22 October 2015

Commission orders Fiat and Starbucks to repay tax saved in sweetheart deals

The European Commission on Wednesday announced the first of its findings in the much publicised investigation into tax sweetheart deals.

The Commission has found that the comfort letters granted by Luxembourg and the Netherlands to Fiat and Starbucks respectively, amounted to "illegal tax advantages" and thus fell foul of the State Aid rules.

The Commission has ordered that both countries must recover between €20 million and €30 million from each country. The decision, which follows revelations about the limited amount of tax paid by some of the world’s most recognisable companies, sends a clear message that companies must pay their fair share of tax.

The Commission found that in both cases the local tax authorities had applied incorrect methodology when endorsing the transfer prices charged between group companies, which allow companies to shift profits between group companies and potentially to more favourable tax jurisdictions.

All the parties have wasted no time in affirming their disagreement with the decision and Starbucks has already publically pledged to appeal the decision.

These decisions are likely to be merely the opening salvo of a protracted battle between the Commission and some of the world's largest organisations. The Commission’s parallel investigations include Apple's tax affairs in Ireland and Amazon's tax affairs in Luxembourg.

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