Tax fraud: Fiat and Starbucks fined for ‘state aid’

Jean-Claude Juncker, former prime minister and finance minister of Luxembourg, is now Head of the European Commission.

Europe: The European Commission brought down heavy fines to Fiat and Starbucks for violating fiscal rules, but nothing about Europe’s shady tax laws has changed.

by Anna Maria Merlo in Paris
il manifesto, Oct. 21 2015

The Euro­pean Com­mis­sion today levied multi-million-euro fines against Fiat and Star­bucks for recei­ving swee­theart govern­ment deals, descri­bed as sub­si­dies in disguise, that distor­ted com­pe­ti­tion in Luxem­bourg and the Nether­lands, respectively.

Fiat and Star­bucks, which will each have to pay up to €30 mil­lion, are only the first in a long line of mul­ti­na­tio­nal cor­po­ra­tions to have obtai­ned so-called “tax rulings,” secret agree­ments that amount to tax eva­sion but are enti­rely legal. Inve­sti­ga­tions by the Euro­pean Com­pe­ti­tion Com­mis­sion continue.

Last year, Starbucks’ Dutch unit paid less than €600,000 in tax while Fiat’s Luxembourg subsidiary paid less than €400,000.

The con­tro­versy has pla­ced Luxem­bourg and the Nether­lands in an uncom­for­ta­ble spotlight.

Luxem­bourg abu­sed tax rulings in the days when the cur­rent Euro­pean Com­mis­sion pre­si­dent, Jean-Claude Junc­ker, was prime mini­ster and respon­si­ble for finance. The Nether­lands, under Finance Mini­ster Jeroen Dijs­sel­bloem, is noted for its intran­si­gence against Greece during bai­lout nego­tia­tions while Dijs­sel­bloem was (and still is) head of the Eurogroup.

The Euro­pean Com­pe­ti­tion Com­mis­sio­ner Mar­gre­the Ver­sta­ger is still inve­sti­ga­ting other com­pa­nies, inclu­ding Ama­zon in Luxem­bourg and Apple in Ireland.

The scan­dal broke a year ago fol­lo­wing the release of Lux­Leaks, a major inve­sti­ga­tion by the Inter­na­tio­nal Con­sor­tium of Inve­sti­ga­tive Jour­na­lists that brought toge­ther 80 repor­ters from Le Monde, The Guar­dian, the Asahi Shim­bun in Japan, L’Espresso in Italy and dozens of other major news outlets.

Accor­ding Lux­Leaks, Luxem­bourg made secret agree­ments with 340 mul­ti­na­tio­nals (inclu­ding large banks) to apply tax rulings, in which pro­fits ear­ned around the world are trans­fer­red by accoun­tants to a tax-friendly state. The cor­po­ra­tions exer­cise great crea­ti­vity to disguise these pro­fits to tax autho­ri­ties and save billions.

The mecha­nism works by trans­fer­ring money to a hol­ding com­pany, a sub­si­diary or an invest­ment fund in Luxem­bourg or other com­pli­cit coun­tries that do not com­mu­ni­cate the exi­stence of these trans­fers to the sta­tes that should tax them. The deal is secret, con­duc­ted by the govern­ment and desi­gned to cir­cum­vent tax offi­cials in other countries.

Luxembourg and the Netherlands have risked nothing by using tax rulings and now they will collect 60 million euros of “old” taxes

The deci­sion in Brus­sels to fine Fiat and Star­bucks is also pla­gued with ambi­guity, howe­ver, because the fine is to be paid to Luxem­bourg and the Nether­lands. In other words, these coun­tries have risked nothing by using tax rulings, which the Luxem­bourg govern­ment has stres­sed are not actually illegal.

But things are slo­wly chan­ging in the area of taxa­tion. Junc­ker and Luxem­bourg, which holds the pre­si­dency of the E.U. Coun­cil until later this year, appear to have a guilty con­science and a lot to atone for. On Oct. 6, they rea­ched an agree­ment with mem­ber sta­tes to auto­ma­ti­cally exchange infor­ma­tion on tax agree­ments bet­ween govern­ments and multinationals.

The Orga­ni­za­tion for Eco­no­mic Coo­pe­ra­tion and Deve­lo­p­ment made recom­men­da­tions to the G20 in Sep­tem­ber 2014 against the tax opti­mi­za­tion prac­ti­ces of mul­ti­na­tio­nals, to allow sta­tes to regain sove­rei­gnty in this area.

But E.U. tax har­mo­ni­za­tion does not exist yet because it would require a una­ni­mous vote from tax authorities.

In effect, the tax havens have veto power.

Originally published at on Oct. 21 2015.

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