Pushing the Envelope, EU Style: Netherlands & Luxembourg “Unhappy” with EU Rulings on State Aid

By Robert Robillard - 26 October 2015

This blogpost originally appeared on rbrt.ca.

Last week, two landmark EU decisions on state aid were abundantly disseminated…

See Commission decides selective tax advantages for Fiat in Luxembourg and Starbucks in the Netherlands are illegal under EU state aid rules available here for more on that matter.

Pushback from the Dutch Cabinet and Luxembourg did not take long for obvious reasons…

In the case of the Netherlands, it is alleged that an Advance Pricing Agreement (APA) based on the arm’s length principle was indeed rendered “illegal” by the EU…

What the BEPS?

The Dutch Cabinet issued the following statement on October 21 (available here):

“The Dutch cabinet is somewhat surprised about the decision of the European Commission that Starbucks would have received State aid. It would concern an amount between 20 and 30 million euro in total over a period of several years. The cabinet will study the decision and inform the Parliament within a few weeks.

The Netherlands agrees with the European Commission that State aid should be addressed, also if the State aid is provided by means of tax rulings. The Commission has stated earlier that the Netherlands has a robust and solid ruling practice.

The fact that the Commission observes that there would be State aid in the Starbucks file raises a lot of questions and requires careful consideration. The Netherlands is convinced that actual international standards are applied and shall, therefore, analyse the Commission’s criticism carefully before taking a decision on further steps.

Within the Dutch tax system profit is taxed where value is created. The Tax Authorities have concluded a Advance Pricing Agreement (APA) with Starbucks Manufacturing which includes a business remuneration for the roasting of coffee beans, the so called arm’s length principle.

The Tax Authorities collect taxes on profit which is made by Starbucks Manufacturing in The Netherlands by roasting coffee beans. Because the intellectual property rights of Starbucks are not located in The Netherlands, the royalties for the use of these are not taxed in The Netherlands.

The arm’s length principle is carefully implemented in the Corporate Tax Law and the transfer price decree. The legislation and implementation are in line with the OECD guidelines. The method used by The Netherlands in the file of Starbucks Manufacturing is internationally recognized and results in using the same prices within the Starbucks-corporation as prices used between independent parties.

The Netherlands supports a comprehensive, international approach of tax avoidance. Therefore, The Netherlands is actively cooperating with OECD and European Union initiatives in this area.”

Luxembourg had this to say on the EU decision:

“Luxembourg disagrees with the conclusions reached by the European Commission in the Fiat Finance and Trade case and reserves all its rights.

Luxembourg will use appropriate due diligence to analyse the decision of the Commission as well as its legal rationale.

Luxembourg already notes that the European Commission has used unprecedented criteria in establishing the alleged State aid. In particular, the Commission has not established in any way that Fiat Finance and Trade received selective advantages with reference to Luxembourg’s national legal framework.

Luxembourg does not consider that Fiat Finance and Trade has been granted incompatible State aid, as foreseen by article 107(1) of the Treaty on the Functioning of the European Union.

Luxembourg adheres to international standards, in particular those relating to the arm’s length principle applicable with respect to transfer pricing, and with State aid rules”

What the BEPS? Indeed…

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Inc.
514-742-8086; robertrobillard “at” rbrt.ca
www.rbrt.ca

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