Starbucks v EU Commission: Alleged aid to Starbucks

Today’s blog is from Dick van Sprundel, Assistant Professor International and European Tax Law at the Erasmus University Rotterdam plus International Tax Partner Mazars Netherlands

Executive Summary:

Today, the European Commission published its preliminary view concluding that that the APA in favour of Starbucks Manufacturing EMEA BV constitutes state aid. The publication is a non-confidential version of a decision taken on 11 June 2014 to open an in-depth investigation into transfer pricing arrangements on corporate taxation of Starbucks in the Netherlands.

The Dutch State Secretary for Finance published a letter on the Netherlands’ position regarding the EU Commission’s decision. The State Secretary takes the view that both the applied transfer pricing method and the paid consideration are in line with the arm’s length principle. Therefore, the Netherlands government takes the position that Starbucks did not receive incompatible State aid because it did not receive a specific and selective benefit.

Monty Pythons Conquistador Coffee Sketch and the European Commission quest

Albeit being born and raised in the Netherlands, BBC television had set its foot print in the Netherlands as well. One of the famous foreign sketches which were shown on Dutch television was the one of Monty Python. Monty Python has been in particular been ‘hot’ since John Cleese has been in the Netherlands this month.

One of Monty Pythons big hits was its sketch over Conquistador Coffee were a marketer made a marketing campaign. Unfortunately, market-leader Conquistador Coffee nearly went bankrupt due the advice that has been provided. The managing director of Conquistador Coffee even shot himself. Luckily, such drastic scenarios are not to be expected with Starbucks, but ruling discussion was not the scenario Starbucks had hoped for in the beginning.

World is changing rapidly

Currently, there are many (international) discussions regarding tax havens, paying your fair share and (corporate) tax avoidance. In addition thereto, the European Commission has raised their concerns and has opened three in-depth investigations to examine whether decisions by tax authorities in Ireland, The Netherlands and Luxembourg with regard to the corporate income tax to be paid by Apple, Starbucks and Fiat Finance and Trade, respectively, comply with the EU rules on state aid.

The main question that arises is whether the rulings are considered potential state aid. One of the so-called rulings that is under attack is the ruling the Dutch tax authorities concluded with Starbucks Manufacturing B.V., a famous coffee brand that had its revenue increased, but remained having a low tax burden in the Netherlands (and abroad). With Conquistador Coffee, the revenue went down dramatically.

European Commission

Albeit there were rumors that the European Commission would examine rulings in the beginning of this year, nothing was made public until 11 June 2014. On that day, the Commission stated that they would open an investigation with respect to the rulings which Apple (Ireland), FIAT (Luxembourg) and Starbucks (Netherlands) have concluded in the respective jurisdictions at hand. On 30 September 2014, the first results came out regarding Apple and FIAT.

The European Commission assumed – based on current evidence and as a preliminary conclusion – that the tax ruling as granted by Luxembourg to FIAT, could be considered to be illegal tax state aid. About the tax structures, as granted by Ireland to Apple, are also reasonable doubts where made public. Therefore, the European Commission will continue their investigation. The view of the European Commission on the tax ruling that was concluded between the Netherlands and Starbucks was not published, until today.

The real waiting has been postponed

According to the first results of the research – some 40 pages – there is too little profit attributed to the Dutch company of Starbucks. This company was involved in toll manufacturing activities for the Starbucks group.

In the ruling that was approved by the Dutch tax authorities, the transfer pricing qualification of the activities and the at arm’s length remuneration was recorded. The European Commission raised some questions about the transfer pricing landscape that was prepared. Subsequently, according to the EC, the company paid too little profit and thus too little corporate income taxes. Starbucks Netherlands would run a low risk and thus a higher risk should have been run in another jurisdiction. However, based on ECs research this did not happen. The European Commission assumes that this situation is considered to be qualified as (implicit) state aid.

State aid – But what is state aid exactly?

Countries are allowed to make agreements with companies about ‘profitable’ tax conditions when attracting enterprises. There is nothing wrong with some international competition – also not within the European Union – as long as the agreements are in line with the rules and regulations. An optimal entrepreneurial climate can have positive impact on the economy. The situation will be completely different when there are tax agreements which could lead to forbidden state aid.

Forbidden state aid occurs when the following cumulative conditions are satisfied:

  • Aid is granted by a EU-member state or through state;
  • Aid confers an advantage on the recipient;
  • It favors certain commercial undertakings or the production of certain goods (i.e. it must be selective in its nature);
  • It distorts or has the potential to distort competition;
  • The activity is tradable between member states and the aid has the potential to effect trade.

When the abovementioned conditions are satisfied and the state aid is not notified with the European Commission, there is unauthorized state aid (there are exceptions).

Which country will take what advantage?

The discussion regarding the state aid raises some questions: Which country may allocate which amount of the profits and what amount of taxes should be paid accordingly?

The only thing we know for sure is that the total amount of taxes paid should increase. Based on the preliminary conclusions of the European Commission, Starbucks Netherlands or the companies in the foreign countries need to report more business profit. If and when the European Court of Justice acknowledges that there is illegal state aid, an EU member state must pay the unauthorized advantage back (and the company at hand should compensate the applicable EU member state).

Today, also the Dutch Secretary of State of the Ministry of Finance reacted and he stated that he is very confident that the further investigation by the European Commission will prove that the international at arm’s length principle was respected. Monty Python Conquistador Coffee Sketch took some three minutes, but the European Commission is expected to finalize its investigation within 18 months after today’s publication.

Although ‘free publicity’ generally welcomed by a company, the publicity the European Commission is gaining is not something you would prefer. Even the marketer for Conquistador Coffee can tell you that…

Would you like to have a better understanding how the above ruling discussion would affect your company or would you like to know more about state aid? Please contact one of my Mazars colleagues or me on

Dick van Sprundel, International Tax Partner Mazars Netherlands / Assistant Professor International and European Tax Law at the Erasmus University Rotterdam

Source: European Commission

Please also see our blog summary: European Commission kindles first flames in battle with Amazon  and Alleged aid to Apple and Fiat: Transfer Pricing arrangements of Apple and Fiat are under the EU Commission’s scrutiny


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