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Europe begins tax probe into Apple and Starbucks

Europe begins tax probe into Apple and Starbucks


Tax arrangements could amount to illegal state aid

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The European Commission is launching a trio of "in-depth investigations" into potential tax issues with Apple, Starbucks, and Fiat within the European Union. The probes will ascertain whether the three companies' tax arrangements are within the boundaries of EU rules, or if the corporate rates applied by their respective tax hosts could be considered illegal state aid.

It's common for large corporations to engage in tax avoidance, exploiting loopholes in financial regulations to pay less tax. Ireland is the center of many companies' efforts thanks a loophole that can allow "stateless" multinationals to enjoy a low rate of corporate tax, and it will be one focus of the Commission's investigation. International pressure on Ireland to close its well-known loopholes has steadily increased over recent years.

Apple was accused of paying just two percent corporation tax

At present multinationals are able to host their European efforts in Ireland, paying well under the regular 12.5 percent corporation tax. Last year a US Senate committee reported Apple was paying less than two percent corporate tax, although the company vigorously denied any preferential treatment. Ireland has indicated it's willing to budge on this matter; last year it released a statement saying it may force companies to register a home state by 2015, effectively sealing the most common loophole shut. The Commission's investigation will look into whether the arrangement between 2004 and 2014 involved state aid to the benefit of Apple. Similar investigations will probe similar tax arrangements in the Netherlands, home to Starbucks' tax efforts in Europe, and Luxembourg, where Fiat's cash management and treasury operations are centered.

The Commission has already completed a preliminary review of calculations from all three countries, and says it has "concerns that they could underestimate the taxable profit and thereby grant an advantage to the respective companies by allowing them to pay less tax." It's launching the investigations to quell or confirm those concerns. In all three cases, the parties under investigation are the relevant tax authorities, rather than the companies themselves. The new probes do not affect the ongoing inquiry into EU tax rulings, which are broader in scope.

Responding to the investigation, Ireland's Department of Finance says it's "confident that there is no state aid rule breach in this case and we will defend all aspects vigorously," adding that "the Irish corporate tax system is not at issue, the enquiry relates to the application of the rules in one particular case." Apple echoes the Irish protestations of innocence, noting it has received no selective treatment from Irish officials. "Apple is subject to the same tax laws as scores of other international companies doing business in Ireland," the company says.