The accusations against the coffee giant Starbucks by the European Commission that it has been offered illegal state aid through a sweetheart tax deal has been ruled out by an order form the highest court of Europe.
However, the same European Court of Justice ruled in another case related to the auto maker Fiat Chrysler that the company had reaped the benefits of preferential tax treatment from the Luxembourg authorities in a manner that was against the regulations of state aid.
The ruling in the both cases bears importance because of its their possible impact on the Apple case that is currently ongoing through an appeal by both the United States based tech giant as well as the Irish Government. That case is also debating the question of whether the tax arrangement that was struck between Apple and a member state of the European Union were illegal use of the provisions of state aid.
In relation to the Starbucks case, the ruling delivered by the General Court of the ECJ said that it had not been possible for the commission to conclusively establish that the global coffee giant had benefited from any clear financial and economic advantage because of the tax deal that had been provided to it by the Netherlands.
EU Court of Justice said in a tweet: “The EU General Court annuls the Commission’s decision on the aid measure implemented by the Netherlands in favor of Starbucks.”
The European Commission had found and ruled that the tax agreement related to Starbucks and one of its subsidiaries was in violation to the regulations of state aid.
The tax agreement that was reached between Starbucks and the Dutch authorities is called an Advance Pricing Arrangement (APA). Under the arrangement, the amount of revenues that Starbucks Manufacturing earned was determined in terms of what it produced within the overall Starbucks group and what its distribution activities were. The earnings thus determined was considered to be the taxable amount that it had earned and therefore the taxes payable under the Dutch corporate tax rate.
The amount of royalties paid by Starbucks Manufacturing to another entity within the same group was also endorsed by the tax deal. The rights of using its brand of roasting, which was regarded as a form of Intellectual Property, was sold to Starbucks Manufacturing by the subsidiary known as Alki. Under the tax arrangement, the residual profits made by Starbucks Manufacturing corresponded to the amount of the royalty to be paid to Alki. That amount was determined by deducting Starbucks’s earnings, calculated in accordance with the tax arrangement, from its operating profit.
According to the European Commission, this arrangement provided selective advantage to Starbucks over other companies which were in violation to state aid regulations.
The commission did not have the competence to adjudicate the tax arrangements under the so-called “arm’s length principle”, argued both the Netherlands and Starbucks. This is because taxation remains a national competence under EU law.
But the ruling of the ECJ said that there were no powers with the commission to investigate issue of taxation arrangement between different entities of the same group even if such arrangements were in contravention to the legalities in normal market conditions and where cases of stand-alone companies were taken into consideration.
(Adapted from RTE.ie.com)