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Apple, Starbucks under investigation for tax dodging in Europe

The European Union is looking into whether the avoidance of billions in taxes across Europe hurts competition

The European Union's antitrust regulator said Wednesday it has launched an in-depth investigation into whether tax deals that Apple, Starbucks and Fiat struck with several European countries violate competition laws.

EU antitrust commissioner Joaquin Almunia said it appears the tax arrangements of the companies are not proper, though the companies and countries involved — Ireland, the Netherlands and Luxembourg — will be given a chance to respond before the antitrust commission decides whether the tax deals are indeed illegal.

"In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes," Almunia said in a statement.

The commission’s investigation will focus on a practice common among multinational corporations like Apple: rerouting international profit through whichever country provides the biggest tax incentives and lowest tax rates. Ireland, which has an already low tax rate of 12.5 percent, is notorious in the EU for using big tax cuts to attract profitable companies away from other locales.

This specific investigation focuses on deals Apple has with tax authorities in Ireland, Starbucks has with the Netherlands and Fiat's financing arm has with Luxembourg.

Almunia said that while such agreements are permissible in theory, they would be improper if they give the companies an advantage over competitors.

The companies named have been frequent targets of criticism for paying low taxes in some countries where they operate.

The countries have also been criticized — Ireland mostly for its low tax rates, the Netherlands and Luxembourg as homes for shell companies, and all three for secrecy over how they negotiate with companies and decide on tax rates.

Almunia said the three investigations announced Wednesday 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 named Belgium as another country whose tax rules his office is examining.

"Why three companies today? Because we are starting," he said at a press conference in Brussels, implying more investigations could be opened in the near future.

Ireland was quick to respond, issuing a statement that it is "confident that there is no state aid rule breach in this case and we will defend all aspects vigorously."

Almunia said the commission is not criticizing the countries' overall tax regimes. He said the issue in question involves only “transfer pricing” — in which a company allows one part of its operations to charge another for goods or services in order to shift profits where it wants.

For example, Starbucks might charge its own subsidiaries a license fee for using its logo. If it keeps its European licensing arm in the Netherlands and then funnels all the licensing fees there, it could have high profits there and low profits elsewhere, where tax rates are higher.

The commission said that sort of strategy is allowable only if the prices a company charges its subsidiaries conform to market rates. Otherwise, the companies could lowball their overall taxable profit, giving them an advantage over other companies.

This isn’t the first time companies have gotten into hot water over their European tax practices.

Starbucks told a U.K. parliamentary investigation in 2012 that it had received a tax deal in the Netherlands that allowed it to enjoy a "very low" tax rate, while a U.S. Senate probe last year revealed that Apple had sheltered tens of billions of dollars in profits from tax by funneling it through Irish subsidiaries.

Apple in the United States entered into deals whereby the Irish units received the rights to certain intellectual property that were subsequently licensed to other groups of companies, helping ensure that almost no tax was reported in countries such as Britain or France.

Apple's Irish arrangement helped it 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.

 Al Jazeera and wire services

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