Starbucks struck a tax deal with the Netherlands that the European Union (EU) has accused of being legally questionable. According to EU regulators, the deal that the Starbucks Corp made with the Netherlands might be considered illegal state aid. If the pending investigation concludes that Starbucks received an unfair advantage, the company will have to pay for past unpaid taxes.
According to Reuters, the European Commission suspects that Starbucks will be allowed to diminish the amount of its profit that is taxable, which will in turn lower its tax bill. These advanced pricing agreements would give the company a selective advantage when it comes to paying taxes. A practice that is at odds with current international financial policy.
The commission believes that the Dutch allowed a subsidiary of Starbucks to declare profit that was able to be taxed as equal to only a percentage of its cost. While, at the same time, allowing the company to leave out the majority of its actual costs when it performed the calculation. The commission also stated that it is incorrect for Dutch authorities to treat the manufacturer as “low-risk” when there is clear evidence saying that they are not. Another issue is that according to the Dutch, Alki, which is an entity that has Starbucks’s intellectual property rights for Europe, is “transparent.” This means that it does not have to pay any income tax.
The accusation Starbucks faces of striking a questionable deal with the Netherlands is the most recent attempt from international authorities to stop the abuse of loopholes in the system that have let multiple multinational corporations evade taxes without it being illegal. There have been three more “probes” initiated in recent months by the EU over tax deals. The other investigations involve Fiat, Amazon and Apple Inc. The Netherlands tax laws have protected multiple profits from taxation for years and in doing so they have drawn a lot of attention from both investors and authorities. According to the New York Times, 15.5 percent of foreign direct investment goes from America to the Netherlands, most of it to holding companies.
Both the Dutch government and Starbucks responded to the allegations by accepting the investigation and stating that they had no reason to believe that what they were doing was illegal. According to a letter from Eric Wiebes, the Dutch State Secretary of Finance, the transfer prices are lined up with the Organization for Economic Co-operation and Development guidelines as well as national legislation. A statement made by Starbucks also said that there was no selective advantage and that all principles were adhered to.
This accusation of Starbucks making questionable deals with the Netherlands is the second incident in two years involving the corporations tax decisions and Europe. Previously British lawmakers questioned the corporation on their paying of income tax in the amount of $13.5 million when it had sales of more than $4.5 billion in the same time frame. The coffee chain responded by offering to pay $30 million in taxes to the United Kingdom over two years time.
By Clara Goode