Thread by @tconnellyRTE

Here's a thread on the Starbucks ECJ General Court ruling. It's complicated stuff, so any eagle-eyed tax lawyers out there are welcome to correct anything that is technically amiss.

1/ As with Apple, the Starbucks case deals with whether the tax arrangements struck between a member state and a large multinational amount to illegal state aid.

2/ This morning the General Court of the ECJ ruled that the European Commission was unable to establish that the global coffee giant enjoyed a clear economic advantage due to the tax arrangements it had made with the Netherlands.

3/ In 2015 the European Commission held that tax arrangements involving Starbucks and one of its subsidiaries amounted to illegal state aid. It related to a deal struck between Starbucks and the Dutch authorities called an Advance Pricing Arrangement (APA).

4/ It determined how much Starbucks Manufacturing (SMBV), part of the Starbucks Group, earned in terms of what it produced within the overall group and what its distribution activities were.

5/ Those earnings determined what its annual taxable profit was under the Dutch corporate tax rate.

6/ The tax deal also endorsed the amount of royalties paid by Starbucks Manufacturing to another entity within the same group.That entity, known as Alki, sold to SMBV the rights to use its brand of roasting, which was regarded as a form of Intellectual Property.

7/ The tax arrangement essentially meant that the amount of the royalty to be paid to Alki corresponded to SMBV’s residual profit. The amount was determined by deducting Starbucks’s earnings, calculated in accordance with the tax arrangement, from its operating profit.

8/ The European Commission believed that this gave Starbucks a selective advantage over other companies and amounted to illegal state aid as it artificially lowered its tax liability

9/ Both the Netherlands and Starbucks had argued that under the so-called “arm’s length principle” the Commission did not have the competence to adjucate the tax arrangements.

10/ This is because taxation remains a national competence under EU law.

11/ However, the ECJ ruled that the Commission did have the powers to investigate if taxation arrangements between different entities of the same group were used in a way that would not be legal in normal market conditions and where stand-alone companies were concerned.

12/ The Commission had argued that Starbucks had used the wrong methodology to work out how much royalities were owed by SMBV to Alki; if the proper methodology had been used, the price of the royalties would have been zero, thus reducing the amount SMBV cd offset against tax.

13/ Furthermore, the Commission argued, Starbucks had overpaid when purchasing coffee beans, effectively in order to reduce its tax burden.

14/ On the first point, the Court held that simply by using the wrong methodology didn’t mean the company was necessarily able to reduce its tax burden.

Nor did the use of methodology run counter to the arm’s length principle.

15/ The Commission also failed to demonstrate that the level of royalties that should have been paid by Starbucks to Alki amounted to zero, the court held

16/ The court ultimately concluded that the Commission had not been able to establish that Starbucks had enjoyed a selective advantage over other companies in a way which breached the EU’s state aid rules.

17/ That's it for now. I've earned a cup of freshly roasted intellectual property...