The European Commission’s chief Joaquin Almunia opened investigations regarding the tax rulings of three countries on corporate income tax to find out whether they are consistent with the state aid rules mandated by the European Union (EU).
According to Almunia, the Commission will conduct a thorough examination on the decisions related to the tax break for Apple Inc. (NASDAQ:AAPL) in Ireland, Starbucks Corporation (NASDAQ:SBUX) in Netherlands and Fiat Finance and Trade in Luxembourg.
“Today we are opening these three formal investigations because we have reasons to believe at this stage that in these specific cases the national tax authorities have renounced to tax part of these multinationals’ revenues by allowing them to lower their taxable profits,” according to Almunia in a statement.
Serious doubts on corporate tax rulings
According to Almunia, the Commission has “serious doubts” regarding the compatibility of the corporate tax rulings of Ireland, Netherlands and Luxembourg for Apple Inc. (NASDAQ:AAPL), Starbucks Corporation (NASDAQ:SBUX), and Fiat Finance and Trade, respectively with the Treaty rules on state aid.
The EU antitrust chief explained that tax rulings are individual decisions or “comfort letter” sent by tax authorities to individuals or companies about tax issues. Almunia clarified that the Commission is not investigating the tax rulings in general, but the particular decisions implemented for Apple Inc. (NASDAQ:AAPL), Starbucks Corporation (NASDAQ:SBUX) and Fiat Finance Trade by its three Member States.
Almunia pointed out that some multinational companies use strategies to reduce their global tax liabilities. He said, “These aggressive tax planning practices erode the tax bases in our Member States.” He added that some corporations tried to reduce their profits in countries with higher tax rates through transfer prices—the amount charged for commercial transactions between their subsidiaries.
European Commission probes potential selective treatment
The Commission’s investigation aims to find out whether Apple Inc (NASDAQ:AAPL) Starbucks Corporation (NASDAQ:SBUX) and Fiat Finance Trade received selective treatment in the tax rulings of its Member States. According to Almunia, Selective tax advantages gives companies an “unfair advantage and would distort competition” in the EU Single Market.
“When public budgets are tight, and citizens are asked to make efforts to deal with the consequences of the crisis, it cannot be accepted that large multinationals do not pay their fair share of taxes,” said Almunia.
Ireland: No special tax rate deal for Apple
In response to the investigation of the Commission, the Irish government said Apple Inc. (NASDAQ:AAPL) did not receive selective treatment and there was no special tax rate deal.
“Our technical experts do not believe that there is any state aid. We will now turn to providing our detailed, technical legal rebuttal of the Commission’s position and if necessary will defend our position in the European Courts,” according to the statement of the Irish government.
Apple says it did not receive selective treatment from Ireland
Apple Inc. (NASDAQ:AAPL) also issued a statement indicating that it did not receive selective treatment from Irish officials and it is “subject to the same tax laws as scores of other international companies doing business in Ireland.”