Tip of Iceberg? EU Rules Against Sweetheart Tax Deals for Corporations

Striking a blow against sweetheart tax deals that unfairly benefit large multinational corporations, the European Commission ruled Wednesday that Starbucks and Fiat must repay up to 30 million euros ($34 million) each in tax breaks they received from EU nations.

The decision is a harbinger of a coming crackdown on such deals across the continent.

"Tax rulings that artificially reduce a company's tax burden are not in line with EU state aid rules. They are illegal," Margrethe Vestager, the EU competition commissioner, declared. "I hope that, with today's decisions, this message will be heard by member state governments and companies alike. All companies, big or small, multinational or not, should pay their fair share of tax."

The Associated Pressexplained:

Because multinationals in the EU pay their taxes in the country where they have their regional headquarters, countries have long competed among themselves to lure the companies.

That has resulted in countries offering tax advantages that allow the companies to pay very low tax overall and has become a big political issue as citizens in many European nations are forced to tighten their belt while some multinationals get away with huge tax breaks.

In addition to the coffee chain and carmaker, European Commission officials are looking at similar deals secured by Amazon in Luxembourg and Apple in Ireland and those benefiting unspecified companies in other European countries.

The Wall Street Journal said the decision "risks blowing open thousands of corporate tax structures across Europe," while Marc Sanders of the global firm Taxand toldReuters the ruling would "rock the corporate world to its very core."

"Starbucks, Fiat, Apple, and Amazon may be the tip of the iceberg after revelations of widespread use of sweetheart tax deals hit the headlines last year," added Bloomberg. "Documents leaked by a group of investigative journalists showed that Luxembourg alone struck hundreds of secret fiscal deals known as tax rulings with companies from around the world, from PepsiCo Inc. to Walt Disney Co."

To that end, Peter Simon, a spokesman from the Socialists and Democrats group of the European Parliament, called the decision "an important victory for tax justice and honest taxpayers."

He urged policymakers to harness "the current momentum... to set up a comprehensive legal framework for fair corporate taxation including a common corporate tax base and mandatory country-by-country reporting for companies. The aim is that profits are taxed where they are made."

Anders Dahlbeck, tax justice policy adviser for the anti-poverty organization ActionAid, told the BBC that he welcomed Wednesday's ruling and sees potential global implications. ActionAid estimates that developing countries lose at least $138 billion per year to special tax breaks, he said, describing such avoidance schemes as "part of a race to the bottom on tax which hits the poorest hardest and leaves healthcare, schools and other key public services starved of resources."