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EU launches probes into Apple, Starbucks tax deals
Economics

EU launches probes into Apple, Starbucks tax deals

3 min. 11.06.2014 From our online archive
The European Union launched a probe Wednesday to determine whether the special tax deals offered by authorities in Ireland, Luxembourg and the Netherlands to Starbucks and Apple amount to billions in illegal state aid
FILE-In this Friday, May 18, 2012, file photo, the U.S. and European Union flags wave as members of the EU Delegation arrive to attend the G8 Summit, Friday, May 18, 2012, at Dulles International Airport in Chantilly, Va. The International Monetary Fund's annual report released, Tuesday, July 3, 2012, says that Europe's debt crisis could slow U.S. growth. A recession in Europe would lower profits for large U.S. corporations, pushing down their stock prices. (AP Photo/Jacquelyn Martin, File)

(AFP)  The European Union launched a probe Wednesday to determine whether the special tax deals offered by authorities in Ireland, Luxembourg and the Netherlands to Starbucks and Apple amount to billions in illegal state aid.

"In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes," EU Competition Commissioner Joaquin Almunia said.

Apple and Starbucks - as well as a number of other multi-national companies including Amazon and Google - have come under intense pressure from politicians and campaigners over their tax affairs.

The tax policies ruling the financial arm of Italian automaker Fiat, based in Luxembourg, is also included in the probe.

The multinationals are accused of enjoying sweetheart tax deals that allow them to move billions in earnings from higher-taxed countries to lower taxed ones.

Almunia said the investigation would focus on transfer pricing payments, an accounting technique where units of a multinational pay 'royalties' to another unit of their business.

The mechanism -- made possible by carefully crafted tax laws in Ireland, Netherland and Luxembourg -- allow operations in higher-taxed countries to post losses, with profits moved elsewhere.

The European Union strictly has no jurisdiction over national tax policies, a cherished prerogative of member states, and must limit its investigation to rules governing free competition.

Tax deals = state aid?

Almunia said the arrangements under scrutiny could amount to illegal state aid that discriminated against other member states.

"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," Almunia said.

California iPad maker Apple has shifted billions in international earnings through Ireland using such loopholes, but the government said it had not breached EU rules.

"Ireland is confident that there is no state aid rule breach in this case and we will defend all aspects vigorously," a government spokesman said.

Facing an international firestorm, Ireland last year moved to close the loophole, but still firmly defends its 12.5 percent corporate tax rate.

Last year Apple chief Tim Cook faced a grilling by US lawmakers on "sham" subsidiaries used to shift profits offshore, though he denied the company uses "gimmicks" to cut taxes.

Starbucks, which is headquartered in tax-friendly Netherlands, said it would take a closer look at the EU probe, which it is only indirectly a target of.

But in face of the public backlash over its tax practices, Starbucks in April said it was re-locating its European headquarters from the Netherlands to Britain.

Last year it agreed to pay £20 million in British corporation tax, adding it had "listened" to its customers.

In 2012 Starbucks acknowledged it had not paid corporation tax in Britain on sales worth £400 million (485 million euros, $670 million) between 2009 and 2012.

"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," a Starbucks spokesman said.

In a letter to parliament, the Netherlands government said it would "of course" cooperate with the EU probe.

"I am convinced that the investigation will conclude that this is not state aid and that agreements with Starbucks respect OECD rules on tax deductions," said Eric Wiebes, State Secretary of Finance.