Margrethe Vestager, the steely Dane who forged her global reputation by waging war on Silicon Valley tech firms and corporate tax dodgers, was offered a rare second term as the European Commission’s competition czar earlier this month. However, part of her legacy is now under intense scrutiny as tax-shy multinational companies try to contest her tough-minded tax rulings.
The most well-known of these is that Apple repay a $14 billion sum to Ireland, which the European Union’s General Court is still chewing over. But two other judgments offer a sense of whether the courts will back her mission to revolutionize the taxation of multinational companies in Europe. The cases are complex, but the overall message from the judiciary to Vestager is “Proceed — but with caution, because the court is watching,” said Pablo Ibáñez Colomo at the London School of Economics.
The first case involves Starbucks, which Vestager ordered in 2015 to pay $33 million in unpaid taxes in the Netherlands. She argued that the existing tax arrangements, which had the Dutch government’s OK, involved transactions between subsidiaries that did not take place at arm’s length using market prices.
The General Court upheld the principle that Vestager was entitled to insist on arm’s length treatment. But it found that she was not entitled to stipulate the precise methodology that countries use and overturned her ruling.
Starbucks was able to raise a pumpkin spice latte in victory, and low-tax nations fearing a stealthy attempt to harmonize European tax policy heaved half a sigh of relief. But the big picture is that the ruling actually helps establish the E.U.’s right to insist on market-based tax arrangements, which big firms will hate.
The second case was a straight win for Vestager. In 2015, she ruled that Fiat Chrysler should pay up to $33 million in Luxembourg, because its arrangements did not match economic reality. The General Court upheld this decision.
Brussels-watchers and executives in Cupertino, Calif., will inevitably wonder what clues the judgments might give about the General Court’s deliberations on Apple. The technical answer is not many. The Starbucks and Fiat cases were about transfer prices between firms’ subsidiaries, whereas the iPhone maker’s case is about how its vast profits are allocated between its subsidiaries.
Nonetheless, the mood now is that, while Vestager may lose some battles in the courts, there is little sign so far that she is about to lose the war.