Commission to probe Starbucks’ Dutch firms

International uproar over sweetheart deals being done by governments with multinational companies has had another ember added to the fire, with the EU’s competition authority announcing a detailed investigation of Starbucks’ Dutch companies.

The European Commission is also investigating similar arrangements between Apple and the Irish Government.

The public consultation period during which interested parties can make submissions to the commission will conclude early next week.

Some of the issues the commission has raised with the Dutch authorities are similar to those being investigated about Ireland’s tax deal with Apple, including in relation to intellectual property.

Overall, both are in connection with transfer pricing arrangements, whereby corporations hive off their different activities into different companies in various countries, allocating costs to each that allow those in higher-tax jurisdictions to offset these costs, and, in some cases, to transfer the profits to tax-havens.

The Dutch have been asked to answer questions on the operations of a British-based company related to Starbucks, Alki LB, which holds intellectual property and a Swiss entity.

The commission said it suspects that the arrangements are depriving the Netherlands of tax and that the deal is giving Starbucks an advantage not available to others and therefor creating unfair competition.

Similar to the Irish situation, the commission said it was not happy with the way the assessment of income for tax was calculated. It claimed it was a pre-determined selection of figures and relationships designed to reduce tax liability.

It also questioned why the Dutch authorities were willing to accept Starbucks’ classifications of their operations for the application of adjustments.

Starbucks has coffee shops in 62 countries and operates some directly and others through franchise.

The commission said it has suspicions about agreements reached with the Dutch authorities in April 2001, and adjusted in 2002 and 2004.

In 2013, the group had worldwide net revenue of $14,892m and post-tax net profit of $8m. In 2012,it reported revenues of $13,299m and a post-tax net profit of $1,384m.

Two entities of the Starbucks Group pay tax in the Netherlands — Starbucks Manufacturing BV and Starbucks Coffee BV. They together paid tax of €715,876 in 2011, and between €600,000 and €1m in 2012. The retail store of the group in the Netherlands paid less than €1,000 in 2010 and 2011.

Only Starbucks Manufacturing BV is under investigation at present. The companies that operate the shops pay a royalty for the use of intellectual property and supply of coffee.

Under Dutch tax law, companies can have closed limited partnerships that are not liable to corporate income tax and can only tax them if the participants are Dutch resident companies.

One of the Starbucks companies is UK based. Alki LP is considered not liable for tax, and this covers the use of intellectual property.

In 2002, Starbucks informed the Dutch that it would set up a second such company to avoid the income of its Swiss entity falling under the US tax legislation.