The European Union’s antitrust regulator has launched an investigation into tax deals that Apple, Starbucks and Fiat struck with some European countries, the start of a wider push to keep multinationals from taking advantage of loopholes.
EU antitrust commissioner Joaquin Almunia said Wednesday a preliminary probe by his office has found the tax deals the companies have with Ireland, the Netherlands and Luxembourg could amount to illegal state aid.
“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,” Almunia said at a press conference in Brussels.
“When public budgets are tight and citizens are asked to make efforts to deal with the consequences of the (financial) crisis, it cannot be accepted that large multinationals do not pay their fair share of taxes,” he said.
Apple has a deal with tax authorities in Ireland, Starbucks has one in the Netherlands and Fiat’s financing arm has one in Luxembourg as part of their strategy to minimize the taxes they pay.
Almunia said the current investigations are part of a wider look into tax rules in various EU countries and “aggressive” tax planning by multinationals, which he said erodes countries’ tax bases.
He said that the investigations announced Wednesday look into the practice of “transfer pricing” — where one part of a company charges another for goods or services in order to shift profits where it wants.
Transfer pricing is allowed in theory — the problem is when a company inflates the prices of those deals to shift even more profits to a country where it has a better tax deal.
For instance, if Starbucks were to sell its coffee beans to subsidiaries around Europe at a higher-than-market price, that would increase profits in the Netherlands and decrease them elsewhere. If it receives a tax break in the Netherlands, it would have an unfair competitive advantage.
Apple denied it had received any special treatment from the government of Ireland, where its European operations are based.
“Apple pays every euro of every tax that we owe,” said spokesman Alan Hely.
Starbucks spokesman Jim Olson said his company complies “with all relevant tax rules, laws and guidelines.”
Fiat had no immediate comment.
Professor Richard Ainsworth, who heads Boston University’s graduate tax program, compared the situation to one where U.S. states that charge sales tax might feel New Hampshire is unfairly luring businesses with its no-sales-tax policy.
“This is an EU issue more than an Apple issue,” he said.
Almunia said nine other countries are under preliminary investigation. Asked whether Google might also be investigated, he said, “This is the beginning, not the end, of our work.”
The countries named Wednesday have been criticized in the past — Ireland for its low tax rates, the Netherlands and Luxembourg as homes for shell companies, and all three for a lack of transparency.
But Almunia was at pains to say he is not criticizing the countries’ overall tax regimes.
Ireland’s Finance Ministry said in a statement it was “confident that there is no state aid rule breach in this case, and we will defend all aspects vigorously.”
Dutch deputy minister for finance Eric Wiebes said he was “confident” the Dutch deal follows international guidelines and does not amount to state aid.