(CN) – The European Commission on Wednesday ordered the Netherlands and Luxembourg to claw back up to $67 million in unpaid taxes from Starbucks and Fiat, respectively, finding tax advantages offered to the companies broke EU law.
EU regulators began investigating the tax situations in June 2014, believing that Luxembourg was offering unfair tax advantages to Fiat’s financing company and the Dutch government had done the same for Starbucks’ coffee-roasting business.
While the so-called tax rulings by member states are legal and can give companies clarity as to how their corporate taxes will be calculated from year to year, the commission said in Starbucks’ and Fiat’s case tax authorities used “artificial and complex methods to establish taxable profits for the companies that do not reflect economic reality.”
Specifically, the commission said tax authorities set prices for goods and services sold between the subsidiaries of Starbucks and Fiat that do not match market conditions. This meant that most of the profits from Starbucks’ roasting company shifted abroad – and therefore not taxed in the European Union – while Fiat paid tax on underestimated profits, according to the commission.
“This is illegal under EU state aid rules,” the commission said in a statement. “Tax rulings cannot use methodologies, no matter how complex, to establish transfer prices with no economic justification and which unduly shift profits to reduce the taxes paid by the company. It would give that company an unfair competitive advantage over other companies (typically small- and medium-sized enterprises) that are taxed on their actual profits because they pay market prices for the goods and services they use.”
The commission ordered the Dutch and Luxembourgish governments to claw back the unpaid tax “to restore equal treatment with other companies in similar situations.”
While no specific figure was given, the commission estimated that each company owes between $45 and $67 million in back taxes. Both companies paid less than $1 million in corporate taxes in 2014, the commission said.
“The decisions send a clear message: National tax authorities cannot give any company, however large or powerful, an unfair competitive advantage compared to others,” competition commissioner Margrethe Vestager said in a statement. “For most companies, especially the small- and medium-sized, I hope this is a reassuring message – for those who have paid their fair share in tax.”
Vestager also warned that the commission has similar pending investigations into Apple in Ireland, Amazon in Luxembourg and a big business-friendly tax scheme in Belgium.
“I hope that, with today’s decisions, this message will be heard by member-state governments and companies alike. All companies, big or small, multinational or not, should pay their fair share of tax,” Vestager said.
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