Starbucks can celebrate – Dutch APA issues most likely resolved

The EU General Court ruled in favour of Starbucks and the Dutch authorities and annulled the European Commission’s decision on illegal state aid provided within an advanced pricing agreement. At the same time, however, the court upheld the EC’s decision in a similar case involving Fiat and Luxembourg.

The first case involved an advanced pricing agreement on transfer prices (APA) between the Netherlands and Starbucks dated 2008. The Commission believed that the APA was contrary to EU rules on state aid, conferring an unlawful tax advantage in the amount of approx. EUR 30 million. Although the Commission identified a number of errors in the APA, in the court´s opinion they did not prove that that these would lead to granting more advantageous conditions to Starbucks in the Netherlands. The court thus concluded that the Commission was unable to demonstrate the existence of an economic advantage in favour of Starbucks.

In the Fiat case, the court reviewed an APA between this company and Luxembourg dated 2012. In its decision of 2015, the Commission identified it as selective and conferring illegal state aid of EUR 20 to 30 million. In this case, the court confirmed the commission’s decision, stating that the Commission had managed to demonstrate that the APA was contrary to the arm’s length principle and was minimising the taxation of Fiat in Luxembourg. Fiat is expected to appeal the decision.

In both cases, the court confirmed that under EU law the Commission was entitled to review the existence of an advantage in the light of the arm´s length principle, and to assess whether agreements between a state and a company are not of a selective nature.

In recent years, the Commission has ordered a number of large corporations to pay additional tax in jurisdictions where, in the Commission’s opinion, they had been granted illegal state aid in form of tax relief. Another example of these is Apple, who has also challenged the Commission’s decision ordering it to pay additional taxes of EUR 13 billion; a judgement in the Apple case is expected in the next couple of months.

The recent judgements confirm that while the member states have the authority to pass their own laws regarding direct taxes, they must comply with EU law, including the rules on state aid. The Commission declared that they will continue to fight aggressive tax planning.

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