Designed to avoid taxes
The European Commission feels Starbucks has not paid enough taxes in the Netherlands, because it had an agreement in place to pay royalties to an affiliate company in the United Kingdom as a fee for the roasting formula to create “actual” Starbucks coffee. This is how it managed to lower its Dutch-based profit and therefore taxes, but in actuality, its British company is a simple mailbox company.
That is why the European Commission equated this with state aid, which is only allowed under very strict regulations in Europe. An additional payment of 20 million euro needs to follow, the first time the European Commission actually demanded a recovery.
Netherlands points to OECD
The Dutch Ministry of Finance does not agree with the European ruling and State Secretary Eric Wiebes says the deal with Starbucks is in line with the OECD (Organization for Economic Cooperation and Development) guidelines.
Wiebes feels this ruling creates uncertainty and ambiguity about the way the rules need to be applied and that is also why the Dutch government has appealed the decision.
The appropriate taxation of multinationals has become an important theme nowadays, especially as many countries want increased tax income. That increases pressure to get a decent level of taxation, while many smaller business feel they have to pay a lot more compared to multinationals who have managed to walk the road of least taxation. Luxembourg has previously been condemned for a similar deal with Fiat.
