State Aid, Taxation & Transfer Pricing: Illegal Fiscal State Aid Granted to Starbucks?

Abstract

On 21 October 2015 the European Commission alleged the Netherlands of granting illegal fiscal State aid to Starbucks by misapplying the so-called ‘EU arm’s length principle’ through an Advance Pricing Agreement concluded between the Dutch tax administration and Starbucks. Accordingly, no market based (read: too high) transfer prices would have been adopted by Starbucks, resulting in an assumed reduction of taxable income and thereby also in a reduction of imposed corporate income tax. The Netherlands and Starbucks however disagree with the European Commission’s finding of State aid and applied for annulment of the EU Decision at the General Court. This article will discuss in what way and to what extent the reasoning of the European Commission in the EU Decision is in conformity with Article 107 TFEU and (the explanation of) the EU arm’s length principle (by the CJEU). The author will elaborate on the factual and fiscal background of the case and provide an assessment of the contested reasoning in the EU Decision. In addition, the issue on the potential existence of an ‘EU arm’s length principle’ will be discussed by the author based on jurisprudence of the CJEU.