If EU Member States give certain multinational companies tax advantages not available to rivals in other countries, it is seen as harming fair competition in the EU. The state aid rules aim to prevent this whilst allowing Member States to retain exclusive competence in determining their own tax laws.

There has been much discussion in recent years over the exploitation of the transfer pricing rules by large multinationals to either artificially reduce profits in certain territories or remove them to lower tax jurisdictions. This has been highlighted in two recent decisions of the General Court of the ECJ.

In 2015 the European commission found that selective tax advantages had been granted by Luxembourg to Fiat Chrysler and by the Netherlands to Starbucks and that this was a breach of EU state aid rules.

Fiat’s financing activities

Fiat Finance and Trade had saved €20-30 million in tax since 2012 by using what the commission described as “an artificial and extremely complex methodology” to calculate their return on capital on inter-company lending, and obtained a favourable ruling from the Luxemburg tax authorities on this.

The commission said this methodology was incorrect as it did not include all of Fiat’s capital and excluded that of its North American subsidiaries.

Starbucks’ coffee roasting activities

Starbucks Manufacturing EMEA, based in the Netherlands, sells and distributes roasted coffee and related products to Starbucks outlets across EMEA. Following an advance pricing arrangement (APA) with the Dutch tax authorities it had also reduced its tax by €20-30 million (since 2008) by paying:

  • what the commission described as “an inflated price” for coffee beans to a Swiss group company by using the ‘wrong’ methodology to set the price, and
  • royalties to a UK-based group company for coffee-roasting know-how, which the commission said, were set at a rate above market value, and which only the Dutch company had to pay.

Both of these activities were found to have shifted profits out of the Netherlands and in the case of the royalties, they were moved to a UK company not liable for corporate tax in the UK or the Netherlands.

The recent judgements on appeal

On appeal the General Court upheld the commission’s decision in the Fiat case but overruled it in the Starbucks case.

In Fiat the court held the commission was correct in finding that the return of capital figures had been incorrectly calculated and was entitled to conclude that the tax ruling conferred an advantage as it lowered Fiat’s tax charge compared to what it would have had to pay under Luxemburg law.

In the Starbucks case the court found:

  • the commission had not proved that the use of one transfer pricing methodology over another had led to a result that was too low and it should have compared the results of the methodologies in question.
  • the fact that the APA did not analyse the royalties did not mean they were not at arms-length rates.
  • the commission had not shown that the rate used had resulted in a selective advantage.


At first sight the cases appear similar; both relate to the pricing of intergroup transactions, the tax at stake is the same; but the types of transaction differ, Fiat being the pricing of lending and Starbucks the pricing of goods and royalties.

Post Brexit the issues raised here may be of little future interest to UK groups; the EU state aid rules will cease to apply but they remain relevant for previous accounting periods.

It seems the Starbucks decision may do little to quash the debate as to whether multinationals pay the right amount of tax in the right places. Perhaps the appeal yet to be heard by the court, from Apple in respect of the allocation of Apple head office profits in Ireland, may settle the position one way or another, since the tax at stake is €13billion!

Links to our relevant guides:

Diverted Profits Tax

BEPS & Diverted Profits Tax (for SME owners)

External links:

T-755/15 Luxemburg v Commission (Fiat case)

T-7560/15 Netherlands v Commission (Starbucks case)