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Update - European Commission Investigation into Alleged State Aid Provided by the Netherlands to Starbucks — Orbitax Tax News & Alerts

The European Commission has released a public version of a 11 June 2014 letter sent to the Dutch government stating its preliminary view that an advanced pricing agreement (APA) entered into by the Netherlands with Dutch resident Starbucks Manufacturing EMEA BV (SMBV) may have resulted in illegal state aid. The SMBV APA is based on an agreement from 12 April 2001 between the Dutch tax authorities and the Starbucks Group, and on a transfer pricing report prepared in 2007.

According to the letter, the Commission is examining whether the SMBV APA complies with the arm's length principle or whether a selective advantage was conferred by the Dutch tax authorities upon that undertaking. The Commission has the following three doubts as regards compliance with that principle:

  1. Whether the Dutch tax authorities correctly accepted Starbucks Manufacturing BV's classification as a low-risk toll manufacturer when it concluded the SMBV APA with that undertaking;
  2. Whether the Dutch tax authorities were right to accept the first and second adjustments made by Starbucks Manufacturing BV's tax advisor when it concluded the SMBV APA with that undertaking; and
  3. Whether the Dutch authorities were right to accept Starbucks Manufacturing BV's interpretation of the SMBV APA as regards the calculation of royalties in its P&L, insofar as the level of those royalties is not linked to the value of the IP in question.

For more information click the following link for the public version of the letter.