FIAT & STARBUCKS facing state aid case

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FIAT & STARBUCKS facing state aid case

The European Commission has decided that Luxembourg and the Netherlands have granted illegal selective tax advantages to Fiat Finance and Trade and Starbucks.

“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”

Said Competition Commissioner Margrethe Vestager.

Following in-depth investigations launched in June 2014, DG COMP concluded that Luxembourg granted selective tax advantages to Fiat’s financing company and the Netherlands to Starbucks’ coffee roasting company.

In each case, a tax ruling issued by the respective national tax authority artificially lowered the tax paid by the company.

Tax rulings – perfectly legal as such – are comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions.

According to the Commission, however, Fiat and Starbucks profited from artificial and complex methods to establish taxable profits which did not reflect the economic reality.

As a result, most of the profits of Starbucks were shifted abroad, where they were also not taxed, and Fiat’s financing company only paid taxes on underestimated profits, which is obviously illegal under EU state aid rules.

Using tax rulings to establish transfer prices with no economic justification and which unduly shift profits to reduce the taxes paid by the company gives a company an unfair competitive advantage over other companies taxed on their actual profits.

Luxembourg and the Netherlands were thus ordered to recover the unpaid tax from Fiat and Starbucks, in order to remove the unfair competitive advantage they enjoyed and to restore equal treatment with other companies in similar situations.

The amounts to recover are €20 – €30 million.

Sources at the Commission confirm that DG COMP will continue its inquiry into national tax rulings and the ongoing cases in Belgium, Ireland and Luxembourg.

As far as Fiat is concerned, the investigation showed that a tax ruling issued by the Luxembourg uthorities in 2012 gave a selective advantage to Fiat Finance and Trade, which has unduly reduced its tax burden.

DG COMP compared Fiat Finance and Trade’s activities to those of a bank, estimating the taxable profits as a calculation of return on capital deployed by the company for its financing activities and established that the tax ruling at stake endorsed an artificial and extremely complex methodology which was found not to be appropriate for the calculation of taxable profits in normal market conditions.

As a result, Fiat Finance and Trade has only paid taxes on a small portion of its actual accounting capital at a very low remuneration, such as 20 times lower than due.

Starbucks Manufacturing EMEA, based in the Netherlands, is the only coffee roasting company in the Starbucks group in Europe, selling and distributing roasted coffee and coffee-related products (e.g. cups, packaged food, pastries) to Starbucks outlets in Europe, the Middle East and Africa.

The investigation showed that 2008 Dutch tax ruling unduly reduced its tax burden, by accepting the payment of a very substantial royalty to a UK-based company in the Starbucks group (Alki) and an inflated price for green coffee beans to Switzerland-based Starbucks Coffee Trading SARL.

DG COMP is convinced that the royalty paid to Alki cannot be justified, as it does not adequately reflect market value and the Starbucks tax base was unduly reduced by the highly inflated price of green coffee beans paid to the Swiss company.

As EU state aid rules require incompatible state aid to be recovered, the Commission has calculated as €20 – €30 million the value of the undue competitive advantage enjoyed by Fiat and Starbucks. The precise amounts of tax to be recovered will now be determined by the Luxembourg and Dutch tax authorities, on the basis of the methodology established by DG COMP.

Filippo Giuffrida Répaci

 

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