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The European Commission (EC) has opened investigations into whether decisions about corporation tax to be paid by Apple, Starbucks and Fiat complied with European Union (EU) rules on state aid.
The commission has been examining tax practices in several member states, following media reports alleging that some big businesses received significant reductions by way of rulings issued by national tax authorities. Decisions can involve state aid if they provide selective advantages to a specific company or group of companies.
The European Commission (EC) has opened investigations into whether decisions about corporation tax to be paid by Apple, Starbucks and Fiat complied with European Union (EU) rules on state aid.
The commission has been examining tax practices in several member states, following media reports alleging that some big businesses received significant reductions by way of rulings issued by national tax authorities. Decisions can involve state aid if they provide selective advantages to a specific company or group of companies.
The investigations affecting Apple, Starbucks and Fiat’s finance and trade arm concern tax departments in Ireland, the Netherlands and Luxembourg, with the EC taking particular interest in rulings used to confirm transfer pricing arrangements.
The presence of state aid is excluded if authorities accept the calculation of the taxable basis proposed by a company and insist on a remuneration of a subsidiary or a branch on market terms, reflecting normal conditions of competition.
But a calculation not based on remuneration on market terms could imply a more favourable treatment of the business compared to the treatment other taxpayers would normally receive under the member states’ tax rules.
The EC has reviewed figures used to set the taxable basis in rulings. Preliminary analysis concerns the calculations could underestimate the taxable profit and thereby grant an advantage to the respective companies by allowing them to pay less tax.
George Bull, senior tax partner at Baker Tilly, said the EC’s of matters concerning Apple, Starbucks and Fiat mark a “new challenge to the role of sovereign nations in tax planning by multinational corporations… Companies which have saved tax by complying fully with their agreements with specific countries are unlikely to have to pay extra tax retrospectively, but we can expect to see them paying more taxes in the future.”
He added that the transfer pricing investigations were “a reminder that the UK must be mindful of the EU state aid rules. Whatever the outcome, it is clear sovereign nations will be as much in the firing line on international tax avoidance as the companies they wish to attract to their shores.”
