EU Warns on Starbucks Tax Deal with the Netherlands

European Union (EU) regulators warned that a tax deal agreed between the Netherlands and Starbucks, the international coffee retail chain, may constitute illegal state aid.

The EU is attempting to crack down on members that attract investment by helping companies to avoid tax. Luxembourg, Ireland, Malta, Belgium, Cyprus and Gibraltar also face scrutiny over tax deals they have struck with multinational corporations (MNCs)

The European Commission (EC) said it suspects the Dutch tax ruling allows Starbucks to lower its taxable profit, and thereby its tax bill, in a way that flouts accepted accounting rules. “The Commission’s preliminary view is that the advanced pricing arrangements in favour of Starbucks Manufacturing EMEA BV constitute state aid,” the EU executive stated.

However, Eric Wiebes, the deputy Dutch finance minister maintained that the Starbucks deal “is fully in line with international transfer pricing standards, is consistent with the policy framework applied by the government in its efforts to create an attractive business climate”.

Starbucks said it was confident that EU regulators would conclude that it had not received a selective advantage.

The EC said the Dutch tax authority had allowed a Starbucks subsidiary called Starbucks Manufacturing EMEA BV to declare a taxable profit equal to a percentage of its costs, but also permitted the company to exclude most of its costs when making the calculation.

This was partly achieved by excluding the cost of coffee beans. The Dutch justified this, saying the beans remained the property of another Starbucks subsidiary. However, the Commission noted the beans appeared on Starbucks Manufacturing EMEA’s balance sheet.

If the EU investigation finds Starbucks did receive an unfair advantage, the company could be forced to repay unpaid tax, although reports suggest that the amounts are unlikely to be large.

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