World Economy

Starbucks, Fiat Chrysler Tax Deals ‘Illegal’

Starbucks, Fiat Chrysler Tax Deals ‘Illegal’
Starbucks, Fiat Chrysler Tax Deals ‘Illegal’

Starbucks and Fiat Chrysler have been told they must pay back between €20 million and €30 million in taxes after European tax deals were ruled illegal, BBC reported.

Tax deals that Starbucks had with the Netherlands and Fiat’s financing firm had with Luxembourg were state aid, European competition commissioner Margrethe Vestager said.

The Netherlands and Luxembourg disagreed with the commission.  Starbucks said it would appeal against the decision.

Further investigations into tax deals, including those covering Amazon and Apple, are continuing.

“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,” Vestager said.

“All companies, big or small, multinational or not, should pay their fair share of tax,” she added.

Although “comfort letters” or tax rulings by governments are legal, the arrangements with Starbucks and Fiat Chrysler “do not reflect economic reality”, the commission said.

In particular, the firms used so-called “transfer pricing arrangements” between subsidiaries that let Starbucks shift profits abroad and Fiat to pay taxes on “underestimated profits”, it added.

The commission said taxable profits for Fiat’s Luxembourg unit could have been 20 times higher under normal market conditions.

“Our decisions today show that artificial and complex methods endorsed by tax rulings cannot mask the actual profits of a company, which must be properly and fully taxed,” Vestager said.

 ‘Errors’ in Decision

The Dutch government said it was “surprised” by the decision and that it was convinced its arrangement with Starbucks was in line with international standards.

A Starbucks spokesman said: “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.”

The Luxembourg Ministry of Finance said the commission had “used unprecedented criteria in establishing the alleged state aid”.

“Luxembourg disagrees with the conclusions reached by the European Commission in the Fiat Finance and Trade case and reserves all its rights,” it said.

Fiat Chrysler denied receiving any illegal state aid from Luxembourg.