Burgess COMMENTARY

Peter Burgess

Starbucks Dutch Tax Deal Clashes with Global Rules, EU Says (Bloomberg) Starbucks Corp. may have unfairly lowered its tax bills by routing profits through Dutch subsidiaries, European Union regulators said as they continued to investigate sweetheart fiscal deals between multinational companies and national governments. “The Dutch authorities confer an advantage” on Starbucks Manufacturing EMEA BV through tax agreements that may have constituted illegal state aid, according to a European Commission letter outlining its case to Dutch officials posted on the EU website today. The Dutch authorities allowed Starbucks Manufacturing to transfer profits through royalty payments to a unit outside the country that “could be overestimated,” the EU said in the letter dated June 11. The regulator’s findings are preliminary. PARTNER INSIGHTS WHAT'S THIS? Recent Developments in International Tax Recent Developments in International Tax Premier International Tax: Product Overview The EU is targeting tax deals throughout the 28-nation bloc that may have given companies unfair advantages over competitors. Apple Inc.’s Irish taxes are under scrutiny alongside accords for Amazon.com. Inc. and Fiat Finance & Trade in Luxembourg. “I don’t think it’s in anyone’s interest that multinationals skip paying taxes anywhere by moving around profits and costs,” Dutch Finance Minister Jeroen Dijsselbloem told reporters in Brussels today. “We should develop international standards if we lack them.” Luxembourg Leaks The publication of the Starbucks letter comes a week after leaked documents revealed that more than 340 companies such as PepsiCo Inc., Ikea Group and FedEx Corp. transferred profits to Luxembourg using complicated tax arrangements. The commission has said tax avoidance and evasion in the EU cost about 1 trillion euros ($1.25 trillion) a year. The report by the International Consortium of Investigative Journalists has put pressure on European Commission President Jean-Claude Juncker, who was the Luxembourg prime minister when most of the controversial deals were approved. A spokesman for Seattle-based Starbucks said that the company complies with all tax laws and international guidelines. The company considers the commission “will find that there is no selective advantage.” The tax deal between the Netherlands and Starbucks Manufacturing was concluded in 2008 and was based on a previous agreement running back to 2001, the EU said. Fluctuating Royalties The royalties paid to Starbucks’s Alki arm in exchange for intellectual property rights needed for the production of coffee and its delivery “fluctuates from year to year and is not in line with sales,” the EU said. Between 2010 and 2012 the royalty varied between 1 million euros and 12 million euros. This disconnect between the royalties and economic value of the intellectual property is “an indication” the method agreed on “might not be the most appropriate means to approximate arm’s length pricing,” the commission said. The arm’s length principle is meant to ensure that, for tax purposes, transactions between subsidiaries are based on prices an unrelated company would pay. The EU also said that Starbucks informed Dutch tax authorities in 2002 that it planned to create an entity that wouldn’t be liable to corporate income tax to avoid that income from a Swiss entity fall under the U.S. tax legislation.