In a landmark ruling on Wednesday, the European Commission decided that ‘selective tax advantages’ that have been granted to Fiat Finance and Trade by Luxembourg and to Starbucks by the Netherlands are illegal under EU state aid rules following its state aid investigations.
The Commission ordered Luxembourg and the Netherlands to recover the unpaid tax from Fiat and Starbucks, respectively, of €20–€30m each, and confirmed that the companies can no longer continue to benefit from the tax treatment granted by those tax rulings.
Competition policy commissioner Margrethe Vestager said: ‘Tax rulings that artificially reduce a company’s tax burden are not in line with EU state aid rules. They are illegal. I hope that, with today’s decisions, this message will be heard by member state governments and companies alike,’ adding that ‘more cases may come if we have indications that EU state aid rules are not being complied with’.
Marc Sanders, partner at Taxand Netherlands, said the ruling would ‘rock the corporate world to its very core’ with the retrospective declaration that what were thought to be legitimate agreements are state aid. ‘The Commission has to make a compelling case that the arm’s length principle in these cases was sufficiently selective to constitute state aid,’ he said. ‘All taxpayer agreements, rulings, APAs and settlements of litigation with every international business could potentially be seen as state aid.’
Sanders noted that if governments tried to recoup taxes as a result of the decision, it ‘could have a severe eroding effect on their relationships with businesses and significant consequences for the US government if it is then backed into a corner of issuing tax credits [against a group’s US tax bill]’.
Heather Self, Pinsent Masons partner, said multinationals ‘will be particularly anxious about the Starbucks case’ which saw ‘competition authorities challenge very technical tax rulings by competent authorities’ like the Netherlands. This, she said, would be ‘extremely destablising’ as it had implications for other European member states. ‘The fact that EU competition authorities feel it appropriate to intervene in highly complex international tax issues adds another layer of complexity and unpredictability’, she added. ‘There is also a risk that the EU competition authorities may end up creating outcomes that are at odds with the OECD’s BEPS initiative.’
Frank Haskew, head of ICAEW’s tax faculty, said: ‘Companies need to be increasingly mindful of this latest development when reviewing their operations and structuring. We expect that these cases will end up being appealed to the CJEU, so it is likely to be some time before we have a definitive view on the operation of state aid rules in this context.’ Further scrutiny of tax structures was to be expected, he said.
However, Anders Dahlbeck, ActionAid tax justice policy advisor, commented that the ruling was ‘just the tip of the iceberg’, adding: ‘The EU is right to act against sweetheart deals which allow multinational companies to avoid millions in tax but this only addresses part of the problem.’ It has been reported that Starbucks plans to appeal the decision.
In a landmark ruling on Wednesday, the European Commission decided that ‘selective tax advantages’ that have been granted to Fiat Finance and Trade by Luxembourg and to Starbucks by the Netherlands are illegal under EU state aid rules following its state aid investigations.
The Commission ordered Luxembourg and the Netherlands to recover the unpaid tax from Fiat and Starbucks, respectively, of €20–€30m each, and confirmed that the companies can no longer continue to benefit from the tax treatment granted by those tax rulings.
Competition policy commissioner Margrethe Vestager said: ‘Tax rulings that artificially reduce a company’s tax burden are not in line with EU state aid rules. They are illegal. I hope that, with today’s decisions, this message will be heard by member state governments and companies alike,’ adding that ‘more cases may come if we have indications that EU state aid rules are not being complied with’.
Marc Sanders, partner at Taxand Netherlands, said the ruling would ‘rock the corporate world to its very core’ with the retrospective declaration that what were thought to be legitimate agreements are state aid. ‘The Commission has to make a compelling case that the arm’s length principle in these cases was sufficiently selective to constitute state aid,’ he said. ‘All taxpayer agreements, rulings, APAs and settlements of litigation with every international business could potentially be seen as state aid.’
Sanders noted that if governments tried to recoup taxes as a result of the decision, it ‘could have a severe eroding effect on their relationships with businesses and significant consequences for the US government if it is then backed into a corner of issuing tax credits [against a group’s US tax bill]’.
Heather Self, Pinsent Masons partner, said multinationals ‘will be particularly anxious about the Starbucks case’ which saw ‘competition authorities challenge very technical tax rulings by competent authorities’ like the Netherlands. This, she said, would be ‘extremely destablising’ as it had implications for other European member states. ‘The fact that EU competition authorities feel it appropriate to intervene in highly complex international tax issues adds another layer of complexity and unpredictability’, she added. ‘There is also a risk that the EU competition authorities may end up creating outcomes that are at odds with the OECD’s BEPS initiative.’
Frank Haskew, head of ICAEW’s tax faculty, said: ‘Companies need to be increasingly mindful of this latest development when reviewing their operations and structuring. We expect that these cases will end up being appealed to the CJEU, so it is likely to be some time before we have a definitive view on the operation of state aid rules in this context.’ Further scrutiny of tax structures was to be expected, he said.
However, Anders Dahlbeck, ActionAid tax justice policy advisor, commented that the ruling was ‘just the tip of the iceberg’, adding: ‘The EU is right to act against sweetheart deals which allow multinational companies to avoid millions in tax but this only addresses part of the problem.’ It has been reported that Starbucks plans to appeal the decision.
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