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E.U. Accuses Starbucks and Netherlands of Making Unfair Tax Deal E.U. Accuses Starbucks and Netherlands of Making Unfair Tax Deal
(35 minutes later)
BRUSSELS — The European Union authorities on Friday publicly accused the Netherlands of making a special deal with Starbucks that helped the coffee company lower its taxes, creating unfair advantages over other countries in the bloc. BRUSSELS — European Union authorities have accused the Netherlands of making a special deal with Starbucks that helped the company lower its taxes, creating unfair advantages over other countries in the bloc.
The report by the bloc’s competition commissioner — a preliminary finding in a review of Starbucks’ past arrangements with the Netherlands — is the latest sign of mounting concern, and indignation, over the scale of tax breaks for multinational companies in a period of weak growth and high unemployment in many parts of Europe. The report by the bloc’s competition authority, made public on Friday, is a preliminary finding in a review of Starbucks’ arrangements with the Netherlands. It is the latest sign of mounting concern, and indignation, over the scale of tax breaks for multinational companies in a period of weak growth and high unemployment in many parts of Europe.
The case focuses on a tax ruling by the Dutch authorities that may have allowed Starbucks to pay less tax than it should have by allowing it to shift revenues away from the Netherlands, where it had its European headquarters until recently. Regulators have also begun investigations into the tax affairs of companies like Amazon in Luxembourg and Apple in Ireland. And with the number of cases growing, the consequences for governments and businesses in Europe could be profound, and lasting.
The European Commission, the bloc’s executive body, said it “considers that the measure at issue appears to constitute a reduction of charges that should normally be borne by the entities concerned in the course of their business,” according to the 40-page report to the Dutch government formally describing the scope of the investigation and why it is worth pursuing. While companies face the prospect of repaying staggering sums of money, potentially giving governments a windfall, those governments are also wary of diminishing the their appeal to investors.
The report was dated June 11 but was released on Friday. It was addressed to Frans Timmermans, the former Dutch foreign minister who recently became first vice president of the European Commission. “Bigger countries like France and Germany don’t want these practices on their doorstep, but you can bet that smaller countries like the Netherlands and Luxembourg are going to fight tooth and nail to preserve the status quo,” said Emanuela Lecchi, a partner in London with the law firm Watson, Farley & Williams.
Any eventual decision against the Netherlands could force the government to recoup large amounts of back taxes from Starbucks. Starbucks said on Friday that it would continue to cooperate with the European Commission in the investigation, and that it had complied with all relevant tax rules, laws and international guidelines. It said “the method for calculating how much in taxes we pay has been reviewed by tax experts and approved by the Dutch tax authorities.”
The case is a response by the European Commission to calls to stop companies from seeking countries that offer specialized tax arrangements and then finding ways to account for their profits there, even when much of the money is made elsewhere. The company also said that it had paid an effective global tax rate of 34 percent and “has never sought unfair tax incentives.”
Starbucks established its manufacturing operations in the Netherlands in 2001, and the European Commission first announced the investigation in June. It is unclear how much Starbucks might have to pay in back taxes if a ruling went against it and the Netherlands. A final decision could take years.
Starbucks said in April that it was moving its European headquarters to Britain, where it has nearly 800 stores and is growing its business, from the Netherlands, where it has about 50 stores. That move followed intense criticism of Starbucks two years ago for paying low corporate taxes in Britain. Starbucks’ global sales last year were $16.45 billion, but only 8 percent of that amount was generated in Europe, the Middle East and Africa.
The European inquiry deals with so-called transfer pricing, or the way companies shunt profits and losses between subsidiaries by accounting for them as internal corporate payments for goods or, as is increasingly common, for copyright or patent royalties. The case concerning Starbucks focuses on operations in Amsterdam that use the company’s intellectual property rights for processes like roasting coffee beans, according to a 40-page report to the Dutch government formally published early Friday that described the scope of the investigation.
The case focuses on a roasting plant in Amsterdam that uses Starbucks’ intellectual property rights for processes like blending and roasting. Regulators suspect that the Dutch authorities attributed too little profit to these Starbucks operations. Regulators suspect that the Dutch authorities attributed too little profit to these Starbucks operations. In particular, they are examining whether Dutch authorities allowed Starbucks to use unfair methods to shrink its taxable income, including paying a royalty to a partnership in Britain, Alki, for a recipe for coffee-roasting.
When European Union officials announced the investigation in June, Starbucks said that it had complied with all relevant tax rules, laws and international guidelines. Alki is not taxed in the Netherlands but is “possibly taxed at the country of the tax residence of the partners,” said the report, adding that Alki made payments to an American Starbucks company.
