As Europe faces a financial crisis, EU regulators are beginning to crack down on the tax practices of major companies in the region. However, the main targets in the regulators’ crosshairs are not Europe-based companies, but rather U.S. companies doing business within the region.
The European Commission announced on June 11 that it was opening investigations into the tax practices of U.S.-based Apple and Starbucks stores, as well as Italy-based Fiat, over allegations that the companies engaged in illegal tax deals in Europe. The Commission announced that it would investigate tax deals for Apple in Ireland, Starbucks in the Netherlands, and Fiat in Luxembourg, to see whether the companies violated EU rules.
According to the Wall Street Journal, the investigation will take place under the EU’s state aid rules, which are designed to promote fairness in competition among all member countries. By the bylaws of the state aid rules, the Commission must pursue the investigations to their conclusion and can demand that unpaid taxes are returned.
“When public budgets are tight and citizens are asked to make efforts to deal with the consequences of the [financial] crisis, it cannot be accepted that large multinationals do not pay their fair share in taxes,” EU antitrust chief Joaquín Almunia said at a news conference announcing the investigations.
In these cases, said Alumunia, the Commission believes that governments may have allowed the companies in question to underestimate the proportion of their profits that were taxable, thus allowing them an unfair advantage.
However, while the Commission begins to undertake its investigation, some of the member countries cited are not happy with what they view as an overreach of power. Ireland said that the country did not breach EU rules with Apple and would defend “all aspects” of the case in court. Apple said in a statement, “Apple pays every euro of every tax that we owe.” That may be tough to prove, though, as a U.S. Senate panel found in 2013 that Apple had paid very few taxes in the country thanks to technicalities within the law.
In the Netherlands, Dutch officials claim that the country has complied with all EU rules in dealing with Starbucks. The company said that it is “studying the commission’s announcement.” Starbucks announced in April that it would be moving its European headquarters to London, thus paying more taxes in the U.K.