UK and International Tax news

EC Decides On State Aid Investigations Into Fiat In Luxembourg And Starbucks In The Netherlands

Tuesday 27th October 2015

The European Commission has recently decided that Luxembourg and the Netherlands have granted selective tax advantages to Fiat Finance and Trade and Starbucks, respectively and these are illegal under EU state aid rules. In each case, a tax ruling issued by the respective national tax authority artificially lowered the tax paid by the company.

Tax rulings as such are perfectly legal and are comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions. However, according to the EC, the two tax rulings under investigation endorsed artificial and complex methods to establish taxable profits for the companies and as such did not reflect economic reality. In particular, by setting transfer prices for goods and services sold between companies of the Fiat and Starbucks groups that did not correspond to market conditions, most of the profits of Starbucks’ coffee roasting company were shifted abroad, where they were also not taxed, and Fiat’s financing company only paid taxes on underestimated profits.

The EC has ordered Luxembourg and the Netherlands to recover the unpaid tax from Fiat and Starbucks, respectively, in order to remove the unfair competitive advantage they have enjoyed and to restore equal treatment with other companies in similar situations. The amounts to recover are €20 – €30 million for each company. It also means that the companies can no longer continue to benefit from the advantageous tax treatment granted by these tax rulings.

The EC continues to pursue its enquiries into tax rulings practices in all EU Member States. It cannot prejudge the opening of additional formal investigations into tax rulings if it has indications that EU state aid rules are not being complied with. Its existing formal investigations into tax rulings in Belgium, Ireland and Luxembourg are ongoing.

For more details on the background to the Luxembourg and Netherlands rulings, see our previous International Tax News item of November 2014 or contact Keith Rushen on 0207 486 2378.

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