Exposed Tax Practices of Starbucks Netherlands

Exposed Tax Practices of Starbucks Netherlands

The European Commission released on Friday, November 14, an official letter to the Netherlands informing the country that they schedule a formal investigating on the State aid, since they suspect illegal for the benefit of the American chain of cafes Starbucks. The commission had done the same early in fall, with the Apple case in Ireland and Luxembourg Fiat.

With its 50 pages, well-argued letter was dated June 11, 2014, but released five months later, giving time to the stakeholders (Starbucks, the Dutch government), the redacted data is considered confidential.

This procedure is usual for the Commission. But also timely, that is to say, a week after the “Luxleaks” which exposed the most practices in Luxembourg against multinationals.

This demonstrates that the Grand Duchy – including Jean-Claude Juncker, current president of the Commission, who was the prime minister for nineteen years – is not the only tax haven for big business. In fact, the Netherlands is also a haven for large companies seeking to minimize their tax. As such, the “case” of Starbucks is enlightening.

A “mailbox”

The Commission has focused its investigation on two Dutch entities of the US group, Starbucks Manufacturing BV, which is supposed to be a giant Grillerie coffee, and Starbucks Coffee BV, group headquarters for Europe and the Middle East.

Starbucks Manufacturing buys coffee beans from a Swiss entity, and then resells them to Starbucks stores across Europe. This entity headquartered pay royalties in respect of the use of the Starbucks brand, but also to reward the delivery of coffee shops, a British entity, Alki, which is only a mailbox and does not pay taxes in the UK.

The key role of the transfer price

Brussels considered the “tax rulings,” the tax agreements that the US group signed with the Dutch tax administration, in 2008. More specifically on “arrangements on transfer pricing to come” (financial exchanges between entities of the same group).

According to the observations of the Commission, the transfer price between the two entities, the Swiss company that sells their beans on one side, and on the other side, the stores that buy their roasted beans, does not reflect market prices.

Thus, the tax base in the Netherlands Starbucks Manufacturing BV could be reduced thanks to an agreement on the determination of the transfer price, and also, with royalties paid to the “Mailbox” of the British Alki.

The tax load for Starbucks Manufacturing Netherlands should increase from 36% to 66%, without the signing of the “rulings”, said the Commission.

In the case of Amazon, Luxembourg, that Brussels has also been formally investigating since this fall, this scenario is similar: transfer pricing between subsidiaries and a lot of money that goes towards a “transparent company” a mailbox for untaxed letters.

To date, however, the Commission did not conclude whether or not illegal States aid between the American chain Starbucks and the Dutch State. A decision on this case and those of Apple in Ireland and the Netherlands Fiat could be taken in spring 2015, as has been recently clarified by Margrethe Vestager, the new competition commissioner.

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