The European Commission qualified Member States' tax rulings as state aid

The European Commission qualified Member States' tax rulings as state aid

03.11.2015 NL law

On 21 October 2015, the European Commission decided that a tax ruling between Starbucks and the Netherlands should be considered illegal state aid. As a consequence, the European Commission ordered the Dutch State to recover the aid granted to a Dutch Starbucks group company (Starbucks Manufacturing EMEA B.V.), which is estimated between EUR 20 and 30 million. 

On the same date the European Commission decided that a tax ruling between Fiat and Luxembourg also amount to illegal state aid. Investigations into tax rulings with respect to other major companies such as Apple and Amazon are pending.

In a press release the European Commission stated that, even though tax rulings as such are legal, the Starbucks tax ruling endorsed transfer pricing methods that did not reflect the economic reality and unduly lowered Starbucks tax burden in the Netherlands. In particular, the European Commission found that the ruling artificially lowered taxes paid by Starbucks Manufacturing EMEA BV in two ways:

  1. Starbucks Manufacturing pays a royalty to Alki (a UK-based company in the Starbucks group) for coffee-roasting know-how, which the European Commission considers to be very substantial               
  2. Starbucks also pays a price for green coffee beans to Switzerland-based Starbucks Coffee Trading SARL, which the European Commission deems to be inflated.


In response to the European Commission's decision, the Dutch State Secretary of Finance explained that the Dutch government was surprised by the outcome because it was convinced that international standards recognized by the OECD had been applied by the Netherlands. The Secretary also considered that the same prices charged between independent parties had also been applied within the Starbucks corporation. The Dutch government intends to analyse the decision carefully before making a decision on further steps.

Since the decision has not yet been published, it is not possible to fully assess the Commission's reasoning. The Starbucks decision in part confirms longstanding case law: the taxation of multinational companies must comply with state aid law. A pivotal legal question to be answered however, is whether and how the application of internationally accepted transfer pricing rules may result in a selective advantage and thus possibly amount to illegal state aid. The Starbucks tax ruling can only be deemed to constitute a selective advantage if other companies in a similar factual and legal position to Starbucks are unable to get a similar deal. It is still unclear how the European Commission reached the conclusion that the tax ruling gives Starbucks a selective advantage in this respect, since the Netherlands appears to have acted in line with commonly applied OECD standards.

This article was published in the Competition Law Newsletter of November 2015. Other articles in this newsletter:

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