Tech companies’ EU tax deals may be illegal

Corporate tax breaks are nothing new, but in Europe, some corporations may be taking more than fair share. And if a recent court ruling holds for future challenges, some leading tech companies may be in for an expensive surprise.

Today the European Commission (EC) is expected to make final its decision finding that Starbucks and Fiat received illegal tax incentives, according to the Guardian. Starbucks could end up paying back taxes of more than $30 million, while the auto maker’s bill may be much higher.

In the Starbucks case, the Commission charged that the company falsely overstated the amount its Dutch-based coffee bean roasting branch paid to its Swiss-based bean supplier, to illegally accrue a tax benefit available for profits made in the Netherlands.

Fiat located its lucrative financing arm in Luxembourg to similarly take advantage of the tax system there. In both cases, the companies say that local tax authorities assured them that their dodgy tax practices would not be scrutinized.

But the EC is not expected to let these assurances stand. Referred to as “comfort letters,” it appears certain that the Commission will enforce its international rules as pre-emptive of local standards.

The Commission can enforce its standards when such local policies are deemed “sweetheart deals” that are not widely available but granted only to certain companies.

Following the rulings today, the Commission is expected to take up challenges to Apple’s tax breaks in Ireland and Amazon’s tax deals in Luxembourg. If the Commission finds similarly in those cases, the tech companies could owe much larger amounts in unpaid taxes.