Apple Faces European Commission Tax Probe

Tom Jowitt is a leading British tech freelance and long standing contributor to TechWeek Europe

The European Commission begins a formal investigation into the tax arrangements of Apple and others

Apple is being investigated over its European tax arrangements, which see the iPhone maker avoiding hefty tax bills.

The Commission said that it has opened three in-depth investigations to examine the decisions by tax authorities in Ireland, the Netherlands and Luxembourg. They want to investigate the corporate income tax arrangements paid by Apple, Starbucks, and Fiat Finance and Trade, to see whether they comply with the EU rules on state aid.

Tax Avoidance Holy Grail

Ireland, as well the Netherlands and Luxembourg have been criticised for their corporate taxing policies. Critics argue the tax regimes in those countries allow international conglomerates to avoid paying their dues.

Last May, a US Senate committee accused Ireland of giving special tax treatment to Apple and others. Senator Carl Levin, chairman of the subcommittee, dubbed the Apple structure “the Holy Grail of tax avoidance.”

Taxes“In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes,” said Joaquín Almunia, the Commission VP in charge of competition policy.

“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,” said Almunia.

Apple and others have allegedly been able to avoid hefty tax bills by declaring companies registered in the Irish city of Cork, as not tax resident in any country. Apple has been accused of avoiding about $40bn (£25bn) in US income taxes in 2012 alone, using this method.

Ireland said last year that it would close the loophole that allowed for the establishment of Irish-based subsidiaries that are “stateless” for tax purposes. However, that change will not affect a more commonly used tax structure, known as “double Irish”, which allows companies to funnel profits to zero-tax jurisdictions such as Bermuda.

Robust Defence

Politicians on all side in both US and Europe have grown increasingly irritated at the Irish loophole.

“Fair tax competition is essential for the integrity of the Single Market, for the fiscal sustainability of our Member States, and for a level-playing field between our businesses,” said Algirdas Šemeta, Commissioner for Taxation. “Our social and economic model relies on it, so we must do all we can to defend it.”

The Commission said that despite its investigation, it does not call into question the general tax regimes of the three Member States concerned. Meanwhile the Irish believe their tax system is open and transparent.

Irish Prime Minister Enda Kenny declined to comment on reports of an European investigation, according to Reuters. However he did say that he was confident of the legality of Ireland’s tax system.

“We believe that our legislation … is very strong and ethically implemented and we will defend that very robustly,” Kenny was quoted as telling journalists in Dublin.

In the UK, a number of tech firms, including Google, Amazon and Facebook, have come under fire for their tax arrangements. In May 2013, a former Google employee said he had assembled an extensive collection of documents that proved the company had allegedly engaged in tax-dodging schemes that shrunk its UK tax bill to just £6 million.

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