![]() The EC argued that both rulings “did not reflect economic reality” and, thus, amounted to state aid. The tax ruling at issue endorsed a particular method for determining FFT’s remuneration for these services. In Fiat, the EC took issue with a Luxembourg tax ruling in favor of an undertaking in the Fiat group that provided treasury and financing services to the group companies established in Europe (FFT). Residual profit was determined by deducting SMBV’s remuneration, under the APA, from SMBV’s total operating profit. Specifically, the APA provided that the amount of the royalty to be paid to Alki would correspond to SMBV’s residual profit. In addition, the APA endorsed the amount of the royalty paid by SMBV to Alki, another entity of the group, for the use of Starbucks’ coffee roasting intellectual property. Thereafter, SMBV’s remuneration served to determine annually its taxable profits on the basis of Netherlands corporate income tax. The objective of that arrangement was to determine SMBV’s remuneration for its production and distribution activities within the group. In Starbucks, the EC pursued a Dutch advance pricing arrangement (APA) with Starbucks Manufacturing EMEA BV (SMBV), part of the Starbucks group. Tax rulings inconsistent with the ALP, in the EC’s view, confer a selective advantage on integrated companies over stand-alone companies (who transact under market conditions) and may result in illegal state aid under EU law. The EC viewed the tax rulings as state aid because they allegedly endorsed an artificial methodology for the calculation of taxable profits which “did not reflect economic reality.” The EC maintained that in application of the state aid prohibition in Article 107(1) of the Treaty on the Functioning of the EU (TFEU), intragroup transactions should be remunerated as if they were agreed by independent companies operating under market conditions, in compliance with the arm’s length principle (ALP). ![]() ![]() In its decisions, both issued in October 2015, the EC concluded that Luxembourg and The Netherlands granted a selective advantage in favor, respectively, of Starbucks and Fiat, by issuing tax rulings which artificially lowered the corporate tax that the two companies paid as compared with the liability calculated under the ordinary rules. It may therefore take a few more years for additional legal certainty to emerge on these issues.
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