EU Tax Penalty Upheld in $33M Blow to Fiat

(CN) – Europe’s second highest court upheld a penalty against Fiat on Tuesday for artificially reducing its tax burden by using a capital figure that represents just 10% of Fiat’s total equity.

“The ratio between the capital actually taken into account in the methodology used by the tax ruling at issue and the total capital is so great that the error in the determination of the capital to be remunerated necessarily leads to a reduction of FFT’s tax burden, irrespective of the single rate of return to be applied,” the Seventh Chamber of the General Court wrote this morning, using an abbreviation for a financing arm of the Italian carmaker.

Known these days as Fiat Chrysler Finance Europe, the company obtained approval for its accounting scheme from the Grand Duchy of Luxembourg in 2012.

After the European Commission found that the scheme had the effect of artificially reducing Fiat’s profits, both the automaker and the duchy sought annulment from the European General Court, which coincidentally is also based in Luxembourg.

Upholding the commission’s finding, however, a five-judge panel with the court found that the automaker received improper state aid. With today’s ruling, a reversal from the European Court of Justice is now Fiat’s only hope of averting a $33 million bill for back taxes to the tiny landlocked European country bordering France, Germany and Switzerland. 

On the same day the court ruled against Fiat, however, it annulled a similar tax bill Starbucks faced over its operations in the Netherlands.

The EU’s competition czar, Commissioner Margrethe Vestager, focused on the Fiat win Tuesday in a joint statement on the decisions.

“All companies, big and small, should pay their fair share of tax,” Vestager said.

Both the Starbucks and Fiat cases represent Vestager’s effort at cracking down on what the European Commission sees unfairly advantageous deals that multinational corporations are receiving from Ireland, Luxembourg and the Netherlands to open EU headquarters in their countries.

IPhone maker Apple and Ireland appeared before the General Court just last week  to appeal their own adverse tax judgment from the commission. In that case, Luxembourg is an intervenor on the side of Ireland. 

Luxembourg’s lawyer Denis Waelbroeck declined to comment on appeal plans. 

Also on Tuesday, Fiat Chrysler engineer Emanuele Palma pleaded not guilty to rigging software in more than 100,000 vehicles sold in the U.S. so they could cheat emissions tests.

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