A deal between Starbucks Corp's and Dutch authorities may be illegal state aid as it allows the world's biggest coffee chain to make payments on a lower corporate income tax base, European Union antitrust regulators said on Friday.
The comments by the European Commission came five months after it opened an in-depth investigation into the case involving the company's Starbucks Manufacturing EMEA BV.
The probe is one of four into so-called sweetheart deals which the Commission said may give the companies an unfair advantage. The other three firms are online retailer Amazon, Italian carmaker Fiat and iPhone maker Apple.
"The Commission's preliminary view is that the advanced pricing arrangements in favor of Starbucks Manufacturing EMEA BV constitutes state aid... The Commission has doubts about the compatibility of such aid with the internal market," the European Union executive said.
The arrangements refer to the pricing for transactions between company subsidiaries, the main focus of all four investigations.
The coffee chain's two Dutch units, Starbucks Coffee BV and Starbucks Manufacturing BV, paid 715,876 euros in taxes in 2011 and between 600,000 to 1 million euros (1.25 million US dollar) in 2012, the Commission said.
It said Dutch authorities justified their tax ruling for the company on the grounds that for tax-planning purposes Starbucks Manufacturing was not considered a fully-fledged or contract manufacturer.
In addition to the Netherlands, Luxembourg, Ireland, Malta, Belgium, Cyprus and Gibraltar are also in the regulatory sight over tax deals which substantially lower some firms' tax bills.
Regulators said this favorable treatment could breach EU state aid rules.
The probes have overshadowed the start of the new Commission led by Jean-Claude Juncker, prime minister and finance minister of Luxembourg for more than two decades, and intensified calls among lawmakers and EU countries for a more harmonized tax system in the 28-country bloc.
Corporate tax avoidance has risen to the top of the international political agenda following reports of how big international companies use convoluted structures to cut their tax bills.