EU demands millions in back taxes from Starbucks and Fiat; sets up showdown with Apple

“Starbucks Corp. and a Fiat Chrysler Automobiles NV unit must each pay as much as 30 million euros ($34 million) in back taxes after the European Union said they were handed illegal fiscal deals by the Netherlands and Luxembourg,” Stephanie Bodoni reports for Bloomberg. “The decision now sets up a showdown with Apple Inc. and Amazon.com Inc., which are also embroiled in the two-year-long tax probe. “‘Tax rulings that artificially reduce a company’s tax burden are not in line with EU state aid rules. They are illegal,’ Margrethe Vestager, the EU competition commissioner, said in an e-mailed statement. “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.'”

“Documents leaked by a group of investigative journalists showed that Luxembourg alone struck hundreds of secret fiscal deals known as tax rulings with companies from around the world, from PepsiCo Inc. to Walt Disney Co. Amazon, which has more than 1,000 people working in the tiny nation, said in July its taxes could increase in case of a negative decision by the EU in its case,” Bodoni reports. “Luxembourg disagrees with the European Commission’s conclusions and ‘will use appropriate due diligence to analyze the decision of the commission as well as its legal rationale,’ the country’s finance ministry said in a statement… The Dutch government said it ‘is somewhat surprised about the decision’ that Starbucks received state aid. The EU’s conclusion ‘raises a lot of questions and requires careful consideration. The Netherlands is convinced that actual international standards are applied and shall, therefore, analyze the commission’s criticism carefully before taking a decision on further steps.'”

“Starbucks said it ‘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.’ Starbucks said it paid $3 billion in global taxes between 2008 and 2014,” Bodoni reports. “Fiat ‘did not receive any state aid’ and ‘any finding in this matter would be immaterial to the FCA Group’s reported results,’ the company said in an e-mailed statement on Tuesday.”

“Vestager said regulators are still poring over cases involving Amazon, Apple and the system of fiscal rulings in Belgium. They are all different and will each be assessed on their merits, Vestager told journalists in Brussels Wednesday. Additional cases may also be in the pipeline, she said,” Bodoni reports. “‘We do not stop here. We continue the inquiries into tax rulings in all EU members states,’ Vestager said at a press conference.”

Read more in the full article here.

MacDailyNews Take: In Apple’s case, if the EU demands so-called “back taxes,” it’ll be based invisible legal grounds since the company simply followed the law when paying their taxes:

There was no special deal that we cut with Ireland. We simply followed the laws in the country over the 35 years that we have been in Ireland. If the question is, was there ever a ‘quid pro quo’ that we were trying to strike with the Irish government – that was never the case. We’ve always been very transparent with the Irish government that we wanted to be a good corporate citizen… If countries change the tax laws, we will abide by the new laws and we will pay taxes according to those laws. – Apple CFO Luca Maestri

As we wrote back in April: Apple has repeatedly and confidently stated that they didn’t do anything that was against the law. Therefore, unless the EC tries to change the law retroactively, if that’s even possible, or tries to collect taxes retroactively in some other fashion, Apple is in the clear.

Looks like the EU, as massively bloated, infinitely voracious governmental operations are wont to do, is attempting to rake in even more cash by whatever means possible. Surely once they get their mitts on it, they’ll spend it ever so wisely.

SEE ALSO:
Apple tax probe won’t hurt Ireland, Finance Minister Noonan says – October 5, 2015
EU’s Vestager says will not complete tax inquiries of Apple, others in second quarter – May 5, 2015
Apple warns of potential ‘material’ financial damage from European tax probe – April 29, 2015
Ireland’s Prime Minister: Apple has nothing to fear from end of ‘Double Irish’ tax avoidance strategy – November 4, 2014
Apple says it may lose Irish tax break – October 31, 2014
Ireland to end tax lures that drew U.S. firms – October 14, 2014
EU tax probe spotlights Ireland’s allure for multinationals – October 13, 2014
EU watchdog to give reasons for inquiry into Ireland’s tax treatment of Apple – September 29, 2014
European Commission accuses Apple of prospering from illegal Irish tax deals – September 28, 2014
EU threatens expanded probe into Ireland’s tax practices regarding Apple, Googles, other companies – June 20, 2014
EU’s investigation of Apple’s taxes isn’t going to cause the company any problems – June 13, 2014
EU launches tax avoidance investigations on Apple, Starbucks, Fiat – June 11, 2014
Not in Taxes anymore: On site at Apple’s famous Irish ‘headquarters’ – November 2, 2013
Regan: U.S. tax code spurs loveless foreign corporate ‘marriages’ – May 13, 2014
Ireland to close Apple’s tax loophole, but leave bigger one open – October 15, 2013
G20 think tank OECD proposes blueprint for global crackdown on tax avoidance – July 19, 2013
Thomas Sowell on Apple, corporate taxes, and ‘the road to serfdom’ – May 28, 2013
Taxing Apple just taxes you – May 24, 2013
Don’t tax Apple, tax its shareholders – May 24, 2013
If Apple paid more tax, we might pay less or something – May 22, 2013
Apple CEO Tim Cook pounds another nail into the Keynesian coffin – May 22, 2013
Apple CEO Cook makes no apology for company’s tax strategy – May 22, 2013

21 Comments

  1. Here, let me finish that sentence for you, MDN:

    Looks like the EU, as massively bloated, infinitely voracious governmental operations are wont to do, is attempting to rake in even more cash by whatever means possible… so they can flush it down the shitter.

