EU finds Starbucks, Fiat guilty of ‘Illegal’ Tax Breaks

On Wednesday, the European Union found Starbucks and Fiat guilty of tax breaks and asked them to repay up to 30 million Euros ($34 million) each in taxes. This, in all probability signals a broad crackdown on favorable tax deals for multinationals. As she asked the Dutch and Luxemburg governments to claw back money from the U.S. coffee chain and the Italian carmaker respectively, EU antitrust Commissioner Margrethe Vestager said, “All companies, big or small, multinational or not, should pay their fair share of tax.”

In European countries where they have their regional headquarters, multinationals pay taxes. However, some of these countries allow companies to pay very low tax overall since they have long competed to lure them in. The low tax amount that multinationals have to pay has become a major cause of concern for many European nations. The reason for this concern is simple—while some multinationals get away with huge tax breaks, the citizens of these European nations need to tighten their belts as a result of the ‘weak economy’.

The citizens of these European nations aren’t the only aggrieved party as smaller companies find the tax advantages that multinationals get as something ‘unjust’. They believe that these tax advantages hinder the creation of a more level playing field which ultimately stops their companies from growing. The loopholes in EU law are something the EU’s executive branch, the Commission has been tightening. According to Margrethe Vestager, the commission is investigating similar tax practices in all 28 nations that fall under its domain.

In this regard, the ruling made on Wednesday was the first big decision to emerge. The ruling could force countless other companies in Europe, suspected of ‘illegal’ tax breaks to revise their tax setup. The concerned authorities are already probing big companies like Apple and Amazon in regards to ‘illegal’ tax breaks. Vestager announced, “We do not stop here. We continue the inquiries into tax rulings.” Further adding,” More cases may come if we have indications that EU state aid rules are not being complied with.”

After Wednesday’s ruling, authorities in the Netherlands and Luxembourg have two months before they start recovering back taxes from Starbucks Manufacturing and Fiat Finance and Trade, which are entities of Starbucks and Fiat. The amount that they need to recover is somewhere between 20 million and 30 million Euros. According to Vestager, if calculations had been done at market conditions, fiat’s taxes would have been 20 times higher.

Starbucks released a statement immediately after the ruling. The statement read, “Starbucks plans to appeal since we followed the Dutch and OECD rules.”On the other hand, Fiat Chrysler denied receiving any tax breaks from Luxembourg for Fiat Finance and Trade. According to the Italian automobile company, clarifying pricing rules was the only aim of reaching a deal with Luxemburg.

Both the Netherlands and Luxembourg are clearly unhappy about the ruling and plan to appeal. After the ruling the Dutch government issued a statement saying, “The Netherlands is convinced that actual international standards are applied.”The Luxembourg government has also denied granting Fiat Finance and Trade any incompatible state aid.