Starbucks and Fiat May Be Forced to Repay $30 Million Each in Tax

Starbucks and Fiat today both face the prospect of being made to pay back as much as 30 million euros ($34m) in tax to two European countries.

The European Commission (EC) has ordered the Netherlands and Luxembourg to recover millions in back taxes from the companies, where it held that the countries had granted "selective tax advantages" to the multinational companies, thereby breaching European Union (EU) state aid rules.

The ruling has been seen as part of a clampdown on tax avoidance, following the EC's June plan to reform corporate taxation across the continent.

Concluding its investigations into the companies, it was announced in Brussels on Wednesday that the Netherlands is to recover 20 to 30 million euros from Starbucks, and Luxembourg is to recover the same amount from Fiat, "in order to remove the unfair competitive advantage they have enjoyed and to restore equal treatment with other companies in similar situations," according to the European Commission.

Both the countries and companies have disagreed with the EC decision, however, and Starbucks has said it will appeal against the ruling.

"Starbucks shares the concerns expressed by the Netherlands government that there are significant errors in the decision, and we plan to appeal, since we followed the Dutch and OECD rules available to anyone," a spokesman said.

Related: How Corporations Are Costing Africa Billions Through Tax Schemes

"Luxembourg disagrees with the conclusions reached by the EC in the Fiat Finance and Trade case and reserves all its rights," that country's Ministry of Finance also stated.

According to the EC, in each case, a tax ruling issued by tax authorities artificially lowered the tax paid by the companies. Tax rulings — "comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions" — are legal, but it was held that these two tax rulings were not in accordance with EU rules.

Margrethe Vestager, the European Commissioner for Competition, said that it is hoped that the decision will send a message to EU member states and companies: "Tax rulings that artificially reduce a company's tax burden are not in line with EU state aid rules. They are illegal."

Luxembourg & the Netherlands granted selective tax advantages to Fiat & Starbucks. Illegal under EU state aid rules. — European Commission (@EU_Commission)October 21, 2015

The investigations into Starbucks and Fiat were launched in June 2014. The EC has also raised concerns over tax rulings and Apple in Ireland, a Belgian tax scheme, and Amazon in Luxembourg.

Tax rulings that artificially reduce a company's tax burden are illegal. All companies should pay their fair share of taxes.

— Margrethe Vestager (@vestager)October 21, 2015

Joaquin Almunia, EC vice-president and the commissioner responsible for competition, speaking at the time when an investigation was launched into Amazon, said: "National authorities must not allow selected companies to understate their taxable profits by using favorable calculation methods. It is only fair that subsidiaries of multinational companies pay their share of taxes and do not receive preferential treatment which could amount to hidden subsidies."

Less than two weeks ago, it was revealed that Facebook had paid just 4,327 pounds ($6,647) in UK corporation tax in 2014 — paying less tax last year than the average British worker.

Related: Facebook Paid Less Tax in the UK Last Year Than the Average British Worker

Photo via Flickr