The European Commission has decided that tax advantages afforded to Fiat and Starbucks by Luxembourg and the Netherlands respectively, are illegal under state aid rules.
European competition Commissioner Margrethe Vestager highlighted that, "tax rulings that artificially reduce a company's tax burden are not in line with EU state aid rules. They are illegal. I hope that, following 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."
There has been pressure on the EU institutions to ensure fair tax competition among the member states since the 'LuxLeaks' scandal broke last November. This revealed that Luxembourg had granted a number of so-called 'sweetheart deals' to large companies, allowing them to pay little to no tax on their profits.
The controversy was heightened by the fact that the arrangements were made while European Commission President Jean-Claude Juncker was Prime Minister of Luxembourg, though he has insisted he had no involvement in the affair.
Fiat Finance and Trade, based in Luxembourg, provides loans and grants to other EU companies within the Fiat group. The Commission's investigation found that a 2012 tax ruling by Luxembourg employed highly complex methods to calculate the company's taxable profits, which Vestager said, "cannot be justified by economic reality."
"As a result", explained the Danish official, "Fiat only paid tax for a small portion of its underestimated profits. This would have been 20 times higher if the calculations had been done under market conditions."
Consequently, "tax rulings unduly reduced the company's tax burden by €20m to €30m". The Luxembourg government will now be required to calculate the exact amount Fiat owes in tax, and then recover it from the car manufacturer.
And while most people would be delighted to receive millions of euros, Luxembourg finance Minister Pierre Gramegna tweeted, "Luxembourg disagrees with the conclusions reached by the European Commission in the Fiat Finance and Trade case and reserves all its rights."
Vestager responded by saying, "maybe we'll see each other in court."
Starbucks Manufacturing, based in the Netherlands, is the Starbucks group's only coffee roasting company in Europe. A 2008 tax ruling by the Dutch government means the company has been paying extremely high royalties to UK-based Alki for its coffee-roasting know-how. Alki is also part of the Starbucks group and is not subject to corporate tax in Britain or the Netherlands.
Meanwhile, Vestager explained, "no other Starbucks group company nor independent roasters to which roasting is outsourced are required to pay a royalty for using the same know-how in essentially the same situation." Basically, Starbucks has been shifting its profits from one part of the group to another.
As a result, the group has made tax savings of €20m to €30m and, like Luxembourg, the Netherlands are now required to recover this amount.
Asked if she thought it was fair that these countries were receiving money for having arranged 'sweetheart deals', the EU competition chief argued that, "it's fair for the taxpayers of these two countries."
MEPs have reacted positively to the Commission's decisions, with EPP group chair Manfred Weber saying his group, "welcomes the Commission's decision on Fiat and Starbucks. This is a clear signal by Juncker's team in the fight against tax avoidance."
Members of the ALDE group were also pleased. Michael Theurer - Parliament's co-rapporteur on the special tax rulings committee - highlighted that, "Vestager's landmark decision reinforces the role of the European Commission as the EU's highest supervisory authority in competition and state aid matters."
"We want fair tax competition in Europe, and there is no reason why your local corner coffee bar should pay normal taxes while big multinationals such as Starbucks should not."
ALDE group Vice-Chair Sophie In' t Veld added, "now member states must draw the lessons from the string of cases exposing the harmful and illegal practices, and give up their resistance to a common European policy for more transparency and common rules and standards."
Greens/EFA group economic and finance spokesperson Bas Eickhout said, "while these findings are welcome, they also reveal a flaw in the EU's state aid rules that needs to be addressed. The money to be reimbursed by companies should not swell the coffers of those member states which, through these sweetheart deals, abetted the companies in avoiding their tax responsibility."
Instead, the recovered state aid should benefit citizens and taxpayers across Europe, whose national budgets have been deprived of revenue from these corporations."
The Commission is set to continue its probe into other multinationals, such as Apple and Amazon, although Vestager declined to set a date for when a decision would be made, simply promising to, "make a decision when we're ready."