EU rules Starbucks, Fiat tax deals are illegal

Wednesday's ruling means authorities in the Netherlands and Luxembourg have two months to do the math and start recovering back taxes - between 20 million and 30 million euros ($23 million and $34 million) - from Starbucks Manufacturing and Fiat Finance and Trade, which are entities of Starbucks and Fiat.

For the majority of companies, especially those that are smaller or medium sized she said she hoped the announcement had been reassuring.

The Netherlands has come under pressure in recent years to reform its tax system, which enables numerous world's largest companies to shift profits to tax havens. Among the companies that are suspected to be avoiding taxes are Amazon.com in Luxembourg, Apple in Ireland, and AB InBev in Belgium.

The scheme helped Starbucks in the Netherlands pay less than €600,000 in tax while Fiat's Luxembourg subsidiary paid less than €400,000. Nevertheless, the Dutch authorities said they are "convinced that actual global standards [were] applied and shall, therefore, analyze the Commission's criticism carefully before taking a decision on further steps".

"Starbucks 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", a spokesman said.

The European Commission, the EU's executive arm, said on Wednesday that tax deals granted to Starbucks in the Netherlands and Fiat in Luxembourg amounted to illegal state subsidies that must be repaid.

According to lawyers and other persons involved in the cases, EC commissioner Margrethe Vestager was more concerned with establishing tough measures to counter certain types of aggressive tax avoidance than imposing heavy financial penalties on Fiat and Starbucks. As a result Fiat Finance and Trade only paid taxes on its underestimated profits.

The LuxLeaks scandal revealed that major worldwide companies had negotiated lower taxes in secret deals with Luxembourg. Apple said that it paid all taxes due.

The ruling paths the way for future action on the tax arrangements of other high-profile multinationals, which minimise their taxes in Europe by funnelling profits through headquarters in one country where these deals are struck.

The commissioner clarified that such tax ruling are legal but only if they are used by a tax authority to give clarity to a company on how its corporate tax is to be calculated. The company had "an artificial and extremely complex methodology" for calculating tax with Luxembourg.

"It can not prejudge the opening of additional formal investigations into tax rulings if it has indications that European Union state aid rules are not being complied with".

Poverty effort organisation ActionAid said today's opinion was "only the tip of the iceberg in regards to corporate tax breaks".

"We do not stop here", Vestager warned.