General Court (T-760/15): advantage in favor of Starbucks not demonstrated by the EC



On 24 September 2019, the General Court (Court) of the European Union (EU) published its decision with respect to the claim of the European Commission (EC) that the Netherlands had granted a tax advantage to Dutch Starbucks companies, which represented illegal state aid, and which Starbucks had to repay to the Netherlands. The case concerned an advance pricing agreement (APA) concluded between the Dutch tax authorities and Dutch Starbucks companies, as well as certain related elements. The EC argued that the prices that the Dutch Starbucks companies paid to foreign group companies were too high (not at arm’s length), resulting in Dutch corporate income tax assessments that were too low in the years 2011-2014.

First, the Court makes clear that the arm’s length principle is a tool that allows the EC to check that intra-group transactions are remunerated as if they had been negotiated between independent companies. The tool falls within the exercise of the EC’s powers (Article 107 TFEU).

On the basis of a functional analysis, the assets used and the risks assumed by the Dutch companies, the APA determined the arm’s length remuneration on the basis of the so-called transactional net margin method (TNMM). The EC failed to demonstrate that the use of the TNMM as such resulted in an unreliable outcome and a lower tax burden. Furthermore, the EC failed to demonstrate that the royalty that the Dutch companies paid should have been zero. Finally, the EC failed to demonstrate that the price paid for green coffee beans resulted in a tax advantage for the Dutch companies.

Consequently, according to the Court, the EC has not managed to demonstrate the existence of an economic advantage within the meaning of Article 107 TFEU. An appeal, limited to the points of law only, may be brought before the Court of Justice against the decision of the Court within two months and ten days of the notification of the decision.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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