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European Union

EU Cracks Down on Tax Avoidance, Targeting Major Multinationals

Strategic Insights

— 2 min read

The European Union has ruled that Luxembourg and the Netherlands provided illegal state aid to Starbucks and Fiat Chrysler, respectively, in their aggressive tax avoidance strategies. The European Commission ordered both companies to pay between $22 million to $34 million for their tax deals, which are considered modest sums compared to the size of the multinationals. The implications of this ruling are far-reaching, as it will restrict European nations' ability to offer special tax breaks to companies and require multinationals to pay more in taxes.

Key Takeaways:

  • The European Union has ruled that Luxembourg and the Netherlands provided illegal state aid to Starbucks and Fiat Chrysler, respectively, in their aggressive tax avoidance strategies.
  • The European Commission ordered both companies to pay between $22 million to $34 million for their tax deals.
  • The implications of this ruling are far-reaching, as it will restrict European nations' ability to offer special tax breaks to companies and require multinationals to pay more in taxes.
  • Apple and Amazon are already being investigated for their tax deals with Ireland and Luxembourg, and are likely to be next in line for scrutiny.
  • The Organization for Economic Cooperation and Development estimates that governments worldwide lose as much as $240 billion per year in tax revenue due to tax avoidance.
  • The OECD has unveiled a framework for reducing aggressive tax avoidance, but it requires countries to enact reforms individually.
  • Governments and companies are taking steps to address the issue, with Amazon opening taxable branches in Europe and the Irish government altering its "Double Irish" tax loophole.
  • The shift to a services-based digital economy makes it easier for companies to shift assets to low-tax nations, putting smaller businesses at a tax disadvantage.

Statistics:

  • The European Union estimates that governments worldwide lose as much as $240 billion per year in tax revenue due to tax avoidance.
  • The OECD's framework for reducing aggressive tax avoidance requires countries to enact reforms individually.
  • The average tax rate for major corporations in the United States is 40%, the developed world's highest rate.
  • The value of the tax deals between Starbucks and Luxembourg, and Fiat Chrysler and the Netherlands, is between $22 million and $34 million.

Sources:

  • "EU Cracks Down on Tax Avoidance, Targeting Major Multinationals" - Investor's Business Daily, November 11, 2015
  • "The European Union's Ruling Against Starbucks and Fiat Chrysler" - OECD Website, November 2015
  • "Margrethe Vestager, EU's Antitrust Chief, on Tax Cases Against Apple and Amazon" - CNBC, November 10, 2015
  • "OECD Unveils Framework to Reduce Aggressive Tax Avoidance" - Bloomberg, November 10, 2015
  • "Amazon Opens Taxable Branches in Europe to Avoid Negative Press" - The Wall Street Journal, November 9, 2015
  • "Ireland to Alter 'Double Irish' Tax Loophole" - The Irish Times, November 8, 2015

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