Starbucks and Fiat tax deals ruled unlawful

Hundreds of big corporations could face extra tax bills after a landmark ruling ordered cash to be clawed back from “unfair” sweetheart deals for Fiat and Starbucks.

The Italian carmaker and the American coffee giant will have to pay out between £14.7 million and £22 million each over complex tax avoidance schemes identified as illegal by EU officials. Other cases are under way against the US corporations Amazon and Apple as Brussels flexes its muscles after protests from fair tax campaigners.

Hundreds more corporations could follow if the European Commission can establish a legal precedent that the Dutch and Luxembourg governments went too far to attract business from Starbucks and Fiat respectively by excusing them from tougher tax rules applied to other companies.

Margrethe Vestager, the European competition commissioner, said her department was investigating similar tax practices in all 28 EU countries including Britain. “We do not stop here, more cases may come,” she said. “The decisions send a clear message — national tax authorities cannot give any company, however large or powerful, an unfair competitive advantage compared to others.”

In a sign that they will challenge the decision in the EU courts, both Dutch and Luxembourg regulators as well as the two companies denied wrongdoing.

Ms Vestager acted after a growing outcry over sweetheart tax deals including over the so-called LuxLeaks documents, which named several large British corporations among 340 companies with deals in the Grand Duchy, including Burberry, Dyson, HSBC and Vodafone.

There is no suggestion that these companies are under investigation by the EU and the European Commission competition department would not comment on future or on-going inquiries. Many companies have used Luxembourg’s holding company rules to reduce their tax from the country’s official 29 per cent rate to almost nothing, according to the LuxLeaks documents.

“Any company that had a favourable tax agreement with Luxembourg in the past should seek advice and review it,” said Heather Self, a partner at London-based law firm Pinsent Masons LLP.

Starbucks said it paid an average global effective tax rate of about 33 per cent. “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,” it said.

Luxembourg said it would explore all legal options. “Luxembourg disagrees with the conclusions reached by the European Commission in the Fiat Finance and Trade case and reserves all its rights,” said Pierre Gramegna, the finance minister.

In Britain, the parliamentary public accounts committee was highly critical this year of the way PricewaterhouseCoopers, the accountancy firm, helped hundreds of clients funnel profits through Luxembourg to cut their tax bill. “Contrary to its denials, the tax arrangements PwC promotes . . . bear all the characteristics of mass-marketed tax avoidance schemes,” said Margaret Hodge, the committee chairwoman.

The Brussels clawback order will come as an embarrassment for Ms Vestager’s boss, Jean-Claude Juncker, the European Commission president, who was prime minister of Luxembourg at the time of the Fiat tax deal.

Michael Theurer, a German MEP on a parallel European Parliament inquiry into tax deals, said the Fiat decision meant “it is now a fact” that Mr Juncker oversaw abuse of EU law. He was also PM at the time of another controversial deal struck by Luxembourg to become an international tax base for Amazon.