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EU demands Starbucks, Fiat pay back 30 million euro tax breaks

business Updated: Oct 21, 2015 18:15 IST
European union tax breaks

Europe's competition chief ordered Luxembourg to claim the same amount from Fiat Chrysler Automobiles, saying their favourable tax arrangements breached the bloc's rules.(REUTERS Photo)

The European Union is demanding that US coffee chain Starbucks and carmaker Fiat repay up to 30 million euros ($34 million) each in tax breaks they received from EU nations, in a major ruling to cut down on sweet tax deals multinationals often look for.

Because multinationals in the EU pay their taxes in the country where they have their regional headquarters, countries have long competed among themselves to lure the companies.

That has resulted in countries offering tax advantages that allow the companies to pay very low tax overall and has become a big political issue as citizens in many European nations are forced to tighten their belt while some multinationals get away with huge tax breaks.

The EU’s executive branch, the Commission, has been tightening the loopholes in EU law that allow for such deals. On Wednesday, it said that agreements Starbucks struck with the Netherlands and Fiat with Luxembourg years ago were not fair.

“All companies, big or small, multinational or not, should pay their fair share of tax,” said EU antitrust Commissioner Margrethe Vestager as she announced the ruling on Wednesday.

European commissioner for competition Margrethe Vestager holds a press conference on the EU decision to set out a template for recovering unpaid taxes and preventing tax avoidance by multinationals at the European Commission in Brussels on October 21, 2015. (AFP Photo)

She stressed the companies involved are not “the poster children of bad taxing behaviour.” Yet, she added that “these are examples of what is not right.”

Starbucks said in an immediate reaction that it plans “to appeal since we followed the Dutch and OECD rules,” referring to the Organisation for Economic Co-operation and Development, a watchdog for developed economies.

Fiat Chrysler also denied receiving any state aid from Luxembourg for its financing branch. It said a deal it reached with Luxembourg was aimed only at clarifying pricing rules and “did not result in any state aid.”

Both Luxembourg and the Netherlands also made clear they had objections to Wednesday’s ruling and can appeal.

“The Netherlands is convinced that actual international standards are applied,” the Dutch government said in a first reaction.

The government in Luxembourg said it “does not consider that Fiat Finance and Trade has been granted incompatible state aid.”

The Netherlands must now recoup between 20 million and 30 million euros ($23 million and $34 million) from Starbucks and Luxembourg as much from Fiat. “This will remove the unfair advantage they have enjoyed,” Vestager said.

Fiat’s taxes “would have been 20 times higher if calculations had been done at market conditions,” she added said.

She said the EU is investigating similar tax practices in all of the bloc’s 28 nations.

“We do not stop here. We continue the enquiries into tax rulings,” she said. “More cases may come if we have indications that EU state aid rules are not being complied with.”