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Illegal tax practices in Luxembourg and the Netherlands

The European Commission has ruled that Luxembourg and the Netherlands have granted selective tax advantages to Fiat Finance and Trade and Starbucks, respectively. These are illegal under EU state aid rules.

Following in-depth investigations, launched in June 2014, the Commission has concluded that Luxembourg and the Netherlands issued a tax ruling which artificially lowered the tax paid by the company. Tax rulings are comfort letters issued by national tax authorities which give companies clarity on how its corporate tax will be calculated or on the use of special tax provisions.

However, as the Commission found out, the two tax rulings under investigation endorsed artificial and complex methods to establish taxable profits for the companies, which did not reflect economic reality. This was done, in particular, by setting prices for goods and services sold between companies of the Fiat and Starbucks groups (so-called “transfer prices”) that did not correspond to market conditions. As a result, most of the profits of Starbucks’ coffee roasting company were shifted abroad, where they were also not taxed, and Fiat’s financing company only paid taxes on underestimated profits.

The Commission has ordered Luxembourg and the Netherlands to recover the unpaid tax from Fiat and Starbucks in order to remove the unfair competitive advantage they have enjoyed and to restore equal treatment with other companies in similar situations. The amounts to recover are €20 – €30 million for each company. It also means that the companies can no longer continue to benefit from the advantageous tax treatment granted by these tax rulings.

Furthermore, the Commission continues to pursue its inquiry into tax rulings practices in all EU Member States. It cannot prejudge the opening of additional formal investigations into tax rulings if it has indications that EU state aid rules are not being complied with. Its existing formal investigations into tax rulings in Belgium, Ireland and Luxembourg are ongoing. Each of the cases is assessed on its merits and today’s decisions do not prejudge the outcome of the Commission’s ongoing probes.

Commissioner Margrethe Vestager, in charge of competition policy, stated: “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. All companies, big or small, multinational or not, should pay their fair share of tax.”

Source: http://europa.eu/rapid/press-release_IP-15-5880_en.htm

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