Netherlands disputes findings on Starbucks ruling

The Dutch Cabinet has said that it is ‘somewhat surprised’ at the European Commission's decision that a tax ruling issued by the Dutch tax authority to Starbucks constituted state aid.

The Commission announced on 21 October that so-called ‘comfort letters’ given by the Netherlands and Luxembourg to Starbucks and Fiat Finance and Trade, respectively, to clarify their tax positions, separately gave both companies a ‘selective tax advantage’ and are therefore illegal under European Union (EU) state aid rules.

While recognising that such tax rulings in themselves are ‘perfectly legal’, the Commission decided that the two rulings in question ‘endorsed artificial and complex methods to establish taxable profits for the companies’ and that the transfer prices for goods and services sold between subsidiaries of the two companies did not ‘reflect economic reality’.

In response, the Dutch Government said that the Commission's decision ‘raises a lot of questions and requires careful consideration’. Nevertheless, the Dutch authorities said they are “convinced that actual international standards [were] applied and shall, therefore, analyse the Commission's criticism carefully before taking a decision on further steps”.

The statement continued: "Within the Dutch tax system profit is taxed where value is created. The tax authorities have concluded a[n] Advance Pricing Agreement with Starbucks Manufacturing which includes a business remuneration for the roasting of coffee beans..."

"The tax authorities collect taxes on profit which is made by Starbucks Manufacturing in the Netherlands by roasting coffee beans. Because the intellectual property rights of Starbucks are not located in the Netherlands, the royalties for the use of these are not taxed in the Netherlands."

"The arm's length principle is carefully implemented in the Corporate Tax Law and the transfer price decree. The legislation and implementation are in line with the OECD guidelines. The method used by the Netherlands in the file of Starbucks Manufacturing is internationally recognised and results in using the same prices within the Starbucks corporation as prices used between independent parties."

It concluded that: "The Netherlands is actively cooperating with Organisation for Economic Co-operation and Development and EU initiatives in this area".

Source: Baker Tilly International