Selective Tax Advantage to Starbucks: EU Court Hears the Netherlands

Selective Tax Advantage to Starbucks: EU Court Hears the Netherlands

At a hearing of the General Court of the European Union on July 2, the Dutch Government put forward three points to demonstrate that it did not provide selective tax advantages to Starbucks in violation of the EU state aid rules.

The Netherlands had approached the Court against the Commission’s decision of October 21, 2015, in which the Commission decided that a tax ruling that the Netherlands granted to Starbucks qualified as illegal state aid. The Court is specifically looking at whether the method used to calculate the taxable profit of Starbucks in the Netherlands resulted in the correct remuneration.

At the July 2 hearing, the Netherlands told the Court that the Commission in its decision failed to carry out an analysis based on the arm’s length principle as formulated in Dutch law and regulations. The Government said that the Commission is “taking it upon itself to impose its own interpretation of the arm’s length principle on member states.”

The Netherlands argued that the profit determination in the ruling is at arm’s length. “Starbucks is a coffee roaster and logistics and administrative service provider in the Netherlands, which performs simple, routine activities,” the Government told the court.

“Under Dutch law, an arm’s length profit should be determined in case of transactions with affiliated companies. This arm’s length profit is determined on the basis of the rules set out in the law and in the Dutch Transfer Pricing Decree (Nederlandse Verrekenprijzenbesluit). Because of the relatively simple functions it performs, Starbucks Manufacturing BV should receive a remuneration for its routine activities,” the Government added.

The Government continued: “To determine this remuneration, Starbucks has been compared with 20 independent coffee roasters. These coffee roasters were selected because they are very similar to Starbucks. The 20 coffee roasters realize a net profit margin that is similar to the remuneration agreed upon in the ruling.”

The Netherlands told the Court that the inter-company transactions that should have been assessed according to the Commission are not relevant for determining the arm’s length profit of Starbucks.

The Court is likely to deliver a decision in the matter a few months following the hearing. If unfavorable, the Government may appeal to the Court of Justice of the European Union against the Court’s decision.