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Friday, June 14, 2024 | Back issues
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Starbucks Faces EU’s Wrath for Tax Breaks

(CN) - The European Commission released documents last week detailing why it has been investigating whether a tax deal between Starbucks and the Netherlands constitutes illegal state aid.

According to a 40-page, redacted letter to tax authorities in the Netherlands - sent this past June but made public on Friday - the commission accused the Dutch government of attributing too little profit to coffee roasting operations in Amsterdam that use the Starbucks moniker and intellectual properties.

The roaster pays a royalty to Alki, a partnership based in Britain that is not taxed by Dutch authorities. Alki then made payments to Starbucks Corp. in the United States - a move the EU's regulatory and administrative arm believes may unfairly shrink Starbucks' taxable income.

Commissioners also questioned why the royalty fluctuates from year to year, since the roasting operation earns more or less than same amount annually. Regulators speculated that the fluctuations may be tied to the price of green coffee beans on the world market, the roaster's operational expenses, or the use of different currencies - but noted that Dutch tax authorities cannot adequately explain the fluctuations, either.

The commission also expressed doubt as to whether the roasting operation, known as Starbucks Manufacturing BV, is simply a contract operator and therefore subject to a lower tax rate in the Netherlands. Classifying the operation as a contract or toll operator could give Starbucks an unfair tax advantage over its competitors and might constitute illegal state aid by the Dutch government, according to the commission.

As the investigation remains ongoing, the commission asked the Dutch government for more information about the Alki partnership - including details on the intellectual property it holds - as well as contracts between the roaster and its Swiss supplier of green coffee beans.

For its part, Starbucks says it has complied with all tax laws and promised its continued cooperation in the investigation. The company says it pays a global tax rate of about 34 percent on nearly $16.5 billion in worldwide sales in 2013 - although only 8 percent of that figure comes from the region that includes Europe, Africa and the Middle East.

Starbucks is one of several U.S.-based corporations being looked at by the commission for sweet tax deals in the EU. In September, regulators sent a scathing letter to Ireland questioning the legality of tax breaks given to Apple going back as far as 1991.

And in October, the commission questioned whether the tiny kingdom of Luxembourg had been giving illegal tax breaks to Amazon for over a decade.

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