Fiat and Starbucks may appeal fair tax ruling

A landmark decision that two iconic multinationals, Fiat and Starbucks, avoided paying their fair share of tax, facilitated by the Luxembourg and Dutch authorities, respectively, may be appealed to the European Court of Justice.

The investigation into how Ireland’s arrangement with Apple may have led to the firm paying less tax is still ongoing, with the result due soon.

Enterprise Minister Richard Bruton said: “I do not think we have a particular concern.”

Starbucks and Fiat were ordered to pay between €20m and €30m to the Netherlands and Luxembourg, with the exact sum to be calculated by the tax authorities.

The announcement by competition commissioner Margrethe Vestager led to a swift rebuke from the firms and governments involved.

Starbucks said it would appeal the decision and Fiat said it disagreed with the finding.

The Dutch government said it was “surprised” and Luxembourg said it was analysing the move.

Jim Clarken, of Oxfam Ireland, who was in Brussels for the announcement, said the companies were escaping paying their correct taxes when citizens were suffering the effects of austerity as governments scrambled around looking for money.

All multinational tax should be public, he said.

Ireland has committed to country-by-country reporting but, regarding the likes of sharing tax rulings with other EU member states, wants the figures kept secret.

Ms Vestager said they found companies and the tax authorities used a variety of methods, one more complex than the other, to put an artificial price tax on items, where companies shifted profits from one company to another without economic justification, resulting in companies paying almost no tax on profits.

Each case was different: It was possible to have tax rulings and price intellectual property in a legal fashion, she said, adding that all kinds of royalties were paid in Starbucks that it does not question.

“It is important that member states use these two decisions to guide them in future, maybe we can eventually provide guidelines,” she said. “I hope the decisions are food for thought for tax officials in Europe.”

The sums to be recovered were not spectacular, but the message was that countries cannot endorse prices that have no relationship with the market, she added.

In the case of Fiat, which was raising money on the markets for its other companies, Luxembourg assumed the return on capital post tax was 4% when in fact it should have been 10% and the capital was assumed to be €28m when it fact it was €287m at the time.

Starbucks bought green coffee beans through a Swiss company it overpaid, and the margin tripled. The beans were sold to a company that roasted them according to a method for which it paid a royalty that reduced its taxable profits by about €17m.

No other company in the world pays royalties for roasting beans done at a standard temperature, the commission said, adding that another firm to which Starbucks pointed, is not comparable.

The principles derived from the investigation are: You cannot use artificial IP in transfer pricing: cannot use complex methods for assessment if there is a simple, market relevant approximation: if you have a financing company you should pay and remunerate your capital adequately.


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