EC launches Apple tax investigation

The European Commission has launched a formal investigation into Apple’s tax arrangements in Ireland

The EC has announced three “in-depth investigations” into the transfer pricing arrangements on the corporate taxation of Apple, Starbucks in the Netherlands and Fiat in Luxembourg, as to whether they comply with EU rules on state aid.

EC vice president in charge of competition policy Joaquín Almuni said, “In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes. Under the EU’s state aid rules, national authorities cannot take measures allowing certain companies to pay less tax than they should if the tax rules of the member state were applied in a fair and non-discriminatory way.”

The Commission said a number of multinational companies are taking advantage of the technicalities of tax systems and substantially reducing their tax liabilities. “This aggressive tax planning practice erodes the tax bases of member states, which are already financially constrained,” it added.

Evidence provided by Apple to a US Senate Committee last year suggested that Apple paid an effective tax relief of 2% in Ireland, and that this rate had been specially negotiated with the Irish government.

The Committee said Apple had devised a complex tax avoidance strategy, involving a number of offshore entities, to enable it to save US tax on $44bn in “otherwise taxable offshore income”.

In its report into Apple, committee chairman Democrat Carl Levin said, “Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven. Apple sought the Holy Grail of tax avoidance.” The committee said there was no indication Apple had done anything illegal.

Ireland denied the allegations that multinationals, including Apple, were given special tax deals to set up in the Republic.

George Bull, Baker Tilly’s senior tax partner, said, “This time it’s different,” as the target now is not the company but the Irish government.

“The European Commission has for some time been considering whether particular favourable tax treatments amount to “state aid” and should be prohibited.

“With tax competition widespread among sovereign nations, and with the Netherlands and Luxembourg also to be investigated by the EU, today’s announcement marks a new challenge to the role of sovereign nations in tax planning by multinational corporations,” he added.

Apple CEO Tim Cook has in the past vigorously defended the tech giant’s tax record. “I can tell you unequivocally, Apple does not funnel its domestic profits overseas. We don’t do that. We pay taxes on all the products we sell in the US, and we pay every dollar that we owe.”

Cook has called for a simplification of tax law, sounding an accord with Google executive chairman Eric Schmidt, who has said that a debate on tax reform would be welcomed.

Starbucks has faced sustained criticism in the UK over its tax affairs, culminating in a grilling by the Public Accounts Committee and a voluntary tax payment.