EU Officially Launches Probe Into Irish Tax Dealings with Multinationals Like Apple

The European Union's (EU) European Commission (EC) officially launched a probe into tax dealings member countries Ireland, Luxembourg, and the Netherlands have with multinational corporations like Apple Inc., Starbucks Corporation, and Fiat Finance & Trade SA. According to Bloomberg, the EC is investigating whether or not tax breaks offered to corporate subsidiaries in these countries constitute illegal state aid.

Apple in Europe

Apple in the EU

Word of the probe leaked on Tuesday, but the EC made its plans public on Wednesday. Joaquin Almunia, the EU’s competition commissioner, said in a press briefing that, "We need to fight against aggressive tax planning."

"Aggressive tax planning" appears to be a euphemism for corporate structures that allow Apple and other large multinational companies to shelter earnings from taxation in the regions where those earnings were generated. Apple, for instance, pays more than a 26 percent tax rate in the U.S. for U.S. earnings, but paid just 3.7 percent on International earnings in fiscal 2013.

At the heart of the EC's probe is whether tax deals offered to these companies are secret sweetheart deals not available to other companies. If so, they could constitute illegal state aid in violation of EU regulations. All of the parties involved deny that this is the case.

For its part, Apple told Bloomberg, “Apple pays every euro of every tax that we owe. 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."

Fiat was a bit more circumspect when it said, "[Fiat] has no reason to believe that any favorable treatment was contemplated by the tax authorities of Luxembourg in issuing such tax ruling, because in fact no such treatment was ever received."

Similar to the U.S. before the Civil War of 1860, the European Union has strong member states and a weak federal framework. EU countries are often competing against each other to lure businesses to their borders. In the case of Ireland, that country has had taxation laws in place for decades that make it a favorite for multinationals doing business in the region.

Whether or not it's illegal, however, is another story.

In a related note, the U.S. Senate has recently been weighing a tax holiday for U.S. companies that would allow them to repatriate offshore money to the U.S. at a much lower tax rate than the 35 percent they are ordinarily subject to.