EU watchdog investigating tax breaks from Apple to Starbucks

European Commissioner for Competition Joaquin Almunia. The EU commission is launching an investigation into tax deals that Apple, Starbucks and Fiat struck with several European countries. Photo / AP

Tax avoidance and evasion in the EU costs about 1 trillion euros a year, according to the European Commission.

Tax breaks for Apple, Starbucks and Fiat Finance & Trade in three European Union countries are under investigation by EU competition regulators in a clampdown on special treatment for companies.

The EU is checking whether the tax deals in Ireland, the Netherlands and Luxembourg are illegal state aid, according to an e-mailed statement on Wednesday. Governments can be ordered by the European Commission to claw back unfair aid.

The EU inquiry comes amid a global crackdown on tax-avoidance as governments struggle to increase revenue and reduce deficits. Lawmakers in the US, Britain, France and Italy have scrutinised companies such as Microsoft, Hewlett-Packard, Google and Amazon.com.

The commission has said tax avoidance and evasion in the EU cost about 1 trillion euros ($1.4 trillion) a year.

"We need to fight against aggressive tax planning," Joaquin Almunia, the EU's competition commissioner, said at a press conference in Brussels.

The EU began gathering information about accords between Apple and Ireland, Starbucks and the Netherlands and Fiat Finance in Luxembourg last year following reports that some companies received "significant" tax reductions.

The EU is concerned that current arrangements "could underestimate the taxable profit and thereby grant an advantage to the respective companies by allowing them to pay less tax," the commission said in its statement.

"Apple pays every euro of every tax that we owe," the company said in an e-mailed statement. "We have 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."

Ireland's Finance Ministry said it's "confident that there is no state-aid-rule breach" and will "defend all aspects vigorously." The EU probe targets "a very technical tax issue in a specific case" and covers 2004 to 2014, it said in an e-mailed statement.

The commission said it also stepped up legal action against Luxembourg over its refusal to supply all the information it requested. The nation is separately suing the EU for seeking "very extensive information" on taxation of intellectual property rights.

The Luxembourg finance ministry didn't immediately respond to e-mails seeking comment. Fiat declined to immediately comment.

The Dutch Finance Ministry said it will cooperate with the EU and is confident that the probe will show that no state aid was granted.

Starbucks complies with "all relevant tax rules" as well as laws and international guidelines, Simon Redfern, a spokesman for the company, said by e-mail.

The commission also said it will continue a wider inquiry into taxation, including an examination of so-called patent boxes, which allow tax reductions on income from patents.

Apple and Starbucks are among the companies under investigation by the European Commission. Photo / AP

Tax policy is one of the most sensitive political issues in the 28-nation bloc. Changes to EU tax rules require unanimous approval among governments, rendering major changes almost impossible. Even the most enthusiastic members of the EU have clung on to their right to set corporate rates.

Luxembourg, led until last year by European Commission president candidate Jean-Claude Juncker, has won a reputation as an attractive location for multinational companies.

Luxembourg has "a very favourable tax ruling policy," Howard Liebman, a tax partner at law firm Jones Day in Brussels, said in a phone interview. "And this is a policy that is very individualised. It is not written into the law; it is not written into regulations, so it's hard to prove exactly what they're doing."

"In other words, it's hard for the commission to actually condemn it," Liebman said.
The opening of an in-depth investigation by the commission allows third parties, as well as the three countries concerned, an opportunity to submit comments.

- Bloomberg