The European Commission today (11 June) launched a crackdown on the ‘sweetheart’ tax deals obtained by some of the world’s largest multinationals, opening probes into the taxes paid by Apple in Ireland, Starbucks in the Netherlands and a Fiat subsidiary in Luxembourg.
Joaquín Almunia, the European commissioner for competition, warned that more investigations could follow. “This is the beginning, not the end, of our work about how to enforce the state-aid rules regarding the way tax systems are used, in particular for multinationals,” he said.
The Commission is examining several other tax deals, in particular in Belgium and the United Kingdom, as well as tax breaks available in nine European Union member states for profits from intellectual property – so-called patent boxes.
The increased scrutiny of tax matters mirrors renewed efforts at the international level to clamp down on tax avoidance and aggressive tax planning. The Organisation for Economic Co-operation and Development is scheduled in September to publish a new international standard for taxing intra-corporate transfers, including profit-shifting.
The investigations relate specifically to how the national tax authorities treated so-called transfer-pricing arrangements, through which multinationals transfer assets between different companies within the group. The member states are suspected of allowing the multinationals to siphon profits away from other European jurisdictions into their own, tax-free.
The Commission is examining comfort letters sent by the national tax authorities to the companies outlining how they would be taxed if they became a tax resident. EU state-aid rules prevent member states from using public money, including tax rebates, to subsidise favoured companies.
“Selective advantages to multinationals seriously distort competition in our single market,” said Almunia. “In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes.”
A report by the United States Congress from May 2013 revealed that Apple paid “a corporate tax rate of 2% or less” in Ireland, through which it channelled global sales outside the US. A UK parliamentary inquiry also found that Starbucks, despite having nearly 800 stores in the UK, did not pay any UK corporation tax between 2008 and 2013.
Yet, if the companies are found to have benefited from illegal state aid, Almunia refused to say that they would have to pay back profits, saying that they may have had a legitimate expectation that what they were doing was legal.
One notable name missing from the Commission’s announcement was Google. In mid-May, Almunia had reassured the German and French economy ministers, who had criticised an antitrust investigation into the firm as too narrow, that the Commission was looking at a wide range of other issues, including tax. Google, which also channels non-US profits through Ireland and then Bermuda, reportedly paid around £11 million (€14m) in UK taxes in 2012 on UK revenues of close to £3 billion (€3.6bn).
The Commission also attacked Luxembourg for failing to co-operate with the investigation. “We have received very small parts of the information requested and the information received is not the best part,” said Almunia. The Commission yesterday opened proceedings against Luxembourg for infringing EU law by failing to co-operate.
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