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BRUSSELS–The European Union said it would require Starbucks Corp. and Fiat Chrysler Automobiles to pay tens of millions of euros in back taxes after ruling that tax deals they negotiated with two European governments were illegal, in an unprecedented decision by regulators that risks blowing open thousands of corporate tax structures across Europe.

The European Commission, the EU’s executive arm, said Wednesday that tax deals granted to Starbucks in the Netherlands and Fiat in Luxembourg amounted to illegal state subsidies that must be repaid.

The investigations are technically aimed at the governments, which have been ordered to recover the unpaid taxes.

The sums to be reclaimed are modest–amounting to between EUR20 million ($22.6 million) and EUR30 million for each company. And Wednesday’s decisions are widely expected to be appealed at the EU’s courts in Luxembourg, a process that can take years.

But experts said the probes have already created a chill in corporate board rooms across the continent. Hundreds, possibly thousands, of companies have used Luxembourg’s holding-company rules to reduce their tax burden from the country’s official 29% rate to almost nothing, according to documents disclosed last year by the Washington-based International Consortium of Investigative Journalists.

“Any company that has a favorable tax agreement with Luxembourg in the past should seek advice and review it,” Heather Self, a partner at London-based law firm Pinsent Masons LLP, said. “They may wish to consider a compromise now rather than wait to be on the receiving end of a full EU investigation.”

The EU’s move could also have repercussions for investment and deals in Europe, as investors fret about higher future taxes and uncertain past liabilities, experts said.

“I definitely think it will dampen investment in Europe [because] uncertainty is the biggest enemy of deals,” said Robert Willens, a corporate tax adviser in New York and former managing director at Lehman Brothers. “It will certainly affect valuations. If taxes are higher going forward that will affect the value of the potential merger partner.”

“There will be some cases where funds are making acquisitions and need to bring money out [of Europe] in a tax efficient way that are being called into question,” said Neal Todd, a corporate tax partner with London-based law firm Berwin Leighton Paisner.

The biggest pending deal is an initial agreement between Belgium-based AB InBev to buy London-based SABMiller PLC for GBP68 billion ($105 billion). The two companies have tentatively agreed to a deal but are working out details. AB InBev is based in Leuven, Belgium, and EU regulators are separately probing a Belgian tax discount that has benefited AB InBev and a number of other Belgian-based multinationals.

The two brewers are “so focused on synergies and business benefits that they’re probably willing to take that risk,” Mr. Willens said. But “in other cases where the desire to do a deal is not so intense, [the EU’s decisions] would have an effect,” he said.

At a news conference Wednesday, EU antitrust chief Margrethe Vestager said she may open more probes if she suspects that EU rules are being violated. She said the tax deals for Fiat and Starbucks “shifted profits from one company to another in the same group, with no valid economic justification.”

“Our decisions today show that artificial and complex methods endorsed by tax rulings cannot mask the actual profits of a company, which must be properly and fully taxed,” Ms. Vestager said.

EU regulators are working on three similar investigations involving Apple Inc. in Ireland and Amazon.com Inc. in Luxembourg, as well as the Belgian tax discount involving AB InBev. It isn’t yet clear when those cases will be decided. All companies have denied receiving special treatment, and the governments have denied giving it.

full article at source:http://www.marketwatch.com/story/eu-requires-starbucks-fiat-pay-back-unpaid-taxes-2015-10-21

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