Starbucks' Dutch Tax Deal May Constitute Illegal State Aid, Says EU

BRUSSELS--European Union regulators explained on Friday why they think a tax deal struck by Starbucks Corp. in the Netherlands may amount to illegal state aid, marking the next phase of an investigation that could lead to huge back tax payments.

In a letter to the Dutch government, the European Commission, the EU's central antitrust authority, said it had reached the preliminary view that an advanced tax deal in favor of the U.S. coffee chain's Dutch manufacturing arm, Starbucks Manufacturing EMEA BV, constitutes state aid.

"The commission is of the opinion that [the tax deal] tolerates questionable adjustments which allow Starbucks Manufacturing BV to lower the resulting corporate income tax basis in the Netherlands," the commission wrote.

The probe comes amid heightened scrutiny of tax avoidance by multinationals, as governments seek to bolster crisis-hit national coffers and assuage citizens' anger over tax increases. The EU is also investigating tax deals struck by Apple Inc. in Ireland and Amazon.com Inc. and Fiat SpA in Luxembourg.

Earlier this month, a trove of tax documents published by the Washington-based International Consortium of Investigative Journalists shed fresh light on how hundreds of the world's biggest companies, from PepsiCo Inc. to FedEx Corp., have funneled profit through subsidiaries in Luxembourg, avoiding billions in taxes in other jurisdictions.

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