European commission’s investigation focuses on the coffee chain’s roasting facility in Amsterdam and its relationship with other parts of the business

This article is more than 5 years old

This article is more than 5 years old

Brussels has accused the Dutch government of cooking up an illegal deal with Starbucks that allowed the coffee chain to pay a very low rate of tax.

In a preliminary report into an alleged sweetheart deal the European commission said the coffee shop’s tax arrangements in the Netherlands were at odds with EU rules on competition, which are intended to stop a government using state funds to give a company an unfair advantage.

The report, published today, had been sent to the Dutch government on 11 June, when the commission officially launched its investigation into the tax affairs of Apple, Starbucks and Fiat.

Starbucks ran into a political furore when it emerged in 2012 that it had paid just £8.3m in corporate taxes since coming to the UK in 1998, despite racking up sales of more than £3bn.

The British subsidiary of the coffee chain was classified as loss-making – so did not pay taxes on profits – largely because it made payments to other companies in the Starbucks group for its coffee supplies, use of the Starbucks logo and shop format, and interest on loans within the group.

The commission’s investigation is focusing on these so-called transfer payments and has homed in on the role of the coffee chain’s roasting facility in Amsterdam and its relationship with other parts of the Starbucks business.

Officials have also expressed doubts about the legality of a decision by the Dutch tax authorities to allow Starbucks to book in the Netherlands revenues it has earned in other countries.

In 2012, Starbucks’ chief financial officer, Troy Alstead, told the UK’s public accounts committee of MPs that the group had legitimately secured a tax deal with the Netherlands that allowed it to pay tax at a “very low rate”.

According to the commission, the coffee chain’s Dutch companies paid €716,000 (£570,000) of tax in 2011 in the Netherlands and between €600,000 and €1m in 2012.

In response to the allegations, the Dutch government insisted its tax deal with Starbucks was legal and in line with international accounting standards.

A Starbucks spokesman said: “We agree with the Dutch government that this investigation by the European commission announced in June will eventually find that there is no selective advantage and that we comply with all tax laws and OECD guidelines.”

The commission expects to publish its final report into the Starbucks tax deal next spring.

In parallel investigations, officials are also poring over tax deals engineered by Luxembourg, Ireland, Cyprus, Malta and Gibraltar. The scale of tax avoidance in the Duchy of Luxembourg was revealed last week in an investigation by an international consortium of journalists, including the Guardian, which detailed how multinational corporations used complex structures to pay ultra-low tax rates.

The revelations have put pressure on the European commission president Jean-Claude Juncker, who was prime minister of Luxembourg for 18 years until 2013, serving as finance minister for much of the time. Earlier this week Juncker insisted there was no “Luxembourg model” and tax deals had been done in line with EU rules.

Starbucks plans to move its European head office to London by the end of the year, a move, it has said, that will mean “we pay more tax in the UK”. However, tax campaigners believe the move will make a negligible difference to the coffee shop’s tax UK tax bill.