Starbucks and Fiat Chrysler will have to pay more than $34 million to the European Union in back taxes after European tax breaks were determined to be illegal.
According to the ruling made by the European Commission, deals that the companies made with European countries are considered to be state aid, and they did not constitute tax breaks.
Starbucks had a deal with the Netherlands, while Fiat was working with Luxembourg.
Already, Starbucks has said that it would appeal the decision made by the commissioner.
Additionally, the Commission is also looking into tax deals made by Amazon and Apple.
European competition commissioner Margrethe Vestager said, “Tax rulings that artificially reduce a company’s tax burden are not in line with EU state aid rules. They are illegal. I hope that, with today’s decisions, this message will be heard by member state governments and companies alike. All companies, big or small, multinational or not, should pay their fair share of tax.”
In the cases of Starbucks and Fiat, the companies made use of “transfer price agreements”. Basically, the firms transferred their profits to other countries in order to face less demanding tax laws.
Vestager added, “Our decisions today show that artificial and complex methods endorsed by tax rulings cannot mask the actual profits of a company, which must be properly and fully taxed.”
Fiat paid less than $454,000 in Luxembourg taxes, while Starbucks paid less than $680,000 in the Netherlands.
Reports indicated that nearly 340 global companies had taken advantage of tax avoidance deals in Luxembourg in the past.
Meanwhile, both Starbucks and the Dutch government believe that they were following the rules.
A spokesperson for Starbucks said, “Starbucks shares the concerns expressed by the Netherlands government that there are significant errors in the decision, and we plan to appeal, since we followed the Dutch and OECD rules available to anyone.”
Luxembourg also disagreed with the decision, as the Luxembourg Ministry of Finance issued a statement.
“Luxembourg disagrees with the conclusions reached by the European Commission in the Fiat Finance and Trade case and reserves all its rights. We will use appropriate due diligence to analyze the decision of the Commission as well as its legal rationale,” it said.
Meanwhile some business analysts believe that more action will likely be taken by the European Commission to prevent future corporate tax breaks.
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