The European Union said that Starbucks and Fiat must each repay up to 30 million euros in back taxes in a tax avoidance case that was initiated by the LuxLeaks scandal. The EU further said that the tax deals that Luxembourg had offered the Italian auto manufacturer and that the Netherlands offered the US coffee chain did not comply with the block’s tax regulations and were thus illegal. The move is thus the first major blow to international corporations in the EU’s campaign against the so-called “sweetheart” tax deals.
Both Netherlands and Luxembourg have opposed the Commission’s decision to reclaim the unpaid tax from Starbucks and Fiat and said that they would fight it. On top of these two companies, decisions on Apple and Amazon are still pending following the series of probes into tax deals triggered by the LuxLeaks affair. The LuxLeaks scandal revealed that major international companies had negotiated lower taxes in secret deals with Luxembourg. In some cases, the tax rate was as low as one percent. EU Competition Commissioner, Margrethe Vestager, explained that “tax rulings that artificially reduce a company’s tax burden are not in line with EU state aid rules – they are illegal. All companies, big or small, multinational or not, should pay their fair share of tax”.
The LuxLeaks affair was a major blow to the reputation of Jean-Claude Juncker, who took over as European Commission President last November after having served only 19 months as Luxembourg’s Prime Minister during the time when these “sweetheart” tax deals were made. Although the tax deals are really not strictly speaking illegal, as they comply with the tax rules in the countries where these firms operate, they have been criticized on the grounds of unjustified state aid. The European Commission argues that the deals benefit huge corporations at the expense of smaller competitors.