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EU regulator pushes inquiry on tax deals

Focuses on arrangements such as Apple’s in Ireland

Apple has long insisted it has fulfilled its tax obligations and has made no special arrangements with Ireland.Reuters/File 2013

BRUSSELS — Europe’s antitrust regulator is expected to provide fuller details on why it suspects Ireland and some other low-tax countries have made special deals with multinationals such as Apple that helped the companies avoid billions in taxes and created unfair advantages over other EU countries.

As soon as Tuesday, the antitrust regulator is expected to publish a formal report on the scope of the investigation and why it is worth pursuing. While the case is still in its early stages, any eventual decision could force the Irish government to recoup back taxes from Apple.

Apple has said it met with Irish officials to discuss taxes and provided information about its operations so it could pay the correct amount. The European Commission’s investigation raises the question of whether Apple and the Irish government cut a deal, allowing the company to enjoy benefits that others do not.

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The report will also outline a case involving Luxembourg’s tax dealings with Fiat Finance and Trade, a unit of the Italian automaker Fiat. The investigation, revealed in June, also involves the US multinational Starbucks and the Netherlands. That report will be released at a later date.

“This investigation shows it’s not just business as usual for the commission,” said Andrea Biondi, director of the Center for European Law at King’s College London. “It could have major repercussions outside Europe, particularly for American companies.”

Apple has long insisted it has fulfilled its tax obligations and has made no special arrangements with Ireland. The Irish government has said it has done nothing wrong and will contest the investigation by the regulator, the European Commission.

The antitrust case reflects growing concern about the way multinational companies have conducted their tax affairs.

Besides accusations of sweetheart tax deals, US officials have been trying to crack down on tax inversions — when companies try to lower their tax bills by relocating overseas, often through mergers. In the European Union, officials are trying to keep countries from competing with one another in using tax treatments as a lure to big business.

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“It’s difficult to create tax harmonization across the European Union,” said Mario Mariniello, a competition expert at Bruegel, a think tank in Brussels. “But if you can show that local taxes have distorted competition between companies, then it becomes a big issue.”

Ireland has set its corporate tax rate at 12.5 percent. That is roughly one-third the tax rate of other European countries, including France, whose policy makers have criticized Ireland for offering incentives to attract global companies.

One country having lower tax rates than its neighbors is not against EU rules. But it could be a violation if a country granted special deals to certain companies that were not available to others.

Joaquín Almunia, the European commissioner responsible for antitrust issues, has also said that European authorities in Brussels could scrutinize corporate tax practices in Britain and Belgium.

There are no fines in such European cases, which can take years to complete. But a decision against Ireland could oblige its government to reclaim huge sums in so-called state aid to Apple. If Ireland refuses to act, the commission could sue at the Court of Justice of the European Union.

On Monday, the Irish government said it welcomes the opportunity “to clarify important issues about the applicable tax law in this case.” This month, the country’s policy makers sent a response to the European Commission, but a spokeswoman for Ireland’s Department of Finance declined Monday to comment on it.

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Apple had no comment beyond a statement it released in June: “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.” The company noted it was the second-largest employer in Cork, Ireland, and had added 5,000 jobs in the European Union in three years.

The inquiry is expected to involve transfer pricing. Such arrangements commonly involve the moving of profits and losses between subsidiaries by labeling them as internal corporate payments for goods or for copyright or patent royalties.

The case was brought by Almunia, the departing antitrust chief. As a new European Commission comes to office, the tax investigation could be taken over by Margrethe Vestager, nominated to replace Almunia. Vestager would work under Jean-Claude Juncker, a former prime minister of Luxembourg who will be the next president of the commission.

Juncker must win approval from the European Parliament for his team of commissioners, including Vestager. Parliament is expected to vote Oct. 22.

Any decision to punish Ireland could be awkward for Juncker, who has been accused of helping to turn Luxembourg into a tax haven. Almunia previously singled out Luxembourg for offering “only partial” cooperation in the part of the inquiry involving Fiat Finance and Trade.