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European commission to investigate tax affairs of Apple, Starbucks and Fiat European commission to investigate tax affairs of Apple, Starbucks and Fiat
(about 5 hours later)
European regulators have launched formal inquiries into the tax affairs of Apple, Starbucks and Fiat, probing alleged sweetheart deals negotiated between the corporations and national governments in Ireland, the Netherlands and Luxembourg. European regulators yesterday launched inquiries into the tax affairs of Apple, Starbucks and Fiat, saying sweetheart deals the companies allegedly negotiated with governments in Ireland, the Netherlands and Luxembourg could be illegal.
Calling for multinationals to "pay their fair share of taxes", the European commission's top competition regulator, Joaquín Almunia, said he was concerned that special treatment may have been granted to the two American firms and the Italian automotive group Fiat that breached state aid rules. The European commission's top competition regulator, Joaquín Almunia, turned up the pressure for a clampdown on agressive corporate tax planning, calling for multinationals to "pay their fair share". The Commission believes any special treatment granted to the two American corporations and the Italian automotive group's finance arm could breach EU rules on state aid.
Business leaders across Europe have complained that some corporations, particularly those operating online or from US headquarters, compete unfairly by exploiting loopholes. Europe's state aid laws ban tax breaks if they risk distorting competition, and business leaders in Britain and on the continent have complained that the negligible tax paid by some rivals puts them at a disadvantage. Business leaders across Europe have rounded on US-based corporations over their tax affairs, claiming some multinationals, particularly those trading online, compete unfairly by exploiting loopholes. Europe's state aid laws ban tax breaks if they risk distorting competition.
"In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes," Almunia said. "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.""In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes," Almunia said. "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."
Regulators may expand their investigations to other nations and corporations. Almunia told a press conference on Wednesday: "It is well known we contacted Belgium and the UK, in particular the UK in the case of Gibraltar, and maybe we will open a new investigation." Brussels will also look into so called "patent box" arrangements in nine European countries. These increasingly controversial deals allow firms to pay less tax on the profits from patented inventions and innovations, and were introduced in the UK in April 2013.
Three inquiries into suspected selective arrangements have been launched. The first concerns Apple's deal with the Irish government. Last year the iPhone maker was found by the US Senate to have an international corporate tax rate of 2%, thanks to a loophole that allowed the company to establish its international headquarters in Ireland but register its tax residency elsewhere. Senators concluded some of Apple's Irish companies were not tax residents anywhere, with John McCain describing the company's arrangements as "unacceptable … complicated and pernicious". Amazon and Google have also previously come under fire for their aggressive tax planning in Europe, where they generate tens of billions of dollars in combined revenues each year but make negligible contributions to the public purse. In what could have been interpreted as a direct reference to Starbucks, David Cameron warned companies seen as avoiding tax to "wake up and smell the coffee".
Starbucks's Dutch arrangements will also be investigated. The coffee chain has minimised corporation tax in the countries where it generates the majority of its revenues, like the UK, Germany and France, by setting up aggressive transfer pricing arrangements in the Netherlands, where its European headquarters are located. "Any company that has got a tax ruling from one of these three countries will now be assessing what the risk is," said Heather Self, a tax partner at law firm Pinsent Masons. "Anyone who has got a ruling they know is too good to be true should be worried."
Its local operating companies in Britain and elsewhere make payments back to the Netherlands for roasting services, and royalty fees for the right to use the brand and business processes. The cost of these payments has allowed local operating companies at Starbucks to claim they make a loss, which means they do not have to pay tax. "We will co-operate with the commission's state aid investigation of the Netherlands. We comply with all relevant tax rules, laws, and OECD guidelines in the 64 countries in which we operate," Starbucks said. The Dutch finance minister Eric Wiebes said on Wednesday: ""I am confident that the ultimate conclusion is that there is no question of state aid and that the agreements with Starbucks Manufacturing EMEA BV comply with the OECD guidelines on transfer prices." Political grillings of both Apple and Starbucks executives have revealed what seem to be specially-negotiated deals with national tax collectors. Starbucks chief financial officer for the UK Troy Alstead told British MPs in 2012, after it emerged that the company had paid UK corporation tax just once in 13 years, that it had an agreement with Holland allowing a "very low rate" on its operation there.
The third probe focuses on the ruling by Luxembourg in calculating the tax owed by Fiat Finance and Trade, which was set up to provide services to the automotive group, funding its subsidiaries and investing surplus cash. It has branches in the UK and Spain and is headquartered in Luxembourg. Fiat declined to comment on the investigation. Apple boss Tim Cook told the US Senate under oath last year that agreements had been struck by the company's founder Steve Jobs in Dublin in the 1980s. Cook said Ireland was "very much recruiting tech companies … [and] did give us a tax incentive agreement to enter there".
