Daily Management Review

As Apple Gets Set to Fight EU, Starbucks Brews Up a Tax Storm


As Apple Gets Set to Fight EU, Starbucks Brews Up a Tax Storm
With the details of Starbucks Corp’s appeal of a 30 million-euro ($32 million) tax repayment order being made public for the first time, the coffee chain attacked “manifest errors” by European Union competition watchdogs.
According to a summary of its appeal published this week, Starbucks criticized its EU order, saying officials made several “errors of assessment” in a preview of  Apple Inc’s 13 billion-euro court fight with Brussels regulators.
Last year the EU accused it of getting an unfair advantage from a tax arrangement with the Netherlands in violation of the bloc’s state aid rules and the Seattle-based company is asking the EU General Court in Luxembourg to annul last year’s EU decision.
according to the summary, Starbucks said that “by incorrectly establishing that the” advance pricing agreement “conferred an advantage, thereby committing various manifest errors of fact and assessment, failing to conduct a diligent and impartial examination and giving an inadequate statement of reasons,” the EU regulator violated those rules.
Arguing that special tax treatment for selected companies amounts to illegal state aid, the EU Competition Commissioner Margrethe Vestager has prioritized the fight against it. Being ordered to pay back taxes they allegedly avoided thanks to agreements with the Netherlands and Luxembourg, Starbucks and a Fiat Chrysler Automobiles NV unit were first in the firing line.
Claiming Ireland granted unfair deals that reduced the company’s effective corporate tax rate to as little as 0.005 percent in 2014, Vestager in August slapped Apple with a record multibillion euro bill while her team continues its quest to weed out unlawful deals from a list of more than 1,000 tax rulings. Ireland has already appealed the decision and Apple said it would follow.
In the Starbucks case, in exchange for a technique to roast coffee beans, a Dutch unit paid millions of euros to a U.K.-based arm of the company that isn’t taxed in Britain, the commission said. Starbucks may have been allowed to unfairly lower its Dutch taxes by exaggerated tax-deductible royalty payments for this technique.
While the case may be among the first to come to a court hearing, The Netherlands already has an appeal pending against the EU’s decisions on Starbucks.
“The commission will defend its decision in court,” spokesman Ricardo Cardoso said by e-mail. Starbucks didn’t immediately respond to a request for comment.
While Apple expected to file its appeal before the end of the year, the EU is poised to publish details of its decision in the iPhone maker’s case in the coming days.
For the first time on a public stage, Apple and EU competition watchdogs on Dec. 2 clashed over the issue. The EU’s August decision is “seriously flawed” and implies Apple products such as its best-selling smartphones are designed in the Irish city of Cork, rather than the U.S., an Apple lawyer said at a Copenhagen conference. An EU official hit back, saying the company was creating a “very nice tax story.”