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Starbucks to Pay Europe Back Taxes of $34M, Fiat Owes $22M

Image: Starbucks to Pay Europe Back Taxes of $34M, Fiat Owes $22M

By    |   Thursday, 22 Oct 2015 07:49 AM

Starbucks will pay the European Union $34 million in back taxes, after the European Commission ruled that a deal cut with the Netherlands violated the law. Fiat will pay $22.7 million for the same reason.

"Tax rulings that artificially reduce a company's tax burden are not in line with EU... rules. They are illegal," said Margrethe Vestager, Europe's top anti-trust official, according to CNN Money. "All companies, big or small, multinational or not, should pay their fair share of tax." 

The Wall Street Journal reported Wednesday that the ruling was an "unprecedented decision" and could upend a large number of corporate tax structures across Europe, as hundreds if not thousands of companies have used holding-company rules to reduce their tax burden in the Netherlands from the official rate of 29 percent to nearly zero.

According to the Journal, "In Starbucks’s case, the EU said the company’s Dutch coffee-roasting unit paid a 'highly inflated price' to a Swiss unit for green coffee beans, as well as a 'very substantial royalty' to another Starbucks entity in the U.K., Alki, that didn’t reflect the value of know-how. Alki, which has since been dissolved by Starbucks, wasn’t liable to pay corporate tax in the U.K. or the Netherlands, Ms. Vestager said."

Starbucks said in a statement after the ruling that it planned to appeal the decision.

"Starbucks shares the concerns expressed by the Netherlands government that there are significant errors in the decision," the company said in a statement.

As for investors, many say the deal could hurt business across the EU.

"I definitely think it will dampen investment in Europe [because] uncertainty is the biggest enemy of deals," said Robert Willens, a corporate tax adviser in New York and former managing director at Lehman Brothers. "It will certainly affect valuations. If taxes are higher going forward that will affect the value of the potential merger partner."

Others guessed that investment wouldn't suffer, as most companies will likely find another way to avoid being taxed.

"Nothing prevents these companies from continuing to try to optimize their tax operations and their tax liability," said Nicolas Petit, a professor at the University of Liège in Belgium who specializes in antitrust law, according to The New York Times. "It also won’t necessarily prevent European countries from saying they’ll just change their tax regimes" to lure more business, he added.

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Starbucks and Fiat will pay the European Union $34 million and $22.7 million, respectively, in back taxes, after the European Commission ruled that deals cut with the Netherlands violated the law.
starbucks, to pay, europe, taxes
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2015-49-22
Thursday, 22 Oct 2015 07:49 AM
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