Apple Inc. and Amazon.com Inc. got a preview of what theEuropean Union may have in store for them after regulators orderedStarbucks Corp. and a Fiat Chrysler Automobiles NV unit to repaymillions of euros in back taxes.

The EU said the coffee company and the Italian carmaker werehanded illegal fiscal deals by the Netherlands and Luxembourg andordered them to repay as much as 30 million euros (US$34 million).Wednesday's decision sets up a showdown with Apple and Amazon,which are also embroiled in the tax probe.

“These first two decisions may just be testing the waters to seewhat the reaction will be, before they start with the really bigones—Apple and Amazon,” said Marc Sanders, a partner at Taxand, aglobal firm of tax advisers. The Apple and Amazon cases “will havethe same results, potentially with higher recoveries.”

Starbucks, Fiat, Apple, and Amazon may be the tip of the icebergafter revelations of widespread use of sweetheart tax deals hit theheadlines last year. Documents leaked by a group of investigativejournalists showed that Luxembourg alone struck hundreds of secretfiscal deals known as tax rulings with companies from around theworld, from PepsiCo Inc. to Walt Disney Co. Amazon, which has morethan 1,000 people working in the tiny nation, said in a U.S. filingin July that its taxes could increase following a negative EUdecision.

“Tax rulings that artificially reduce a company's tax burden arenot in line with EU state-aid rules. They areillegal,” said Margrethe Vestager, the EU competitioncommissioner. “I hope that, with today's decisions, this messagewill be heard by member state governments and companies alike. Allcompanies, big or small, multinational or not, should pay theirfair share of tax.”

The Dutch and Luxembourg tax authorities must work out theactual amounts to be recouped based on a method provided by theEuropean Commission. The recovery orders may also have an impactacross the Atlantic, where tax credits can in theory begranted when multinationals repatriate earnings from subsidiaries,according to a U.S. Treasury Department official.

Tax Repayment May Be Extremely Expensive

Still, “any amount repaid will not automatically qualify forcredit against the group's U.S. tax bill—it will be a complexquestion depending on the company's particular circumstances,” saidHeather Self, a tax partner at law firm Pinsent Masons LLP.

Luxembourg disagrees with the EU commission's conclusions and“will use appropriate due diligence to analyze the decision of thecommission as well as its legal rationale,” the country's financeministry said in a statement.

The country, which still faces an ongoing EU probe into a taxruling set up with Amazon in 2003, said the regulator's criteria infinding state aid in these accords were “unprecedented” and that it“has not established in any way” a selective advantage to the Fiatunit.

The Dutch government said it “is somewhat surprised about thedecision” that Starbucks received state aid. The EU's conclusion“raises a lot of questions and requires careful consideration. TheNetherlands is convinced that actual international standards areapplied and shall, therefore, analyze the commission's criticismcarefully before taking a decision on further steps.”

Starbucks said it “shares the concerns expressed by theNetherlands government that there are significant errors in thedecision, and we plan to appeal since we followed the Dutch andOECD rules available to anyone.” Starbucks said it paid $3 billionin global taxes between 2008 and 2014.

The Organization for Economic Cooperation and Development(OECD), a research institute funded by 34 countries including theU.S., sets tax standards used by countries across the world. TheOECD is seeking to curb tax-haven use and other fiscal strategiesby companies.

Fiat “did not receive any state aid” and “any finding in thismatter would be immaterial to the FCA Group's reported results,”the company said in an emailed statement on Tuesday. A Fiatspokesman in Turin said Wednesday that the company had no furthercomment on the issue.

Apple May Owe a 'Material' Amount

Apple raised a flag in April about the potential cost if thecompany is required to pay past taxes to Ireland as part of thecommission investigation. While Apple hasn't been able to estimatethe amount, it could be “material,” the Cupertino, California-basedtechnology company said in a filing with the U.S. Securities andExchange Commission (SEC).

Vestager said regulators are still poring over cases involvingAmazon, Apple, and the system of fiscal rulings in Belgium. Theyare all different and will each be assessed on their merits,Vestager told journalists in Brussels Wednesday. Additional casesmay also be in the pipeline, she said.

“We do not stop here. We continue the inquiries into tax rulingsin all EU members states,” Vestager said at a press conference. “Interms of timing” of the open probes, “fast is always better thanslow, but best of all is to be just,” and the EU will make adecision “when a case is ready.” Amazon and Apple declined tocomment.

The estimated amounts the two companies will have to pay back toLuxembourg and the Netherlands “are not spectacular sums, butbasically that's not the message here; the message here is theprinciple,” Vestager said. Also, the amounts are “much, much morethan what has previously been paid.”

Some May Use Intercompany Transactions to Evade EuropeanTaxes

The EU repayment order isn't enough to force big companies topay their share, according to a group campaigning for fairertaxation.

“It's obviously still worth the risk to try and avoid taxes,when the worst that can happen is that a few of them get caught andhave to pay their taxes, while the rest of them can continueenjoying a free ride,” said Tove Ryding, coordinator of tax justiceat the European Network on Debt and Development.

In the Starbucks case, the commission said a Dutch unit paidmillions of euros to a U.K.-based arm of the company that isn'ttaxed in Britain in exchange for a technique to roast coffee beans.Exaggerated tax-deductible royalty payments for this techniqueallowed Seattle-based Starbucks to unfairly lower its Dutchtaxes.

Starbucks said the commission “wrongly asserts that independentthird parties which roast coffee beans for Starbucks do not payequivalent royalties as our own roasting plant in Amsterdam. Thisis false.”

In the Fiat case, the commission said a unit in Luxembourgbenefited from a selective advantage since 2012 when it was given atax ruling. As a result of the special arrangement, the unit endedup paying only “a small portion of its actual accounting capital ata very low remuneration,” and if estimations had been in line tomarket conditions, “the taxable profits declared in Luxembourgwould have been 20 times higher,” Vestager said.

The Brussels-based commission is bracing itself for legalchallenges and spent months honing its arguments so they stand upin court.

Many companies had similar tax arrangements, and the EU courtswill end up ruling on them, said Falk Schoening, a competitionlawyer and expert on state aid law at Hogan Lovells in Munich,Germany. “This may just be the beginning.”

–With assistance from David de Jong in Amsterdam, Dara Doyle andJoe Brennan in Dublin, and Tommaso Ebhardt in Milan.

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.