EU Court Nixes $33M Tax Penalty Against Starbucks

(CN) – Lifting a $33 million tax penalty against Starbucks, Europe’s second highest court annulled a decision Tuesday that said the Netherlands gave the coffee giant illegal aid.

A view of a Starbucks store in Milan, Italy, from Sept. 4, 2018. (AP Photo/Luca Bruno)

In demanding repayment four years ago, the Luxembourg-based European Commission concluded that Starbucks had artificially lowered its Dutch profits by paying a disproportionately high royalty fee to a UK-based subsidiary that controls its Dutch affiliate, while also paying an inflated price for coffee beans from another Starbucks subsidiary based in Switzerland.

Both Starbucks and the Dutch government appealed, denying any wrongdoing and describing the commission’s ruling as “somewhat surprising.”

They prevailed this morning, with the European General Court finding that the commission failed “to demonstrate that the [advance pricing arrangement] had conferred an advantage.”

“This ruling means that the tax office has not treated Starbucks in a different way to any other country,” Dutch Minister of Finance Menno Snel said in a statement. 

While the judges overall found in the Netherlands favor, they did not do so on the basis that the commission should defer to national law when it comes to taxation, as the Dutch had argued.

IPhone maker Apple and Ireland made a similar argument in its own proceedings before the General Court last week, appealing an EU tax judgment it faces over its business in Ireland.

While the court’s Seventh Chamber annulled the state-aid decision against Starbucks, it also today upheld a similar commission ruling against Chrysler Fiat. As with Starbucks, the European Commission ordered Fiat in 2015 to repay millions in what it called improper state aid from Luxembourg.

That makes today a mixed bag for the EU’s competition czar, Commissioner Margrethe Vestager, who has been actively trying to clamp down on what she feels are sweetheart tax deals some of its 28 member states offer to multinational companies. 

It is possible for the European Commission to appeal the Starbucks ruling to the European Court of Justice. In a statement, Vestager said she was deciding on the next steps.

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