Some multinationals (MNEs) such as FIAT and Starbucks have been overdoing it in the EU for quite some time now. The case of tax investigation of the aforementioned companies on whether they have paid the correct amount of corporate income tax or not is ongoing for over a year now.
The Commissioner responsible for Competition, Mrs Margrethe Vestager, is expected to decide today on the tax avoidance case of FIAT’s financial arm and Starbucks, based in Luxembourg and in the Netherlands respectively. The decision would be of great importance, if finally taken, for the future of big enterprises in the EU.
In the case it will be decided that these firms have been doing business under favorable tax rates, then they will have to pay back the amount of money that was avoided. In addition to that, an extensive legal and tax investigation that might follow in the member states where such favorable treatments exist will urge some of the biggest tech companies such as Apple and Amazon to reevaluate their positions in the EU and possibly flee to Turkey.
However, these cases has been under investigation for a long time now and no definite decision has been made so far. Will Mrs Vestager be able to tackle this long-lasting issue in one day and at what cost for the EU? It is certainly a too crucial decision and many aspects have to be taken under consideration such as the EU-US negotiations for the free trade agreement TTIP which are still facing plenty of setbacks on their own.
FIAT and Starbucks devour the SMEs
The moment that EU governments were tightening their budgets due to the financial crisis, the tax rates of big multinationals such as Starbucks and FIAT were reducing. More specifically, the rate of Starbucks was reduced from 25% to 2.5% and the one of FIAT from 29% to 1%. Those numbers do seem overwhelming, thus allowing the competition with smaller corporations to be extremely “unfair” and setting barriers for the viability of the local firms.
It is the European Commission’s duty after all to decide whether this is against the EU rules and if so start imposing fines at will. According to the Financial Times, FIAT would owe less than €30 million, while Starbucks would have to pay back no more than €200 million. Nonetheless, the two corporations will pay way below the maximum fines that could be imposed, as this is the usual practice.
Apple and Amazon should be “trembling”
It seems though that the EC is ready to go a step further and probe also similar pending investigations of the US tech giants Amazon and Apple in Luxembourg and Ireland. The main problem is whether the EU-US free trade pact “factor” will be enough to slow down the European determination on imposing fines and changing the already beneficial (for the MNEs) fiscal environment. The EU and particularly the Commission have shown that they greatly value this agreement and are determined to proceed smoothly, which of course contradicts with their will to put a halt to the MNEs’ “tax party”.
Apart from the fact that the EU laws have to be implemented, the EC needs to think of alternative “benefits” to provide to the MNEs in order to maintain their subsidiaries in the EU and not drive them away to more favourable tax environments outside Europe. Consequently, it is not an easy call taking into consideration also the advantages that a big corporation is giving to the EU economy (e.g. employment, growth) as a whole but also to the EU member states where its subsidiaries are located.
Seeking for a fairer business environment
In fact, the local companies are the ones to be suffering most from this unfair tax market. The competition with the big multinationals has always been uneven due to unfavourable objective factors such as the size, human expertise, capital depth, etc. However, in the cases where the local firms need also to compete against favorable tax rates, it makes the “game” to be made just for one; the MNEs.
Therefore, the Commission together with the member states will need to decide on such matters based on the good of the whole economy and not just the survival of the fittest. It is the right time now to see proof that Juncker’s Commission is ready to put an end to this.
The European Sting will be monitoring the matter closely.
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