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European Commission launches tax probe into Apple, Starbucks and Fiat European Commission launches tax probe into Apple, Starbucks and Fiat
(about 7 hours later)
The European Commission is set to open an in-depth investigation into the tax practices of Starbucks, Fiat and Apple in three European countries. Fiat, Starbucks and Apple all face investigations into their tax affairs by the European Commission.
The probe will examine whether they benefited from special tax deals in Ireland, Luxembourg and The Netherlands. The commission said it had also started infringement proceedings against the authorities in Luxembourg for failing to hand over information it had requested concerning Fiat.
The Commission will focus on so-called transfer-pricing arrangements, under which multinationals shift taxable profit between subsidiaries operating in different countries. Companies must charge their subsidiaries market rates or risk violating EU rules on state aid. Both the Netherlands, in relation to Starbucks, and Ireland, with Apple, have complied with its demands.
"We have reason to believe at this stage that indeed in these specific cases the national authorities have (failed) to tax part of these multinationals' profits," said EU Competition Commissioner Joaquin Almunia at a press conference in Brussels, insisting that big multinationals must "pay their fair share of taxes". Brussels' action comes against a backdrop of mounting public anger over the complex structures used by multinationals to cut their tax bills and will also serve to heighten pressure on the three countries concerned, all of which have found favour with companies seeking to pay less tax.
In response, the Irish finance ministry said Apple did not benefit from preferable treatment before setting up its international headquarters in Ireland, where it paid less than 2 per cent tax on its foreign earnings in 2012, prompting criticism that the country serves as a tax haven for the American technology giant. European watchdogs are investigating the prices set for transactions between corporate subsidiaries – known as transfer pricing – approved by the Irish, Luxembourg and Dutch tax authorities and whether they resulted in favourable treatment for the three multinationals.
An Apple spokesperson said: “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.” Tax bills can be reduced where a subsidiary in one country pays an artificially high price for goods or services to a subsidiary located in another. The practice can in effect shift tax from a high-tax regime to another offering lower rates. The EU says "market rates" should be charged. If investigators find that this is not the case, the countries could be found to have violated rules on the provision of state aid to companies, although legal analysts have said the EU could face a tough battle to prove a case.
Meanwhile, Starbucks said that its tax deal in The Netherlands, where the group has been using an arrangement which allows it to transfer much of its profits from its European subsidiaries to reduce its taxable income, complies with "all relevant tax rules, laws and OECD guidelines". The Irish Government, for one, has strenuously denied offering Apple any special treatment and Apple has always insisted it complies with all relevant rules and regulations and has not benefited from sweetheart deals.
Dutch finance minister Eric Wiebes added: "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." Ireland has become a favoured destination for technology giants. It already charges corporations the very low rate of 12.5 per cent. Critics argue that it allows multinationals further concessions on top of that and its tax practices have proved to be a sore point with other EU members. A US Senate investigation last year claimed Ireland had given special treatment to Apple.
In 2012, the US coffee giant admitted it paid just £8m in tax on £3bn of UK sales since 1998, when it opened its first Starbucks coffee shop in Europe. In April, the company announced it would transfer its European headquarters to London from the Netherlands, meaning it will pay more tax in the UK. The commission vice-president in charge of competition policy, Joaquin Almunia, 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."
None of the countries concerned faces fines or financial penalties, but they could be forced to recover funds from the companies concerned if state aid is found to have been illegally given to them.
Fiat, ironically, shifted its domicile to the UK at the beginning of the year to take advantage of low corporate tax rates. The company also said in January it would register the holding of its newly created Fiat Chrysler Automobiles group in the Netherlands, cementing a politically sensitive shift away from its Italian home.