(Bloomberg) The European Union will step up its probe of Apple Inc.’s tax arrangements in Ireland, revealing why it suspects the iPhone maker received an unfair advantage.
Regulators will publish their reasoning for opening an investigation tomorrow, Antoine Colombani, a spokesman for the European Commission, said in an e-mail. The move is the latest step toward possible repayment of millions of euros of back taxes.
The EU inquiry, started earlier this year, comes amid a global crackdown on tax avoidance as governments struggle to increase revenue and reduce deficits. The commission has said tax avoidance and evasion in the EU cost about 1 trillion euros ($1.3 trillion) a year.
Looking “into the tax affairs of a number of high-profile multinationals including Starbucks Corp., Fiat SpA and Apple for violation of state aid is a knee-jerk reaction to appear on the front-foot,” said Frederic Donnedieu, Chairman of Taxand, a global organization of tax advisory firms.
The Group of 20 nations and the Organization for Economic Cooperation and Development “have been leading the charge to modernize international tax policy” and the commission is “late to the party,” Donnedieu said.
The EU’s investigations focus on so-called transfer-pricing arrangements on taxing commercial transactions between company units, the EU’s antitrust arm said in June when it opened formal tax probes covering firms including Apple. Regulators are checking whether the tax deals constituted illegal state aid. Governments can be ordered by the commission to claw back unfair aid.
Some Misunderstandings’
Ireland’s finance ministry said it “is confident that there is no breach of state aid rules in this case.” The government “already issued a formal response to the commission earlier this month, addressing in detail the concerns and some misunderstandings” in the EU’s June decision announcing the probe.
Apple’s Irish tax arrangements drew scrutiny in the U.S. last year. The company negotiated a tax rate of less than 2 percent with Irish authorities, a U.S. Senate report said in May 2013, citing Apple.
Apple representatives in London referred today to statements earlier this year saying it got no special treatment from Ireland.
In June, the Irish government said it understood that the EU was focusing on “advance opinions” given a number of years ago on how a company calculated its taxable base.
Industry Feedback
As part of the state-aid process, the commission will shortly seek feedback on its decision to probe the tax breaks.
The “commission will then analyze these comments in the context of the ongoing investigation,” Colombani said.
The Irish Times earlier reported the developments in the tax probes.
U.K. Chancellor of the Exchequer George Osborne said today he expects technology companies to pay their taxes.
“While we offer some of the lowest business taxes in the world, we expect those taxes to be paid, not avoided,” Osborne said at the Conservative Party conference in Birmingham.
The EU’s preliminary findings on Fiat Finance & Trade SA’s corporate taxation in Luxembourg will also be published this week, said one person, who asked not to be named because the decision isn’t public. Details of a preliminary investigation into Starbucks Corp.’s tax deals with the Netherlands will be given at a later stage, the person said.
Fiat declined to comment about the probing of its unit that handles cash management and treasury activities. Starbucks representatives declined to comment.
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 to their right to set corporate rates.
Luxembourg, led until last year by incoming European Commission president Jean-Claude Juncker, has won a reputation as an attractive location for multinational companies.
—With assistance from Rebecca Christie in Brussels, Dara Doyle in Dublin, Tommaso Ebhardt in Milan and Jesse Drucker in New York.
