The European Commission has confirmed it is to investigate Apple's tax affairs in Ireland.
The probe, announced on Wednesday by Europe's competition commissioner Joaquín Almunia, will look into whether the low rate of tax Apple pays in Ireland breaks European state aid rules.
Apple pays less than two percent tax in the country — far less than the standard 12.5 percent corporation tax — after it said it had obtained a better rate through negotiations with the Irish government. The government has denied the claims.
Along with Apple in Ireland, the EC also opened investigations into Starbucks in the Netherlands and Fiat Finance and Trade in Luxembourg to see if the countries' tax rulings are favouring the three companies, which would be in breach of European Union state aid rules. The investigations are into the countries' tax rulings, and not into the companies themselves.
"We have reason to believe, at this stage, that in these specific cases, the national tax authorities have renounced to tax part of these multinationals' revenues by allowing them to lower their taxable profits," Almunia said.
Almunia said the Commission had "serious doubts" about the tax rulings' compatibility with state aid rules, saying that "selective tax advantages" could have been granted to the three firms which could "give these companies an unfair advantage and will distort competition".
"When public budgets are tight, and citizens are asked to make efforts to deal with consequences of the crisis, it cannot be accepted that large multinationals do not pay their fair share in taxes," he said.
Tax avoidance schemes, practised by Apple, Amazon, and Google, are not illegal, but have proved unpopular with governments and consumers alike. When asked about Google, Alumunia hinted that investigations into other companies haven't been ruled out.
"We are starting our work based on the information we receive... This is the beginning, not the end, of the our work to enforce how state rules are applied particularly with multinationals," he said.
The investigation will gather responses to the investigation from the member states in question and from third parties. Almunia did not say how long the investigation might last. Should the tax rulings be found to breach state aid rules, the commissioner said that the commission is "open to the possibility of recovery" — companies being asked to pay extra tax — and local tax rules may also be changed. However, he said, the probe has only just began: "The outcome of the investigation is still open, we're at day number one."
Apple has also come under fire its in home country for its tax arrangements. Last May, the US Senate permanent subcommittee on investigations looked into the company affairs, accusing it of shifting billions of dollars of profits away from the US and into Ireland using a variety of offshore arrangements.
"One of Apple's more unusual tactics has been to establish and direct substantial funds to offshore entities in Ireland, while claiming they are not tax residents of any jurisdiction. For example, Apple Inc. established an offshore subsidiary, Apple Operations International, which from 2009 to 2012 reported net income of $30bn, but declined to declare any tax residence, filed no corporate income tax return, and paid no corporate income taxes to any national government for five years.
A second Irish affiliate, Apple Sales International, received $74bn in sales income over four years, but due in part to its alleged status as a non-tax resident, paid taxes on only a tiny fraction of that income, the committee said in its report at the time.
Apple said in a statement: "Apple is proud to have been doing business in Cork, Ireland since 1980. We have grown our workforce to more than 4000 employees, who serve our customers through manufacturing, tech support and other critical functions. These employees play an important part in Apple’s success and continued growth in Ireland. Success and growth come from the hard work of our Irish employees not from any special tax deal with the Irish government. 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.
"Apple pays every euro of every tax that we owe. Since the iPhone launched in 2007, our taxes in Ireland have increased tenfold."
Europe has signalled its plans to turn up the heat on tax avoiders in recent weeks.
At the end of May, the EC's High Level Expert Group on Taxation of the Digital Economy published a report into how companies selling goods and services online should face common tax regimes across Europe. The aim is to prevent companies having their headquarters in a low-tax country allowing them to make millions in revenue in other higher-tax states but pay very little tax there.
EU tax commissioner Algebras Bemata said at the time: "The EU must throw its full collective weight behind international efforts to clamp down on tax avoidance. Member states must speak with one voice, reflecting shared priorities... I particularly welcome the emphasis that the report puts on tackling harmful tax competition, and the recognition that this involves more than just abolishing harmful regimes."