    There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him. — Robert A. Heinlein

    One thing is clear: The Founding Fathers never intended a nation where citizens would pay nearly half of everything they earn to the government. — Ron Paul

    Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it. — Ronald Reagan

    1. Wow! First Post, First This and First That! What a surprise!
      I’m glad you could take the time out of your busy schedule to Regurgitate Ronnie Rayguns immortal words. Now that you’ve done so, you can go back to whatever it is you do. *shudder* I don’t want to know…

      1. Actually, I think protectionism is the problem – something right-wingers typically hate. The allegation (and now finding) is that individual countries cut special deals with multinational corporations for that country’s own benefit. The US gets its knickers in a twist when, for example, artificially subsidized low priced steel from China harms US steel manufacturers. This seems to be the same – some countries have done special tax deals with Apple and others – that broke EU rules – to entice those companies to set up large operations in that country. If the EU rule was in place when Ireland joined, then it has no defense. If Ireland’s laws were improper under EU law, Apple’s ignorance of EU law is also no defense.

        1. Well, right-wingers may claim to hate protectionism of goods, but most seem to be really yon-board with protectionism of labor.
          If we are going to open borders to goods, people need to be allowed to move freely, too. Otherwise we set up race-to-the-bottom shifting of where goods are produced.
          If you allow one, you’ve got to allow the other.

    1. And the taxes paid by Apple employees and I’m certain many other types of taxes. Governments everywhere aren’t happy until it has a tax upon a tax upon a tax like gasoline. How many times too can the same money be taxed until it withers away to nothing?

    2. VAT isn’t the issue here. This is all about large companies not paying tax on their profits, which is something that any business operating in the EU has to do.

      Some companies are using dubious tactics to evade tax payments, in some cases they reduced their tax payments down to near zero. The net result is that honestly trading EU companies end up disadvantaged compared to international companies which operate in that manner.

      This case is all about creating a level playing field for all. I often hear of Apple being mentioned as the big target that this case is being set up for, but there is a massive difference between Apple’s operations in Ireland and Starbucks paying massive royalties to a subsidiary company ( based in a tax haven ) to license the technique they use for roasting coffee beans, which just happened to reduce their tax liability to near zero for many years.

      Starbucks were clearly gaming the system and have been found out, while Apple have been operating from Ireland for decades and paying their taxes accordingly. Apple may have to pay some more, but whatever they did, their operation in Cork was above board and complied both with the rules and the spirit of those rules.

      However I do have some reservations about Apple’s Luxembourg operation, which does have a whiff of tax evasion about it, but appears to fit within the rules.

      Bottom line is that this is a very complex issue and it’s hard to see exactly how it’s going to pan out for individual companies.

  2. So an independent country that has its own tax laws must bow down to a newly formed group of people that says they know better.

    Why doesn’t the EU try that with Russia and see how far they get.

    Sounds to me like the beginning of a one world government. That is truly scary.

    1. Um, Russia is not a member state of the EU.

      While I agree the EU is out of its collective mind, I also recognize that each member state did have to request to join the EU. The EU did not simply annex the member states. I suspect that the real problem is whether th EU have the right to enforce its will in this manor.

        1. So a large country with massive power pushing its weight around and basically ignoring laws it doesn’t like is ok with you?? Isn’t that how Nazi Germany got started? Not to mention Russia’s invasion of Ukraine.

    2. Ummm. The EU was formed in the 1950’s. It’s an organization a country applies to join, and members agree to be bound by EU rules and laws. No-one forces a country to join. It’s a little bit similar to when a group of disparate colonies got together to form the United States – each state has its own laws but in some cases, the Union’s laws preempt each state’s laws, for the common good.
      “Sounds to me like the beginning of a one world government. That is truly scary.” Sounds to me like you should do what your screen name suggests.

  3. It’s funny how these agreements between the EU countries and corps weren’t an issue prior to the EU getting mired in recession and immigration quicksand.

    This timely decision is a obvious set up to set the stage for legally taking money from the only companies that seem to be raking in all the money these days, Apple, Google, Microsoft, etc.

    Retro-active taxation by governments should be illegal if the government itself implemented the law incorrectly.

  4. MDN: Apple and the Irish government have asserted that no illegal tax deals were done. But an assertion is only that and we have yet to hear the EU’s position on this. In some countries, any type of deal which is struck with the intention of avoiding tax is illegal, no matter how clever the lawyers and accountants try to be.

    Transfer pricing, where a corporation uses subsidiaries in low or no tax jurisdictions to shift profits by inserting these subsidiaries in the supply chain, is especially frowned upon.

    The problem is not in Europe – it is in the USA where Congress has pursued a strategy of extracting all taxes paid by American companies by refusing tax credits for taxes paid in other jurisdictions. This encourages tax avoidance by US corporations in foreign jurisdictions.

    When an American corporation competes with local businesses the host nation loses the tax revenue which would otherwise have been derived. Starbucks, for instance, took revenue from British coffee chains which paid local taxes – Starbucks paid nothing or next to nothing.

    The EU wants its fair share of taxes, as do the Brits and the Aussies. Why should they provide infrastructure to foreign companies who pay nothing towards the cost of supplying it?

    Americans are not very good at seeing things from the point of view of others – perhaps that comes from being a world power which can throw its weight around. Public opinion in countries where US tax avoidance is under scrutiny is firmly on the side of their governments.

  5. When a business like starbucks pays “0” tax in the UK yet continues to expand and grow there is something wrong. It is well documented that they pay their Dutch Starbuck office more per pound of coffee than they pay the wholesaler. IE.. guaranteed money losses.. Likewise Amazon, and Apple pay minimum tax. I think an amount (equal to what other businesses in the country they operate) should be paid.

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