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EU says Starbucks’ ‘very low’ Dutch tax deal may be illegal

 The other three firms are Amazon, Fiat and  Apple .

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Starbucks CEO Howard Schultz

 

A tax deal the Netherlands cut with Starbucks Corp may be illegal state aid, European Union regulators said on Friday, part of a crackdown on members attracting investment by helping companies to avoid tax.

Luxembourg, Ireland, Malta, Belgium, Cyprus and Gibraltar are also facing scrutiny over tax deals they have struck with multinational companies.

The inquiries have overshadowed the early days of the new European Commission led by Jean-Claude Juncker, prime minister and finance minister of Luxembourg for more than two decades, and intensified calls among lawmakers and EU countries for a more harmonised tax system in the 28-country bloc.

The European Commission said it suspects the Dutch tax ruling allows Starbucks, the world’s biggest coffee chain, to lower its taxable profit, and thereby its tax bill, in a way that is at odds with accepted accounting rules.

“The Commission’s preliminary view is that the advanced pricing arrangements in favour of Starbucks Manufacturing EMEA BV constitutes state aid, ” the EU executive said.

Deputy Finance Minister Eric Wiebes said that the Starbucks deal “is fully in line with international transfer pricing standards, is consistent with the policy framework applied by the government in its efforts to create an attractive business climate”.

Starbucks said it was confident EU regulators would conclude that it had not received a selective advantage.

COFFEE BEANS

The Commission said the Dutch tax authority had allowed a Starbucks subsidiary called Starbucks Manufacturing EMEA BV to declare a taxable profit equal to a percentage of its costs, but also allowed the company to exclude most of its costs when making the calculation.

This was partly achieved by excluding the cost of coffee beans. The Dutch justified this, saying the beans remained the property of another Starbucks subsidiary.

However, the Commission noted the beans appeared on Starbucks Manufacturing EMEA’s balance sheet.

In 2012, the company’s Chief Financial Officer told a UK parliamentary hearing that the Dutch tax deals were “an attractive reason” to be based in Amsterdam.

“It is a very low tax rate…. they do offer very competitive tax rulings, ” Troy Alstead said.

If the EU investigation finds Starbucks did receive an unfair advantage, the company could be forced to repay unpaid tax but the amounts are unlikely to be large.

The tax saving achieved by excluding costs from Starbucks Manufacturing EMEA’s cost base in the years examined, was under 20 million euros, according to Reuters calculations.

The probe is one of four into so-called sweetheart deals which the Commission said may give the companies an unfair advantage. The other three firms are online retailer Amazon, Italian carmaker Fiat and iPhone maker Apple .

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