European Commission rules Fiat and Starbucks tax arrangements illegal
Author: Sarah Livestro
Applies to: European Union
Following an investigation, the European Commission has ruled that the so-called 'tax rulings' issued to Starbucks in the Netherlands and to Fiat in Luxembourg broke EU State aid rules.
Tax rulings are letters issued by a national tax authority giving advance notice of a company's tax bill. In themselves, such tax rulings are not unlawful. But Member States must make sure that their tax systems do not give certain companies a selective advantage over others. Such selective advantages may make it more difficult for unaided companies to compete and so are generally prohibited by EU State aid rules, which seek to create a level playing field for businesses operating in the EU.
The European Commission concluded that both tax rulings under investigation endorsed 'artificial and complex' methods for establishing taxable profits for the companies, which led to both underpaying tax. In particular, they allowed goods and services to be transferred between companies in each group at uncommercial prices. This meant that Starbucks was able to shift most of its profits abroad, where they were not taxed either, whilst Fiat's financing company paid tax only on underestimated profits.
Both the Netherlands and Luxembourg have therefore been ordered by the European Commission to recover the unpaid tax from Starbucks and Fiat respectively. The purpose of such a recovery decision is not to punish the Member State or the company in question, but rather to remove the unfair competitive advantage that has been granted through the illegal State aid. The amounts to be recovered are in the region of 20 - 30 million (EUR) for each company.
Commenting on the rulings, Competition Commissioner Margrethe Vestager said: '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.'
Meanwhile, the Commission's probe into the way in which tax rulings have been issued in other Member States - including Belgium and Ireland - continues, with further recovery decisions possible.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.