Risk & Economy » Tax » Starbucks and Fiat face huge tax bills after Benelux deal ruling

Starbucks and Fiat face huge tax bills after Benelux deal ruling

Both Netherlands and Luxembourg found to have engaged in state aid with Starbucks and Fiat respectively

LUXEMBOURG AND THE NETHERLANDS granted illegal selective tax advantages to Fiat Finance and Trade and Starbucks respectively, the European Commission has today ruled.

The companies must now pay back between €20m (£14.7m) and €30m in taxes after the commission found the arrangements constituted state aid.

The ruling could have far-reaching ramifications for other companies that have found themselves in the crosshairs over their tax structures, including Apple and Amazon, with whom a potentially bigger showdown could take place.

Starbucks’ arrangement saw the coffee chain pay tax on a lower income base and as such its bills were significantly lowered.

Between its arrival on British high streets in 1998 and 2012, it handed just £8.6m over to HM Revenue & Customs. The café minimised its tax liabilities by recording substantial losses in its UK accounts year after year.

However, following the opprobrium of the Public Accounts Committee, senior MPs, the public and the tabloids, it made the first £5m instalment of a £20m corporation tax bill in June last year.

Additionally, it has since decided to move its European headquarters from the Netherlands to London, ending its state aid relationship with the country.

“The two tax rulings under investigation endorsed artificial and complex methods to establish taxable profits for the companies,” the commission said in a statement.

“They do not reflect economic reality. This is done, in particular, by setting prices for goods and services sold between companies of the Fiat and Starbucks groups that do not correspond to market conditions. As a result, most of the profits of Starbucks’ coffee roasting company are shifted abroad, where they are also not taxed, and Fiat’s financing company only paid taxes on underestimated profits.

Commissioner Margrethe Vestager, in charge of competition policy, added: “Tax rulings that artificially reduce a company’s tax burden are not in line with EU state aid rules. They are illegal. 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.”

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