EU cracks down on illegal tax breaks, including those for Starbucks and Fiat

The European Union said Wednesday that the Netherlands gave Starbucks an illegal break on its tax bill, and it ordered the Dutch government to collect between $23 million and $34 million from the coffee company.

The decision is part of a wider crackdown by Brussels on “comfort letters,” tax rulings issued by countries such as the Netherlands, Luxembourg and Ireland to companies such as Starbucks and Amazon.

The EU said the specific tax deals with Starbucks and Italian car company Fiat, against which it also ruled Wednesday, allowed the companies to use “artificial and complex” methods to calculate taxable profits that “do not reflect economic reality.”

Starbucks’ Dutch unit operates the Seattle company’s only European roasting facility, from which it distributes products all over Europe, Africa and the Middle East. The EU investigation, begun last year, determined that the subsidiary artificially lowered its profits by paying a “very substantial royalty” to another Starbucks subsidiary in the UK for “coffee-roasting know-how.”

The EU said the Dutch subsidiary is the only Starbucks unit to pay a royalty for that know-how, which means that a big chunk of its taxable profits are moved to the UK, where Starbucks hasn’t paid much corporate tax in recent years.

Starbucks said the EU’s assertion about the uniqueness of the Dutch royalty payments “is false.”

According to the EU investigation, the Starbucks roasting operation also paid “an inflated price” for coffee beans bought from another Starbucks subsidiary in Switzerland. The EU argues that by allowing Starbucks to calculate its profits this way, the Netherlands is giving the company, which until last year had its European headquarters in Amsterdam, an unfair state subsidy.

The Dutch government said it was “somewhat surprised” by the decision, since it believes international standards were applied.

Starbucks said it agrees with Netherlands officials and plans to appeal.

This story was originally published October 21, 2015 at 3:07 PM with the headline "EU cracks down on illegal tax breaks, including those for Starbucks and Fiat."