Crackdown on Starbucks and Fiat tax deals just the 'tip of the iceberg'

The European Union is starting a crackdown on government tax deals for big corporations, according to a report in the Financial Times.

The first cases involve the operations of Starbucks and Fiat in the Netherlands and Luxembourg, the FT said, setting up a bigger fight with US technology giants.

The story cites one senior EU official as saying that the Fiat and Starbucks cases were only “the tip of the iceberg”and that the EU’s competition commission, led by Margrethe Vestager, will start to probe the favourable tax treatment enjoyed by tech companies such as Apple and Amazon.

The EU will rule on Wednesday that deals between Luxembourg and Fiat and the Netherlands and Starbucks illegally reduced the tax the companies would have to pay normally.

The rate of Starbucks’s corporation tax was reduced from 25% to 2.5% and Fiat from 29% to 1%.

The agreements — in the form of so-called “comfort letters” — amount to illegal state help for corporations, the EU argues.

The companies will have to pay back the amount they avoided in tax. The FT said Fiat would owe less than €30 million ($US34 million), while Starbucks would have to pay back “no more than €200 million ($US226 million).

While Luxembourg and the Netherlands both claim that the tax structures were legal, the cases signal the EU’s willingness to crack down on controversial schemes that let big companies pay less tax than official rates.

Facebook sparked controversy ealier this month, when it revealed it paid just less than £5,000 ($US7,700) in UK corporation tax last year despite paying out £35 million ($US54 million) in staff bonuses, according its latest published accounts.

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