The European Union has pulled out some heavy artillery in the battle against multinational corporations that employ complex offshore structures to reduce their tax bills.
The EU’s competition regulator announced today that it will investigate whether Apple (AAPL), Starbucks (SBUX), and Italy’s Fiat (F:IM) received illegal state aid in the form of tax breaks granted by European governments. “We need to fight against aggressive tax planning,” EU competition chief Joaquin Almunia said at a press conference in Brussels.
Efforts to combat multinational tax avoidance have mainly focused on closing loopholes that enable companies to pay little or no tax. But Europe is now raising the ante, because under EU rules, a company that’s found to have received illegal state aid can be forced to repay it. Potentially big money is involved: A U.S. investigation last year found that Apple paid only 2 percent tax on $74 billion in sales by booking profit through a subsidiary in Ireland.
The EU probe targets tax arrangements used by Apple in Ireland, Starbucks in the Netherlands, and Fiat Finance in Luxembourg. Regulators said they also were investigating corporate tax treatment in several other EU countries.
In statements today, Apple and Starbucks, as well as the Irish and Dutch governments, denied that the U.S. companies had received any special treatment. Fiat declined to comment, and Luxembourg authorities didn’t immediately respond to requests for comment.
Could Europe really claw back billions in unpaid taxes from these multinationals? Howard Liebman, a partner at the law firm of Jones Day in Brussels, says it’s unlikely. For one thing, many of the arrangements under scrutiny have been used to reduce corporate taxes owed to the U.S. In Europe, governments wouldn’t have legal standing to demand repayment of money that wasn’t owed to them.
Even if the investigation finds that companies have underpaid their European taxes, Liebman says he doubts the EU would try to collect the money. “There’d be a lot of political pressure by certain member states not to do that,” he says. “They’d be afraid it would chase companies out of Europe. That’s my best guess.”
Adding to the political sensitivity of the issue, Luxembourg—which has a reputation as a European tax haven—is the home of Jean-Claude Juncker, who’s now a candidate for European Commission president.