(Bloomberg Opinion) -- The Luxembourg court decisions today on Starbucks Corp.’s antitrust tax case – which was a loss for the European Union -- and Fiat Chrysler Automobiles NV’s – which was a win – offer important clues to how a much bigger tax showdown between Brussels and Apple Inc. might play out. While there’s something for critics and defenders of the EU in Tuesday’s 50-50 split ruling, on closer inspection Apple probably has less to cheer about.
The EU’s top antitrust official Margrethe Vestager has snared some big corporate fish in recent years, slapping record fines on the likes of Google Inc. in the name of fair competition. But the real litmus test for some of her department’s most controversial rulings is Apple’s appeal of the EU’s decision in 2016 to impose a 13 billion euros ($14.3 billion) bill over its aggressively efficient Irish tax structure.
The Starbucks and Fiat cases were always going to matter more symbolically than financially, given the sums at stake were about 30 million euros apiece. As with Apple, Brussels accused Starbucks and Fiat of sweetheart tax arrangements that gave them an unfair advantage, and ordered repayment to their respective tax authorities in Netherlands and Luxembourg.
While it may seem like a 50-50 win-loss ratio is neutral for Apple, maybe even a coin toss, in fact there’s a fair amount of commonality across both rulings that bodes well for Vestager’s approach. Before even getting to the details of the tax arrangements themselves, the court statements slap down accusations by both the Starbucks and Fiat appeals that the Commission has strayed beyond its antitrust mandate and into fiscal territory belonging to member states. The rulings say that the Commission is entitled to dig into whether “arm’s-length” transactions between group companies are conducted on fair terms. That will make Vestager’s critics think twice before accusing the EU of tax harmonization by stealth.
Where the rulings differ is in analyzing the strength of the Commission’s case against the tax arrangements themselves. In the case of Fiat, the court was satisfied with the EU’s evidence that Luxembourg’s authorities had endorsed an arrangement that reduced the carmaker’s tax liability, and that this was a selective advantage. But on Starbucks, the court found Brussels hadn’t sufficiently demonstrated evidence of special treatment. For Bloomberg Intelligence antitrust analyst Aitor Ortiz, it’s a message that in this case the EU’s evidence didn’t quite go far enough. The EU failed to prove selective treatment and advantage, even after showing that the Dutch authorities used methodology that had overlooked how Starbucks inflated prices for intra-group transactions on things like coffee beans or intellectual property to game the tax system. It’s hardly a decisive failure for Vestager. She might even feel encouraged to go further rather than stop pursuing cases.
None of this means that predicting the outcome of Apple’s tax appeal is any easier. The rulings show that the fine details of the tax arrangements in question and the EU’s ability to demonstrate an unfair advantage can make or break a case. But what matters is that the court backed the right of Brussels to apply antitrust tools to tackle multinational tax-dodging. It said the Commission was within its rights to examine whether “arm’s-length” intra-company deals are fairly-valued. All this means there will likely be fewer accusations of overreach aimed at Brussels. Even if Apple wins its appeal, there’ll be every reason for Vestager to keep up the fight, and fewer ways for tax havens like Ireland and the Netherlands to keep the EU at bay.
To contact the editor responsible for this story: Stephanie Baker at stebaker@bloomberg.net
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Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.
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