(adds quotes, responses from companies and countries)
By Adrian Croft and Tom Bergin
BRUSSELS/LONDON, June 11 The European Commission
raised pressure on Ireland, the Netherlands and Luxembourg over
their corporate tax practices, saying it was investigating deals
the countries have cut with Apple, Starbucks
The EU is looking at whether the countries' tax treatment of
multinationals, which help to attract investment and jobs that
might otherwise go to where the companies' customers are based,
represent unfair state aid.
Corporate tax avoidance has risen to the top of the
international political agenda in recent years following reports
of how companies like Apple and Google use convoluted
structures to slash their tax bills.
"In the current context of tight public budgets, it is
particularly important that large multinationals pay their fair
share of taxes," Commission Vice President in charge of
competition policy Joaquín Almunia said on Wednesday.
Governments have promised to rewrite the rules that govern
international tax, but experts said the European Commission
would struggle to challenge deals Ireland, Luxembourg and the
Netherlands had agreed under existing rules.
Apple said on Wednesday it has not received any selective
tax treatment from the Irish authorities, while Starbucks said
it complied with all tax rules. Fiat declined comment.
The Irish government said it was confident that it has not
breached state aid rules and will defend its position
Eric Wiebes, the Dutch Secretary of State for Finance said
he was confident the investigation would find the country had
not broken EU rules. A spokesman for the Luxembourg finance
ministry declined comment.
Sheila Killian, assistant Dean in the Accounting & Finance
department of the University of Limerick, Ireland, said the
naming of individual companies represented a more aggressive
stance from the Commission.
"It's upping the ante from the EU's point of view," she
The Commission said it was looking at whether the pricing
for transactions between company subsidiaries - known as
transfer pricing - that were approved by the Irish, Luxembourg
and Dutch tax authorities, and which allowed the companies to
reduce their tax bills, were selective and thereby represented
While the Commission has often forced countries to change
tax rules which it deemed would distort intra-bloc trade, a
Commission spokesman was unable to name any successful
challenges to a country's transfer pricing decisions.
Killian said existing international tax rules gave companies
wide flexibility in choosing transfer prices.
"It's almost impossible to prove that the transfer pricing
is any way favourable ... but in launching a high-profile
investigation, it puts a spotlight on those companies' tax
affairs, which acts as a deterrent to companies against engaging
in aggressive tax planning," she said.
Philip Kermode, Director, Directorate-General for Taxation
and Customs Union, speaking to an irish parliamentary hearing on
Wednesday said that in principle the companies could be forced
to repay money if they were deemed to have received state aid.
However, Chas Roy-Chowdhury, Head of Taxation, at accounting
group ACCA, said that scenario was unlikely. It was more likely,
he said, that the Commission would issue an unflattering report
which might encourage the three countries to take a stiffer line
with multinationals in future.
The Commission said it was investigating the tax treatment
of Starbucks Manufacturing EMEA BV, which operates a coffee
roasting plant in Amsterdam.
The Dutch operation buys raw coffee beans from an affiliate
in Switzerland and sells roasted coffee to operating units
across Europe. It also receives fees from subsidiaries for the
right to use the Starbucks brand.
Starbucks told a UK parliamentary investigation in 2012 that
the deal it received in the Netherlands allowed it to enjoy a
"very low" tax rate.
A U.S. Senate probe last year revealed that Apple had
sheltered tens of billions of dollars in profits from tax by
using Irish companies that had no tax residence anywhere.
Apple in the United States entered into deals with the Irish
subsidiaries whereby the Irish units received the rights to
certain intellectual property that were subsequently licensed to
other group companies.
This arrangement ensured almost no tax was paid in countries
such as Britain or France and helped the group achieve an
effective tax rate of just 3.7 percent on its non-U.S. income
last year, its annual report shows - a fraction of the
prevailing rates in its main overseas markets.
Ireland resisted considerable pressure from Germany and
other countries to change its tax regime as part of an EU
bailout during the financial crisis.
The Commission is also looking at a ruling the Luxembourg
tax authorities gave to Fiat Finance and Trade Ltd, which lends
money to other Fiat companies.
Almunia added the Commission had started a preliminary
investigation into so-called "patent box" tax breaks by a number
of EU countries, under which profits derived from patents faced
tax rates of as low as 5 percent.
(Additional reporting by Foo Yun Chee in Brussels, Padraic
Halpin in Dublin, Stefano Rebaudo in Milan and Anthony Deutsche
in Amsterdam; Editing by Erica Billingham and Elaine Hardcastle)