Almunia said Ireland and the Netherlands had co-operated with his initial inquiries after his officials began looking into the issue last summer, but that Luxembourg had been reluctant to hand over information. The commission is now applying to the country's courts of justice to obtain the confidential documents it requires. The Irish government said it was confident that it has not breached state aid rules will defend its position vigorously. Apple, which is now the second biggest employer in Cork, where its international headquarters are based, says it pays all taxes due. Commission experts say it paid just 3.7% tax on non-US profits of $31bn last year.
The commission's competition boss revealed he was also looking into so called "patent box" arrangements in nine European countries. These allow firms to pay less tax on the profits from patented inventions and innovations, and was introduced in the UK in April 2013. The Irish government has rejected suggestions of a special deal with Apple. Dublin said it was confident that Ireland had not breached state aid rules and would defend its position vigorously.
The commission is responding to media reports that some companies have received significant savings by way of "tax rulings" issued on a case by case basis by national tax collectors. These often take the form of comfort letters explaining how a company will be taxed. These letters are used in particular to confer approval on transfer pricing arrangements. Almunia is concerned governments may have allowed companies to charge above market rate for services provided by one subsidiary to another, thus allowing them to shift profits to low tax jurisdictions. The Brussels inquiry may spread to other nations and corporations. Almunia told a press conference: "It is well known we contacted Belgium and the UK, in particular the UK in the case of Gibraltar, and maybe we will open a new investigation."
Algirdas Šemeta, commissioner for taxation, said: "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. Our social and economic model relies on it, so we must do all we can to defend it." So far, the focus is on three separate cases - Ireland's treatment of Apple, Holland's arrangement with Starbucks, and Luxembourg's treatment of Fiat Finance and Trade, a company set up to provide services to the automotive group, funding its subsidiaries and investing surplus cash. Fiat said it was surprised by the inquiry into its Luxembourg arm, which sought a ruling from tax authorities there regarding transfer pricing in 2012. The company said it had no reason to believe it was given favourable treatment.
In a statement, Apple said it was proud to have been doing business in Cork, Ireland since 1980. "We have grown our workforce to more than 4,000 employees, who serve our customers through manufacturing, tech support and other critical functions. These employees play an important part in Apple's success and continued growth in Ireland. The investigation could ultimately lead to a demand for financial reparation from the companies involved. It hinges on so called "transfer pricing" arrangements approved by tax inspectors. If abused, these can allow profits to be shifted from the country where the revenues are generated to another where corporation tax rates are lower.
"Success and growth come from the hard work of our Irish employees not from any special tax deal with the Irish government. 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. Apple pays every euro of every tax that we owe. Since the iPhone launched in 2007, our taxes in Ireland have increased tenfold." Starbucks has minimised corporation tax by having its operating companies in Britain and elsewhere make payments to sister companies in Netherlands and Switzerland. Starbucks has said its UK business pays 6% a year for use of the brand. Starbucks told British MPs that its Swiss unit put a 20% markup on the beans it sells to the local operating company in the UK.
The cost of these payments has allowed local operating companies at Starbucks to claim they make a loss, which means they do not have to pay tax. "We comply with all relevant tax rules, laws and OECD guidelines and we're studying the Commission's announcement related to the state aid investigation in the Netherlands," Starbucks said. The group announced earlier this year that it was moving its European headquarters from Holland to London.
The Dutch finance minister, Eric Wiebes said on Wednesday: "I am confident that the ultimate conclusion is that there is no question of state aid and that the agreements with Starbucks Manufacturing EMEA BV comply with the OECD guidelines on transfer prices."
Last year, the US Senate uncovered a loophole that allowed Apple to establish its international headquarters in Ireland but register its tax residency elsewhere. US senators concluded some of Apple's Irish companies were not tax resident anywhere, with John McCain describing the company's arrangements as "unacceptable … complicated and pernicious".
In a statement, Apple said it was proud to have been doing business in Ireland since 1980and added: "Success and growth come from the hard work of our Irish employees not from any special tax deal with the Irish government. 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. Apple pays every euro of every tax that we owe. Since the iPhone launched in 2007, our taxes in Ireland have increased tenfold."
Algirdas Šemeta, the European commissioner for taxation, said: "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. Our social and economic model relies on it, so we must do all we can to defend it."