Tax breaks for Apple Inc., Starbucks Corp. and Fiat Finance & Trade SA in three European Union countries are under investigation by EU competition regulators in a clampdown on special treatment for companies.
The EU is checking whether the tax deals in Ireland, the Netherlands and Luxembourg are illegal state aid, according to an e-mailed statement today. Governments can be ordered by the European Commission to claw back unfair aid.
The EU inquiry comes amid a global crackdown on tax avoidance as governments struggle to increase revenue and reduce deficits. Lawmakers in the U.S., the U.K., France and Italy have scrutinized companies such as Microsoft Corp., Hewlett-Packard Co., Google Inc., and Amazon.com Inc. The commission has said tax avoidance and evasion in the EU cost about 1 trillion euros ($1.4 trillion) a year.
“Special secret deals should be outlawed across the EU,” Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, said in an e-mailed statement. “All tax breaks and reliefs should be openly available for qualifying businesses.”
The EU began gathering information about accords between Apple and Ireland, Starbucks and the Netherlands and Fiat Finance & Trade in Luxembourg last year following reports that some companies received “significant” tax reductions.
“We need to fight against aggressive tax planning,” Joaquin Almunia, the EU's competition commissioner, said at a press conference in Brussels. He said it's “still too soon to anticipate” possible recovery if the EU finds the tax rulings to be illegal.
The commission said today it's concerned that current arrangements could underestimate the taxable profit and grant an advantage to the respective companies by allowing them to pay less tax.
“Apple pays every euro of every tax that we owe,” the company said in an e-mailed statement. “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.”
Ireland's Finance Ministry said it's “confident that there is no state-aid-rule breach” and will “defend all aspects vigorously.” The EU probe targets “a very technical tax issue in a specific case” and covers 2004 to 2014, it said in an e-mailed statement.
U.S. Report
Apple's Irish tax arrangements drew scrutiny in the U.S. last year. The company negotiated a tax rate of less than 2 percent with Irish authorities, a U.S. senate report said in May 2013, citing the iPhone and iPad maker.
According to that report, Apple told the investigation that the Irish government had calculated the company's taxable income to produce an “effective rate in the low-single digits.”
The commission said it also stepped up legal action against Luxembourg over its refusal to supply all the information it requested. The nation is separately suing the EU for seeking “very extensive information” on taxation of intellectual property rights.
The Luxembourg Finance Ministry didn't immediately respond to e-mails seeking comment.
Fiat Finance and Trade, which handles automaker Fiat SpA's cash management and treasury activities, said it was “surprised” by the EU announcement.
The company said it “has no reason to believe that any favorable treatment was contemplated by the tax authorities of Luxembourg in issuing such tax ruling, because in fact no such treatment was ever received.”
The Dutch Finance Ministry said it will cooperate with the EU and is confident that the probe will show that no state aid was granted.
Starbucks complies with “all relevant tax rules” as well as laws and international guidelines set by the Organization for Economic Cooperation and Development, Simon Redfern, a spokesman for the company, said by e-mail.
The commission said it will continue a wider inquiry, including information gathering from the U.K., Belgium, Cyprus and Malta on tax rulings, Antoine Colombani, Almunia's spokesman, said by e-mail.
None of the EU investigations relate to companies in the U.K. or the tax treatment they have received under the country's rules, said a British official who wasn't allowed to be cited by name, in line with government policy.
In the U.K. the tax rules apply equally to all firms and no preferential tax rulings are offered to companies, the official said.
Patent Boxes
The EU has also sought details from Belgium, Spain, France, Hungary, Luxembourg, the Netherlands, the U.K., Cyprus and Malta on so-called patent boxes, which allow tax reductions on income from patents, he said.
The regulator said in March it has indications that the programs mainly benefit highly mobile businesses without triggering significant additional research and development.
The U.K. patent box phases in a lower corporation tax on some profits from patented inventions and certain other innovations, according to tax authority's website.
It was was one of the reasons that GlaxoSmithKline Plc cited in 2012 for its plans to invest about 350 million pounds ($588 million) in a new drug-ingredient plant in the U.K.
“We do not believe that this measure gives rise to any state aid or other EU law issues, as it is open to all companies with trading income from patents or related intellectual property, regardless of sector,” a U.K. government spokesman said.
Tax policy is one of the most sensitive political issues in the 28-nation bloc. Changes to EU tax rules require unanimous approval among governments, rendering major changes almost impossible. Even the most enthusiastic members of the EU have clung to their right to set corporate rates.
Luxembourg, led until last year by European Commission-president candidate Jean-Claude Juncker, has won a reputation as an attractive location for multinational companies.
Luxembourg has “a very favorable tax ruling policy,” Howard Liebman, a tax partner at law firm Jones Day in Brussels, said in a phone interview. “And this is a policy that is very individualized. It is not written into the law; it is not written into regulations, so it's hard to prove exactly what they're doing.”
“In other words, it's hard for the commission to actually condemn it,” Liebman said.
The opening of an in-depth investigation by the commission allows third parties, as well as the three countries concerned, an opportunity to submit comments.
Bloomberg News
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