Starbucks And Fiat Tax Breaks 'Illegal' - EU

Starbucks (Swiss: SBUX.SW - news) and Fiat (Hanover: FIA1.HA - news) will have to repay millions in "illegal" tax breaks following a state aid ruling against two EU nations.

The European Commission said it had decided that separate deals - struck between the coffee chain and the Dutch government, and the carmaker with Luxembourg - broke the law and individual tax authorities must now determine the sums to be repaid.

It (Other OTC: ITGL - news) said they could be in the region of up to €30m (£22m) each.

The commission's statement said it had found, during a year-long investigation into the two tax rulings, that "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".

Fiat insisted its dealings merely amounted to a clarification of pricing rules and did not constitute state aid.

The Dutch government expressed "surprise" at the ruling, saying it was convinced its handling of Starbucks tax was in line with international standards.

That sentiment was shared by the company, which said the decision contained "significant errors".

Its statement added: "Starbucks complies with all OECD rules, guidelines and laws and supports its tax reform process.

"Starbucks has paid an average global effective tax rate of roughly 33% - well above the 18.5% average rate paid by other large US companies."

The reforms outlined earlier this month by the OECD aim to close international loopholes which allow multi-nationals to shift profits to countries with the cheapest tax regimes.

Facebook (NasdaqGS: FB - news) was the most high-profile firm recently forced to defend its corporate tax bill in the UK.

The sum, of just over £4,300 last year, was paid on the back of revenues totalling £105m.

Its profits base is in Ireland (Other OTC: IRLD - news) .

The EU warned it was still investigating tax practices in all of the bloc's 28 nations (Other OTC: UBGXF - news) .