Starbucks Corp won and a Fiat Chrysler Automobiles NV unit lost court fights over European Union tax orders in conflicting decisions ahead of Apple Inc’s bid to topple its record €13bn ($14.3bn) bill.
The EU General Court in Luxembourg said that the EU failed to show that coffee giant Starbucks was granted an unfair tax deal by the Netherlands. However judges threw out a similar challenge by Fiat over its fiscal arrangements in Luxembourg. The judgments can be appealed to the EU Court of Justice, the bloc’s highest tribunal.
While the amounts at stake – about 30mn euros each for Starbucks and Fiat – aren’t huge, lawyers will pore over the judgments ahead of multiple other appeals as companies, including the iPhone maker, rail against EU Competition chief Margrethe Vestager’s five-year crackdown on allegedly unfair tax deals.
“The principles laid down in these judgments provide some ammunition for both the taxpayers and the commission in the ongoing investigations,” said Natura Garcia, a lawyer with Linklaters in London.
Tax Agreements Challenges have been piling up at the EU courts since state-aid investigators started work in 2013 to unearth what they deem to be the most problematic examples of otherwise legal individual tax agreements – or tax rulings – doled out to companies by countries.
Luxembourg’s finance ministry said it would “analyse the judgment” and pointed out that the government “in the past few years has done numerous reforms to find against fiscal fraud and tax evasion.”
The Dutch finance ministry is “glad there is clarity” following the court ruling, deputy finance minister Menno Snel said in an e-mailed statement. The judgment “means that the tax authorities have not treated Starbucks better or differently than other companies,” he said. Fiat said in an e-mailed statement that while it’s disappointed with the ruling and considering its next steps, it’s not material to the group.
Starbucks said in a statement that it pays its taxes wherever they are due and that the ruling in its challenge “makes clear” that it “did not receive any special tax treatment from the Netherlands.
The court decisions “give important guidance” to the commission on how to apply EU state aid rules in tax cases and the regulator will study them before deciding on the next steps, according to a statement by Vestager.
She said they “confirmed the commission’s approach to assess whether a measure is selective and if transactions between group companies give rise to an advantage under EU state-aid rules based on the so-called ‘arm’s length principle’.”
Vestager, who’s set to take on another 5-year stint as competition commissioner, said she’ll continue to look at “aggressive tax planning measures under EU state aid.” But ultimately, the goal is that all companies “pay their fair share of tax,” she said. This “can only be achieved by a combination of efforts to make legislative changes, enforce state aid rules and a change in corporate philosophies.”
In the Apple case, the EU said Ireland illegally slashed the iPhone maker’s tax bill, a finding the company and Irish officials don’t accept. The guidance from judges on the European Commission’s use of state aid law could also have an impact on Vestager’s ongoing tax probes, now centring on fiscal deals done by Amazon.com Inc and Alphabet Inc.
Starbucks and Fiat were targeted on the same day in 2015 by a similar EU order to pay back €30mn each over their tax arrangements in the Netherlands and Luxembourg respectively.
The EU said at the time the companies did this by setting prices for products and services sold between units – called transfer prices – that didn’t reflect market conditions.
“The mixed outcome” of yesterday’s decisions “demonstrates that the General Court is willing to support the commission in its state aid investigations into transfer-pricing rulings in principle, within certain boundaries,” said Garcia.
Finding itself at the receiving end of most of the EU’s decisions since then, Luxembourg was ordered to recoup €250mn from Amazon.com in 2017 and €120mn in back taxes from energy utility Engie SA, France’s former natural-gas monopoly, previously known as GDF Suez, last year.