The European Commission is set to reveal the results of its preliminary investigation into the alleged tax avoidance of Apple by entering illicit backdoor deals with tax authorities in Ireland, a case that could leave the company with a hefty fine worth billions of euros.
The Brussels-based body, which is the European Union's central antitrust authority, will unveil details of its formal probe, which also involves Starbucks for reportedly having tax deals with the Netherlands and Fiat Finance and Trade with Luxembourg, according to sources cited by the Financial Times.
Apple and the Irish government have countered with denials that the iPhone maker has received state aid in the form of unlawful tax agreements in Ireland. The company says it continues to pursue a "very responsible, transparent and prudent" approach when it comes to paying taxes in Ireland, where Apple currently pays less than 2 percent of its trading income in taxes. Ireland's corporate tax, which is 12 percent of trading income, is considered low compared to the taxes imposed by other countries in the EU.
"There's never been any special deal, there's never been anything that would be construed as state aid," Apple chief financial officer Luca Maestri said [subscription required]. "We know that we didn't do anything that was against the law and we are very confident that through the investigation it will be shown that there was no selective treatment in our favour at any point in time."
The investigation is centered on allegations that Apple underestimated its taxable profits, giving the company an unfair advantage over its competitors. The probe comes as a result of a series of senate hearings in the United States last year, where it was found that Apple was redistributing its profits out of the U.S. out to its international arms where Apple has no declared tax residency. Experts say multinational companies typically use transfer-pricing agreements such as this to reduce the amount of taxes they have to pay.
Transfer-pricing agreements are not illegal, but Apple could be violating rules of the Union if the results of the investigation reveal that it is charging prices that are not in accordance with current market conditions. Further, rules for agreements of this kind have become more stringent in recent years, although tax authorities wielded a "significant degree of discretion," according to the EC.
"The commission has concerns that such discretion has been used in the case of Apple to grant a selective advantage to that company, reducing its tax burden below the level it should pay based on a correct application of the tax rules," says an EC spokesman in an interview with The Independent.
The EC's case are banking on two agreements that Apple made with the Irish government, which the commission says are tantamount to Apple receiving special tax treatment. The first agreement was made in 1991, when Apple approached tax authorities to strike a tax deal after certain changes in Irish tax law began prohibiting the company from operating tax-free as it had been doing since 1980. The agreement was in place for 16 years, which the Times calls "an unusually long time" for a transfer-pricing deal.
In 2007, tax authorities sought a new arrangement after Apple's sales and operations in Europe expanded. Maestri says Apple sought "advanced opinion" to "understand what was the right amount of taxes that we would have to pay in Ireland."
