Fiat told to pay up to £22m after EU tax avoidance ruling

3:09 pm, October 21, 2015

FIAT Chrysler has been told it must pay back up to €30m (£22m) in taxes after European tax breaks were ruled illegal.

So-called sweetheart deals Fiat had with Luxembourg amounted to state aid, European competition commissioner Margrethe Vestager said of the landmark ruling by the watchdog.

‘Tax rulings that artificially reduce a company’s tax burden are not in line with EU state aid rules. They are illegal. I hope that, with today’s decisions, this message will be heard by member state governments and companies alike,’ Ms Vestager said.

‘All companies, big or small, multinational or not, should pay their fair share of tax,’ she added.

Although ‘comfort letters’ or tax rulings by governments are legal, the arrangements with Fiat Chrysler and Starbucks – who were also subject to the ruling – ‘do not reflect economic reality’, the Commission said.

In particular, it said the firm used so-called ‘transfer pricing arrangements’ between subsidiaries that let Fiat pay taxes on ‘underestimated profits’.

The Commission said taxable profits for Fiat’s Luxembourg unit could have been 20 times higher under normal market conditions.

‘Our decisions today show that artificial and complex methods endorsed by tax rulings cannot mask the actual profits of a company, which must be properly and fully taxed,’ Ms Vestager said.

Fiat’s Luxembourg unit paid ‘not even’ €400,000 in corporate tax last year, she added.

The Luxembourg Ministry of Finance: ‘Luxembourg disagrees with the conclusions reached by the European Commission in the Fiat Finance and Trade case and reserves all its rights.’ The country ‘will use appropriate due diligence to analyse the decision of the Commission as well as its legal rationale,’ it added.

Fiat Chrysler denied receiving any illegal state aid from Luxembourg.

Further investigations into tax deals, including those covering Amazon and Apple, are continuing.