US coffee retailer Starbucks and the financing arm of Italian carmaker Fiat must repay several million of euros in illegal tax advantages. The ruling is part of an EU clampdown on corporate tax avoidance.
EU Competition Commissioner Margrethe Vestager announced Wednesday that tax rulings which “artificially reduce a company’s tax burden” were illegal because they were “not in line with EU state aid rules.”
As a result, the EU Commission ordered the Netherlands and Luxembourg to recover the illegal tax benefits from Starbucks and Fiat, respectively. The Commission estimated the each company could owe up to 30 million euros ($34 million), but said the precise amounts would have to be determined by authorities in the Netherlands and Luxembourg.
The EU Commission found that Starbucks in the Netherlands and Fiat’s financing arm in Luxembourg used “artificial and complex methods” that “do not reflect economic reality” and thereby “unduly reduced” the taxes paid by the two companies.
Such an approach gave companies “an unfair competitive advantage over other companies, typically small and medium enterprises,” the Commission added.
“I hope that with today’s decisions, this message will be heard by member state governments and companies alike,” Vestager said in a statement. “All companies, big or small, multinational or not, should pay their fair share of tax.”
Only the tip of the iceberg
In the past, the two countries had denied any wrongdoing, as did Fiat on Tuesday in response to media speculation about the impending commission decision.
“Fiat Chrysler Finance Europe never sought any derogation from the general law,” the company said in a statement. “Fiat Chrysler Finance Europe did not receive any state aid.”
The commission said that its decisions in the Starbucks and Fiat cases did not prejudge the outcome of investigations it had launched into other multinationals in the 28-country bloc. The EU executive had initially started probing six concrete cases of preferential tax arrangements, but hundreds of additional firms are affected and will soon receive similar mail in their letter boxes.
It’s all about companies having been given advance tax notice in Luxembourg, the Netherlands and Ireland. Those tax rulings are not illegal per se, but have put big companies in a position to pay almost no corporate taxes with the help of their subsidiaries in some of Europe’s tax havens.
That practice had been branded as aggressive tax avoidance when it came to light in the wake of the LuxLeaks affair and the publication of sensitive tax documents. Since then, the EU executive has called on all member states in the bloc to submit their advance tax notice documents to Brussels.
New rules against tax avoidance
A set of new rules came into effect at the beginning of October. Responding to the LuxLeaks revelations, EU finance ministers agreed on the automatic exchange of tax data in a bid to make public the taxation of big companies and head off competition for the best tax haven in the bloc.
Sven Giegold, a member of the European Parliament for the Green Party, has been in the forefront of the fight for tax justice in dealing with multinational companies.
“It’s all about competition fairness and justice,” he said. “It can’t be tolerated if some companies are particularly resourceful in avoiding taxes. The European Commission is called upon to secure a level playing field for all.”
Giegold expects the companies concerned to appeal against the claims levied against them. Litigation procedures may well drag on for many years. The MEP wants any money eventually recouped to be funneled into the pan-EU budget rather than being channeled back to individual nations
“It would be absurd to see the recouped money go back directly to the very countries, which facilitated the preferential tax deals in the first place,” he said.
Giegold wants the mandate for the current inquiry to be extended – a mandate, which would otherwise expire towards the end of November.
He says the investigating committee has only now got access to important taxation documents shedding more light on the various tax avoidance schemes in a number of member states. Giegold insists investigations into the matter be continued unabated.
uhe/cjc (AFP, Reuters, dpa)