Margrethe Vestager, the European commissioner for competition, outlines the decision against Dutch and Luxembourg tax agreements.Virginia Mayo / AP

The European Commission has found tax advantages that Netherlands gave Starbucks and Luxembourg gave Fiat Chrysler’s financial unit illegal. The decision could have far-reaching implications for multinational companies and the tax agreements they have with countries in the European Union.

Here’s Margrethe Vestager, the European commissioner for competition, explaining the decision on Twitter:

In a statement, Vestager added: “The decisions send a clear message: National tax authorities cannot give any company, however large or powerful, an unfair competitive advantage compared to others. For most companies, especially the small and medium-sized, I hope this is a reassuring message—for those who have paid their fair share in tax.”

The sums involved are not large. For instance, in the Luxembourg case, the EC said, the tax ruling had reduced the tax burden of Fiat Chrysler’s financing arm by between €20 million and €30 million ($22.7 million to $34 million). Here’s more:

This is because the tax ruling accepts an extremely complex and artificial methodology to calculate Fiat Finance and Trade’s taxable profits, which cannot be justified by economic reality. As a result Fiat Finance and Trade only paid taxes on its underestimated profits. The Commission’s analysis showed that its taxable profits in Luxembourg would have been 20 times higher if the calculations had been done at market conditions.

In the case of the Netherlands, the EC said, Starbucks’s tax burden since 2008 was reduced by a total of between €20 and €30 million. As a result of Starbucks’s structure in Europe and its arrangement in the Netherlands, the EC said, the company’s “taxable profits in the Netherlands are substantially reduced.”

The royalty shifts the large majority of its profits—which cover coffee but in reality are largely generated from tea, pastries and cups etc.—to the group company in the UK. This company is not liable to pay corporate tax in the UK, nor in the Netherlands.

Here’s how the deals worked, according to The Guardian:

Starbucks has for years made Amsterdam the heart of its European operations, while Fiat set up group financing activities in Luxembourg. Income from many other countries was shifted into the Netherlands and Luxembourg via interest, royalties and other intra-group payments. Starbucks and Fiat had separately set up complex tax avoidance structures there that meant their income was subject to very low rates of tax. …

Brussels competition officials have no powers to challenge generous tax deals offered to multinationals directly. They are only able to intervene if it can be shown that a specific deal was offered to one multinational and not made available to competitors.

The decision by the EC, which is the executive arm of the EU, is expected to be appealed. Luxembourg, in a statement, said it “disagrees with the conclusions,” adding the Grand Duchy “will use appropriate due diligence analysis to the decision of the Commission as well as its legal rationale.” The Netherlands, in a separate statement, said the “Dutch cabinet is somewhat surprised about the decision.” It added the EC’s decision will be studied before the next steps are decided—a process that will take a few weeks. Starbucks also said it would appeal. An appeals process could take years.

Nonetheless, the EC’s decision has implications far beyond the two companies—and the two countries named on Wednesday. The Wall Street Journal points out 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.”

Regulators are also investigating similar arrangements involving Apple in Ireland, Amazon in Luxembourg, and AB InBev, the world’s biggest brewer, in Belgium.

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