investigative journalist showed that Luxembourg alone struck hundreds of secret fiscal deals known as tax rulings with companies from around the world, from PepsiCo to Walt Disney. Amazon, which has more than 1,000 people working in the tiny nation, said in July its taxes could increase in case of a negative decision by the EU in its case.

"The amounts to recover are €20 million to €30 million for each company," Ms Vestager said.

“It also means that the companies can no longer continue to benefit from the advantageous tax treatment granted by these tax rulings. The Dutch and Luxembourg tax authorities must work out the actual amounts based on a method provided by the commission.

Starbucks said it “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 dispute between the European Commission and the Netherlands as to which OECD rules we and others should follow could require us to pay about €20 million to €30 million on top of the $3 billion in global taxes we have paid over the seven years in question (2008-2014)," the company said.

A Fiat Luxembourg unit “did not receive any state aid” and “any finding in this matter would be immaterial to the FCA Group’s reported results,” the company said.

The Organization for Economic Cooperation and Development, a research institute funded by 34 countries including the US, sets tax standards used by countries across the world. EU lawmakers in February created a special committee looking into corporate tax dodging following public outrage after the so-called LuxLeaks.

The furore over taxes has put pressure on Luxembourg’s Jean- Claude Juncker, who became European Commission president last November, after almost 19 years as the leader of his country, when many deals now under scrutiny were arranged.

Apple's tax strategies were thrown in the spotlight in 2013 when US Senate scrutiny showed that a unit incorporated in Ireland and controlled by a board in California didn't pay taxes in either location despite having recorded $30 billion in profit since 2009. The revelations set in motion the EU competition regulator, which opened probes into the iPhone maker, Starbucks' relationship with the Netherlands, and Amazon and Fiat tax arrangements in Luxembourg within months.

Earlier this month, Mr Juncker was forced to release an unpublished page of a document cautioning his government in 1997 about the possible risks of special tax accords with international companies, after being accused of lying when he appeared before a special committee of the EU Parliament looking into tax rulings.

Apple raised a flag in April about the potential cost if the company is required to pay past taxes to Ireland as part of the European Commission investigation. While Apple hasn't been able to estimate the amount, it could be "material," the Cupertino, California-based technology company said in a filing with the US Securities and Exchange Commission.

In the Starbucks case, the commission said last year that a Dutch unit paid millions of euros to a UK-based arm of the company that isn’t taxed in Britain in exchange for a technique to roast coffee beans.

Exaggerated tax-deductible royalty payments for this technique may have allowed Seattle-based Starbucks to unfairly lower its Dutch taxes, the commission said.

In the Fiat case, the commission raised doubts over Luxembourg's arrangement with Fiat Finance and Trade SA. Fiat said last year it didn't request a ruling to obtain a tax exemption from Luxembourg and was surprised by the probe.

The Brussels-based commission is bracing itself for legal challenges and spent months honing its arguments so they stand up in court.

Ms Vestager has repeatedly said that while the cases were urgent, officials won’t sacrifice quality for speed.

The EU’s clampdown comes amid a backdrop of intensified global efforts to tackle unfair tax competition, driven by post- financial crisis austerity.

Bloomberg