Multinationals may face big fines in EU tax avoidance ruling

On 21 October, the European Commission is set to make a landmark legal decision on aggressive tax avoidance by large corporations across Europe. The Commission is expected to end its two-year long investigations into Starbucks and Fiat, by issuing judgments that will set a precedent for assessing the legality of multinationals using so-called tax rulings to guarantee that they only pay a certain level of corporation tax – sometimes less than 1%.

There is speculation that the decision tomorrow will signal that the tax rulings from the Netherlands and Fiat were illegal state aid, ahead of the conclusion of other ongoing investigations into Amazon and Apple.  If that is the case, then Starbucks and Fiat could face fines of up to €200m between them.

Anneliese Dodds MEP, Labour's European spokesperson on tax, said: "The rulings on Wednesday should send out the message that multinationals must pay the same tax rate as medium and small businesses.  If it turns out that countries like Luxembourg and the Netherlands have been offering 'sweetheart deals' to big companies – allowing them to pay next to no tax just in order to attract their business away from neighbouring countries – then that makes a mockery of the European single market and the Commission must rule strongly to end such practices.  These could be landmark cases.  For that reason, any decision taken tomorrow must be based on strong evidence that can stand up in a court of law to seriously tackle tax dodging."

Tax rulings are assurances by tax authorities that seek to give a specific company clarity over how its tax will be calculated. If countries are offering selective tax advantages to these companies in order to attract their business, it may amount to state aid.

Dodds continued: "Through their tax deal with the Netherlands, , Starbucks have allegedly been getting away with paying an effective rate of just 1% in corporation tax to the Dutch government. This is much lower than the 20% that small and medium sized businesses pay in the UK and shockingly lower than the full Dutch corporation tax rate of 25%."

"Wednesday's ruling is a golden chance for Commissioner Margrethe Vestager to show that the EU takes tackling tax dodging seriously and is beginning the process of getting multinationals to pay their fair share."

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