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Starbucks Wins, Fiat Loses, Apple Kept Guessing in EU Rulings

Stephanie Bodoni
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Starbucks Wins, Fiat Loses, Apple Kept Guessing in EU Rulings

(Bloomberg) -- Starbucks Corp. won a court fight and a Fiat Chrysler Automobiles NV unit lost one over European Union tax orders in decisions that left lawyers puzzling over the impact on Apple Inc.’s chances of toppling a record 13 billion-euro ($14.3 billion) bill.

Even though the amounts at stake in Tuesday’s rulings -- about 30 million euros each for Starbucks and Fiat -- aren’t huge, lawyers are now poring over the judgments ahead of multiple appeals as companies, including the iPhone maker, counter EU Competition Commissioner Margrethe Vestager’s five-year crackdown on allegedly unfair tax deals.

While Vestager generally came out of the latest rulings on top, “what this bodes for the eventual decision in the Apple case is still not clear,” said Howard Liebman, a tax partner at Jones Day, a Brussels law firm. He isn’t involved in the disputes. “There will be no ‘cookie cutter’ decisions relying on broad or sweeping generalizations about paying one’s ‘fair share’ of tax,” he said.

The EU General Court in Luxembourg said Tuesday that the EU failed to show that coffee giant Starbucks obtained an unfair tax deal by the Netherlands. The judges threw out a similar challenge by Fiat over its fiscal arrangements in Luxembourg.

“The principles laid down in these judgments provide some ammunition for both the taxpayers and the commission in the ongoing investigations,” said Natura Gracia, a lawyer with Linklaters in London.

Tax Agreements

Challenges have been piling up at the EU courts since state-aid investigators started work in 2013 to unearth what they deemed to be the most problematic examples of otherwise legal individual tax agreements, known as tax rulings, doled out to companies by member countries.

Luxembourg’s finance ministry said it would “analyze the judgment” and pointed out that the government “in the past few years has done numerous reforms to find against fiscal fraud and tax evasion.”

The Dutch finance ministry is “glad there is clarity” following the court ruling, deputy finance minister Menno Snel said in an emailed statement. The judgment “means that the tax authorities have not treated Starbucks better or differently than other companies,” he said.

Fiat said in an emailed statement that while it’s disappointed with the ruling and considering its next steps, the decision isn’t material to the group.

No ‘Special’ Treatment

Starbucks said in a statement that it pays its taxes wherever they are due and that the ruling in its challenge “makes clear” that it “did not receive any special tax treatment from the Netherlands.”

The decisions, which can be appealed to the EU Court of Justice, “give important guidance” to the commission on how to apply EU state aid rules in tax cases, and the regulator will study them before deciding on the next steps, according to a statement by Vestager.

She said they “confirmed the commission’s approach to assess whether a measure is selective and if transactions between group companies give rise to an advantage under EU state-aid rules based on the so-called ‘arm’s length principle’.”

Vestager, who’s set to take on another five-year stint as competition commissioner, said she’ll continue to look at “aggressive tax planning measures under EU state aid.” Ultimately, the goal is that all companies “pay their fair share of tax,” she said.

In the Apple case, the EU said Ireland illegally reduced the company’s tax bill, a finding Apple and Irish officials don’t accept.

Apple declined to comment Tuesday beyond pointing to its remarks in a hearing in its own appeal at the same court last week. It told judges it’s “now paying around 20 billion euros in tax in the U.S. on the very same profits that the Commission says should also have been taxed in Ireland.”

The guidance from judges on the European Commission’s use of state aid law could also have an impact on Vestager’s tax probes, now centering on fiscal deals done by Alphabet Inc. and Ikea.

Starbucks and Fiat were targeted on the same day in 2015 by a similar EU order to pay back 30 million euros each over their tax arrangements in the Netherlands and Luxembourg respectively.

The EU said at the time the companies did this by setting prices for products and services sold between units -- called transfer prices -- that didn’t reflect market conditions.

“These two judgments prove that the court will look at the precise facts of each state aids case brought before it and judge each on their individual merits,” Liebman said in an email.

Finding itself at the receiving end of most of the EU’s decisions since then, Luxembourg was ordered to recoup 250 million euros from Amazon.com Inc. in 2017 and 120 million euros in back taxes from energy utility Engie SA, France’s former natural-gas monopoly, previously known as GDF Suez, last year.

The cases are: T-636/16 - Starbucks and Starbucks Manufacturing Emea v. Commission, T-755/15 - Luxembourg v. Commission, T-759/15 - Fiat Chrysler Finance Europe v. Commission, T-760/15 - Netherlands v. Commission.

--With assistance from Ruben Munsterman and Tommaso Ebhardt.

To contact the reporter on this story: Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Peter Chapman, Paul Sillitoe

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