The European Commission raised pressure on Ireland, the Netherlands and Luxembourg over their corporate tax practices, saying it was investigating deals the countries have cut with Apple, Starbucks and Fiat.
The Commission, the executive body of the European Union, is looking at whether the countries’ tax treatment of multinationals that help attract investment and jobs that otherwise might go to where the companies’ customers are based represent unfair state aid.
Corporate tax avoidance has risen to the top of the international political agenda in recent years after reports of how companies such as Apple and Google use convoluted structures to slash their tax bills.
“In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes,” said Joaquín Almunia, the Commission’s vice president in charge of competition policy, on Wednesday.
Governments have promised to rewrite the rules that govern international tax, but experts said the Commission would struggle to challenge deals that Ireland, Luxembourg and the Netherlands had agreed to under existing rules.
Apple said on Wednesday it has not received any selective tax treatment from the Irish authorities, while Starbucks said it complied with all tax rules. Fiat declined to comment.
The Irish government said it was confident that it has not breached state aid rules and will defend its position.
Eric Wiebes, the Dutch secretary of state for finance, said he was confident the investigation would find the country had not broken E.U. rules. A spokesman for the Luxembourg Finance Ministry declined to comment.
Sheila Killian, assistant dean in the Department of Accounting and Finance at the University of Limerick in Ireland, said the naming of individual companies represented a more aggressive stance from the Commission.
“It’s upping the ante from the E.U.’s point of view,” she said.
Commission officials said they were looking at whether the pricing for transactions between company subsidiaries, known as transfer pricing and approved by the Irish, Luxembourg and Dutch tax authorities, was selective and thereby represented unfair incentives. Those transactions allowed the companies to reduce their tax bills.
While the Commission has often forced countries to change tax rules it deemed would distort intra-bloc trade, a Commission spokesman was unable to name any successful challenges to a country’s transfer pricing decisions.
Killian said international tax rules give companies wide flexibility in choosing transfer prices.
“It’s almost impossible to prove that the transfer pricing is any way favorable . . . but in launching a high-profile investigation, it puts a spotlight on those companies’ tax affairs, which acts as a deterrent to companies against engaging in aggressive tax planning,” she said.
Speaking to an Irish parliamentary hearing on Wednesday, Philip Kermode of the Directorate-General for Taxation and Customs Union said that the companies could be forced to repay money if they were deemed to have received state aid.