EU rules Starbucks, Fiat tax deals illegal, rocking system

Wed Oct 21, 2015 4:24pm EDT
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By Foo Yun Chee and Philip Blenkinsop

BRUSSELS (Reuters) - The European Commission ruled on Wednesday that Starbucks Corp (SBUX.O: Quote) and Fiat Chrysler Automobiles NV (FCHA.MI: Quote) benefited from illegal tax deals with the Dutch and Luxembourg authorities, dealing a heavy blow to profit-shielding arrangements used by many multinationals.

Antitrust commissioner Margrethe Vestager said all firms must pay a "fair share" and ordered the Netherlands to recover 20 million to 30 million euros ($23 million to $34 million) in back taxes from the U.S. coffee shop chain. Luxembourg must recover a similar amount from Italian-U.S. carmaker Fiat.

The sums will barely dent revenues. The bigger impact lies ahead for global corporations whose strategies to avoid tax are under attack on various fronts from cash-strapped governments. One leading consultant said this first of several EU cases to be concluded would "rock the corporate world to its very core".

Starbucks immediately said it would appeal, echoing the Dutch government in accusing the European Union executive of significant "errors" in its assessment. Luxembourg, where much of the economy has been built on attracting multinational firms, said it disagreed and reserved its right to appeal.

Fiat denied receiving any aid from the Luxembourg state.

Vestager, a Dane who has denied accusations of anti-American bias in launching other tax probes into Apple Inc (AAPL.O: Quote) and Inc (AMZN.O: Quote) and competition inquiries into Google Inc (GOOGL.O: Quote), took care to avoid intruding on EU governments' jealously guarded rights to set their own tax rates. The issue, she stressed, was firms being treated differently within the same national system.

"The decisions send a clear message," she told reporters in Brussels. "National tax authorities cannot give any company, however large or powerful, an unfair competitive advantage compared with others. For most companies, especially the small and medium-sized, I hope this is a reassuring message."

The Commission said Starbucks benefited from a tax ruling - an assurance of future tax levels - from Dutch authorities in 2008 and Fiat from a ruling in Luxembourg in 2012. It concluded that the taxable profits for Fiat's Luxembourg unit could have been 20 times higher under normal market conditions.   Continued...

A Starbucks cafe is seen in Los Angeles, California March 26, 2015. REUTERS/Lucy Nicholson