Starbucks and Fiat face tens of millions of euros in tax repayments when the EU issues a landmark decision this week on tax avoidance by multinational groups, according to people
involved in the case.
Beyond the size of the repayment, the case led by Margrethe Vestager, the EU’s competition commissioner is expected to set a farreaching legal precedent designed to curtail
practices that are routinely used by multinationals in Europe to limit their tax bills.
It also sets the stage for a potentially bigger showdown with Apple and Amazon, whose tax affairs have also been the target of investigations by Ms Vestager.
One senior EU official involved in the cases said Fiat and Starbucks were only “the tip of the iceberg”.
The cases focus on tax rulings sometimes called “comfort letters” issued by governments to thousands of companies across the continent seeking to determine in which jurisdiction
they can pay the lowest tax.
Ms Vestager’s decision is expected tomorrow and will signal that tax rulings issued to Starbucks by the Netherlands and to Fiat by Luxembourg amounted to illegal state aid. The
commission has demanded that almost all EU member states hand over their tax rulings for examination.
“We are entering a new era. State aid will have to be part of the considerations of any multinationals setting up a structure in Europe,” said Caroline Ramsay at law firm Pinsent
Masons.
When the cases were launched last year, state aid lawyers had speculated that recovery orders could run to billions of euros, based largely on Apple’s tax affairs in Ireland.
But estimates of the sums involved in this week’s cases are more modest. The countries will probably receive detailed descriptions from the commission about how to calculate the
uncollected taxes, rather than an exact amount.
People close to the Starbucks case estimate a sum of less than €30m. The commission is likely to rule that Starbucks Manufacturing BV was paying an effective rate of 2.5 per cent,
rather than the full Dutch corporate tax rate of 25 per cent.
Estimates of Fiat’s tax are more vague. The commission is expected to say that Fiat Chrysler Finance Europe was in effect paying a rate of about 1 per cent in Luxembourg, rather
than 29 per cent. People involved say that means it will owe more than Starbucks but not more than €200m.
Lawyers and other people involved in the cases said that Ms Vestager was more concerned with establishing a tough line on the illegality of certain types of aggressive tax avoidance
than imposing heavy financial penalties on Fiat and Starbucks.
“She is slapping the companies now but saying, in future, she won’t accept anything of the same nature,” said one lawyer following the cases.
At heart, the cases concern transfer pricing, where companies cut taxable profit through crossborder trades.
By: Christian Oliver
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