Starbucks did not benefit unfairly from the Netherlands tax deal

In 2008, the Netherlands tax authorities concluded an advance pricing arrangement with Starbucks. In 2015, the European Commission ruled that the agreement constituted state aid incompatible with the internal market and ordered the recovery of unpaid tax.

The Netherlands and Starbucks brought an action before the General Court of the EU for annulment of the commission’s decision. 

The court found that the arm’s length principle as described by the commission allowed it to check that intra-group transactions were remunerated as if they had been negotiated between independent companies (cases T‑760/15 and T‑636/16). So, in the light of Netherlands tax law, that tool fell within the exercise of the commission’s powers under Art 107 of the Treaty on the Functioning of the EU. The commission had therefore not erred in identifying an arm’s length principle as a criterion for assessing the existence of state aid.

However, on the commission’s reasoning, the court held that mere non-compliance with methodological requirements did not necessarily lead to a reduction of the tax burden. It was necessary to show that the methodological errors identified in the agreement did not allow a reliable approximation of an arm’s length outcome to be reached and that they led to a reduction of the tax burden.

The court said the various errors identified by the commission did not demonstrate the existence of an economic advantage within the meaning of Art 107. 

In a separate ruling on the commission’s decision that the tax agreement between Luxembourg and Fiat constituted state aid, the court found in favour of the commission (cases T-755/15 and T‑759/15). It said the commission had shown the agreement was selective and conferred an advantage on Fiat because, as a result, the company paid less tax than it would have done under Luxembourg law. 

European Commissioner Margrethe Vestager said the judgments gave important guidance on the application of EU state aid rules on taxation. She added: ‘At the same time, each case has its specificities and involves complex legal questions. We will study the judgments carefully before deciding on possible next steps.’

She went on to say: ‘The commission will continue to look at aggressive tax planning measures under EU state aid rules to assess if they result in illegal state aid. At the same time, the ultimate goal that all companies pay their fair share of tax can only be achieved by a combination of efforts to make legislative changes, enforce state aid rules and a change in corporate philosophies. We have made a lot of progress already at national, European and global levels, and we need to continue to work together to succeed.’