The Dutch authorities said on Friday that they were confident the commission would find there was no unlawful aid. In a letter to the Dutch House of Representatives, Eric Wiebes, the state secretary for finance, wrote that the arrangement with Starbucks “is fully in line with international transfer pricing standards” and “is consistent with the policy framework applied by the government in its efforts to create an attractive business climate.” The commission also had doubts that the royalty was in line with international guidelines because it fluctuated from year to year, and “is not related to the output, sales, or to profit.”
The commission asked the Netherlands to provide more information on Alki. It also asked how Starbucks in the Netherlands determined the price of the green, unroasted beans supplied by its Swiss subsidiary.
A decision in the case against the Netherlands, which covers the last seven years, could force the government to recoup large amounts of back taxes from Starbucks. Investigators have the scope to expand the case back 10 years if they find sufficient evidence.
The report was dated June 11 and addressed to Frans Timmermans, the former Dutch foreign minister who recently became first vice president for the European Commission.
The case is a response by the European Commission to calls to stop companies from seeking to set up in countries offering specialized tax arrangements and then finding ways to account for their profits there, even when much of the money is made elsewhere.
In a letter to the Dutch House of Representatives, Eric D. Wiebes, the state secretary for finance, wrote that the arrangement with Starbucks was “fully in line with international transfer pricing standards” and “consistent with the policy framework applied by the government in its efforts to create an attractive business climate.”
Starbucks said in April that it was moving its European headquarters from the Netherlands, where it has about 50 stores, to Britain, where it has nearly 800 stores and is expanding. That move followed intense criticism of Starbucks two years ago for paying small amounts of tax and even no tax in some years.
In September, the European Commission published a similar preliminary report of Ireland’s past tax arrangements with Apple, chastising Irish officials for giving the company unlawful so-called state aid that masqueraded as tax breaks. The commission said Ireland might need to collect back taxes from Apple that analysts said could reach into the billions of dollars.In September, the European Commission published a similar preliminary report of Ireland’s past tax arrangements with Apple, chastising Irish officials for giving the company unlawful so-called state aid that masqueraded as tax breaks. The commission said Ireland might need to collect back taxes from Apple that analysts said could reach into the billions of dollars.
It was not immediately clear how much Starbucks might have to pay in back taxes if there were a ruling against it and the Netherlands in the case. A final decision could take years.
Starbucks’s global sales last year were $16.45 billion, but only 8 percent of that amount was generated in Europe, the Middle East and Africa.
Another European Union country, Luxembourg, has been the subject of intense scrutiny since Nov. 5, when the International Consortium of Investigative Journalists published a report accusing more than 300 companies, including the Pepsi Bottling Group, Ikea and FedEx, of benefiting from preferential tax deals with the government of Luxembourg.Another European Union country, Luxembourg, has been the subject of intense scrutiny since Nov. 5, when the International Consortium of Investigative Journalists published a report accusing more than 300 companies, including the Pepsi Bottling Group, Ikea and FedEx, of benefiting from preferential tax deals with the government of Luxembourg.
The European Commission is investigating the tax incentives Luxembourg offered to Amazon and to a unit of Fiat. The European Commission is already investigating the tax incentives Luxembourg offered to Amazon and to a unit of Fiat.
Those cases, and the inquiries concerning Starbucks and Apple, were brought by Joaquín Almunia, the former antitrust chief of the European Commission, this year. Those investigations have been taken over by Margrethe Vestager, who replaced Mr. Almunia. Those cases, and the inquiries concerning Starbucks and Apple, were brought by Joaquín Almunia, the former antitrust chief of the European Commission, this year. Those investigations have been taken over by Margrethe Vestager, who succeeded Mr. Almunia.
Ms. Vestager is working under Jean-Claude Juncker, whose posts in Luxembourg from 1989 to 2013 included finance minister, treasury minister and prime minister, and who now leads the commission. That has created concerns that Mr. Juncker has conflicts of interest in the tax investigations.Ms. Vestager is working under Jean-Claude Juncker, whose posts in Luxembourg from 1989 to 2013 included finance minister, treasury minister and prime minister, and who now leads the commission. That has created concerns that Mr. Juncker has conflicts of interest in the tax investigations.
Mr. Juncker said on Wednesday that he would not interfere in the investigations and would make himself answerable to Ms. Vestager if necessary. Mr. Juncker said on Wednesday that he would not interfere in the investigations and would make himself answerable to Ms. Vestager if necessary. Mr. Juncker also pledged that his deputy, Mr. Timmermans, would not interfere in Ms. Vestager’s investigation of Starbucks.
Mr. Juncker also pledged that his deputy, Mr. Timmermans, would not interfere in Ms. Vestager’s investigation of Starbucks. “The commission in the past has always clearly been independent in these assessments,” Mr. Timmermans said in a news conference with Mr. Juncker on Wednesday that was focused on the recent revelations in Luxembourg.
“The commission in the past has always clearly been independent in these assessments,” Mr. Timmermans said during a news conference with Mr. Juncker on Wednesday that was focused on the recent revelations in Luxembourg.