Starbucks and Fiat set to be first in firing line for EU tax rulings

Starbucks and Fiat Chrysler Automobiles are set to be first in the firing line as European Union regulators issue a series of rulings over tax breaks for global companies, including Apple.

The EU may issue decisions against Starbucks and Fiat as soon as next week following a two-year investigation into how the companies may have received unfair tax treatment from Dutch and Luxembourgish authorities, sources said.

Speculation about the inquiries intensified this week as Margrethe Vestager, the EU's competition chief, cancelled a scheduled visit to China, citing pressing matters relating to her job.

Decisions on whether iPhone maker Apple and Amazon. com got sweetheart tax deals from Ireland and Luxembourg are expected at a later date, said the sources.

Apple

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 (€26bn) in profit since 2009.

The revelations set in motion the EU competition regulator, which opened investigations into the iPhone maker, Starbucks’ relationship with the Netherlands, and Amazon and Fiat deals in Luxembourg within months.

While the EU focused on those four companies, the widespread nature of corporate tax avoidance in Luxembourg was highlighted in late 2014 when thousands of pages of secret fiscal deals the tiny nation struck with companies from around the world, including PepsiCo and Walt Disney, were leaked by an international consortium of journalists including The Irish Times.

Starbucks ‘co-operating’

Seattle-based Starbucks said in a statement that it complies with all relevant tax laws around the globe and pays an “effective tax rate of around 33 per cent.” The company said it is cooperating with the EU probe. Officials from Luxembourg, the Netherlands and the EU declined to immediately comment.

Fiat declined to comment beyond previous statements.

The Wall Street Journal reported earlier on Thursday that the EU would issue rulings saying the tax deals were improper.

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 California-based technology company said in a filing with the US Securities and Exchange Commission.

The Finance Minister Michael Noonan has vowed to go to court to fight any negative ruling in the Apple case. Whatever happens, "we don't think it will be damaging," he told reporters earlier this month.

“If it’s adverse, we think it’s based on very thin legal grounds and we’ll have it before the European Court of Justice.”

Back taxes

Any ruling from the EU is unlikely to resolve how much money national governments have to claw back from the companies. Commission officials have previously said the initial decisions will merely contain a formula for national officials to calculate how much back taxes are owed. While Ms Vestager has promised" to move quickly to complete the investigations, she has vowed not to sacrifice quality for speed, as the regulator seeks to build legally sound cases that can fend off legal challenges.

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 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. Fiat said last year it didn’t request a ruling to obtain a tax exemption from Luxembourg and was surprised by the inquiry.

Bloomberg