Tax rulings – also called “comfort letters” – are declarations issued by national tax authorities containing advance determinations in relation to a company‘s tax bill. In its recent press release the EU-Commission confirms that tax rulings as such are, in principle, perfectly legal. They are issued by tax authorities in the interest of legal certainty. Insofar they provide clarity on how a company’s corporate tax will be calculated or on the application of certain tax provisions. Last year, however, the EU-Commission opened state aid investigations into Dutch arrangements with Starbucks, Irish arrangements with Apple and Luxembourg’s treatment of tax bills of both Amazon and Fiat‘s financing company. This was followed by the EU-Commission’s announcement in February 2015 that it has initiated an investigation into a system of tax exemptions offered by the Belgian tax authorities through so-called “excess-profit tax rulings”.

The recent decisions

On 21 October 2015, the EU-Commission announced that it has concluded two of its investigations: According to the EU-Commission, the tax rulings granted by Luxembourg to Fiat (SA.38375) and by the Netherlands to Starbucks (SA.38374) constitute illegal state aids.

Fiat‘s financing company provides financial services to other companies in the Fiat group. The EU-Commission concluded that the tax ruling issued by the Luxembourg tax authority unduly reduces Fiat’s tax bill for two reasons: First, because the tax ruling relied on unjustifiable assumptions and down-ward adjustments to approximate Fiat’s capital base, and second, because the level of remuneration paid internally between companies of the Fiat group as estimated by the authority in the tax ruling was considerably lower than market rates.

In the case of Starbucks, the EU-Commission determined that the company’s Dutch coffee-roasting unit paid an inflated price to a Swiss Starbucks unit for coffee beans, as well as a very substantial royalty to a United Kingdom Starbucks entity, Alki, that did not reflect the value of know-how. Alki was neither liable in the United Kingdom nor in the Netherlands to pay corporate tax.

In the EU-Commission’s view, both tax rulings do not reflect economic reality, but endorse artificial and complex methods to establish low taxable profits for the companies. This is done, in particular, by setting prices for goods sold and services rendered between companies of the Fiat and Starbucks groups that do not correspond to market conditions. As a result, most of the profits of Starbucks’ coffee roasting company are shifted abroad, where they are also not taxed, and Fiat‘s financing company only paid taxes on underestimated profits. Consequently, the EU-Commission has ordered Luxembourg and the Netherlands to recover the unpaid tax from Fiat and Starbucks, respectively, in order to remove the unfair competitive advantage they have enjoyed, and to restore equal treatment with other companies in similar situations. The decisions also entail that the two companies can no longer continue to benefit from the advantageous tax treatment granted by these tax rulings.


In the press conference, the EU-Commission stressed that each of the aforementioned cases is assessed on its own merits, and that the two decisions do not prejudice the outcome of the ongoing investigations. Meanwhile, the EU-Commission has not ruled out the opening of additional formal investigations into further tax rulings if there are signs that EU state aid law is not being complied with.

The Starbucks and Fiat decision will likely be subject to judicial review before the EU Courts. Both the Dutch and the Luxemburg government indicated that they may appeal the decisions. Starbucks itself said it shares the concerns expressed by the Dutch government that there are significant errors in the decision, and plans to go to court.

The investigations into tax rulings are part of a broader tax transparency initiative launched by the EU-Commission in the spring of 2015. On 6 October 2015, EU Member States agreed on new legislation to provide for the automatic exchange of information on cross-border tax rulings.


Regarding the widespread use of tax rulings in certain EU Member States, there is a great likeliness that the EUCommission will open new investigations. For instance, there are estimates that 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. Regarding the Belgian tax discount scheme, a number of Belgian-based companies are said to have benefitted by the scheme. Companies that have benefitted from tax rulings in the past will need to carefully review their special tax provisions. It will probably be difficult for companies to distinguish between lawful tax rulings and those that might be unlawful.

Companies should in particular be aware of the retrospective nature of state aid recovery. The EU-Commission has the authority to order recovery of illegal state aid granted during the past ten years.

Our international Competition, EU and Trade team regularly advises clients on state-aid matters. For advise as to how the EU-Commission’s recent decisions and the continuing investigation may affect you, please contact one of the lawyers listed below.