The Netherlands government, on July 2, advanced three arguments before the General Court of the European Union in support of its contention that the EU Commission reached erroneous conclusions in its Starbucks State aid decision, the Dutch Ministry of Finance said.
The Netherlands’ suit in General Court, filed late December 2015, challenges the European Commission’s October 2015 decision concluding that an advance pricing agreement (APA) granted to a Starbucks subsidiary by the Netherlands sanctioned the payment of too little tax to the Netherlands. The Commision concluded that the ruling was illegal State aid and ordered recovery of the unpaid taxes by the Netherlands.
According to the Dutch ministry, the Netherlands argued before the General Court that the Commission erred because it failed to carry out its transfer pricing analysis based on the arm’s length principle, as formulated under Netherlands law and regulations.
“With its analysis, the European Commission is taking it upon itself to impose its own interpretation of the arm’s length principle on Member States. However, there is no basis for this in Article 107 of the Treaty [on the Functioning of the European Union],” the ministry said.
The ministry also said it believes the profit determination it used in the APA was arm’s length. Starbucks’ Dutch subsidiary was a coffee roaster that conducts simple routine activities and should receive remuneration accordingly, the Dutch ministry said. The ministry said the Starbucks subsidiary’s remuneration was compared against 20 independent roasters.
Moreover, the Dutch ministry told the court that the Commission’s argument that other intercompany transactions should have been assessed is faulty because these transactions are not relevant for determining the arm’s length profit of Starbucks’ Dutch subsidary. The Dutch ministry maintains that part of the income identified by the Commission as attributed to the Netherlands was in fact earned in the US.
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