The ruling follows an investigation which the Commission began in June 2014 looking at whether Luxembourg and the Netherlands issued tax rulings which artificially reduced the amount of tax paid by both companies.

The Commission says such ‘comfort letters’ are ‘perfectly legal’, since they provide clarity on how corporate tax will be calculated or the use of special tax provisions. However, in the case of the two tax rulings under investigation, these arrangements  ‘endorsed artificial and complex methods’ to establish taxable profits for the companies which did not  reflect economic reality.

Commissioner Margrethe Vestager, in charge of competition policy, stated: ‘Tax rulings that artificially reduce a company's tax burden are not in line with EU state aid rules. They are illegal. I hope that, with today's decisions, this message will be heard by member state governments and companies alike. All companies, big or small, multinational or not, should pay their fair share of tax.’The Commission’s ruling singles out the mis-use of transfer pricing rules which it said resulted in the car manufacturer and the coffee company setting prices for goods and services sold between companies in their respective groups that do not correspond to market conditions.

‘As a result, most of the profits of Starbucks' coffee roasting company are shifted abroad, where they are also not taxed, and Fiat's financing company only paid taxes on underestimated profits,’ the Commission said in a statement.

Now the Commission has ordered Luxembourg and the Netherlands to recover the unpaid tax from Fiat and Starbucks, in order to remove the unfair competitive advantage they have enjoyed and to restore equal treatment with other companies in similar situations.

The amounts to recover are estimated at between €20m and €30m for each company, and the companies are barred from benefiting in future from the advantageous tax treatment granted by these tax rulings.

The Commission also warns it is continuing to pursue its inquiry into tax rulings practices in all EU member states and said its existing formal investigations into tax rulings concerning a scheme in Belgium, Apple’s operations in Ireland and Amazon’s arrangements in Luxembourg are ongoing.

 Heather Self, partner at Pinsent Masons, said: ‘Multinationals will be particularly anxious about the Starbucks case.  The ruling process in the Netherlands is long-established and very well-respected internationally. For competition authorities to challenge very technical tax rulings by competent authorities in this way is extremely destabilising. 

‘It has implications not just for companies that have received tax rulings from the Netherlands in the past, but for any multinational operating anywhere in Europe.  The fact that EU competition authorities feel it appropriate to intervene in highly complex international tax issues adds another layer of complexity and unpredictability.’

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