EU Probes Tax Affairs of Apple, Starbucks -- 2nd Update

By Dow Jones Business News, 
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By Tom Fairless

BRUSSELS--European Union regulators said Wednesday they have opened formal investigations into the tax practices of Apple Inc., Starbucks Corp. and a Luxembourg-based division of Fiat SpA, as part of a broader probe into whether multinational companies have enjoyed sweeter tax deals than are permitted under EU law.

The European Commission, which acts as the region's central antitrust authority, said it would examine whether generous tax arrangements granted to global corporations in three EU countries--Apple in Ireland, Fiat Finance and Trade in Luxembourg and Starbucks in the Netherlands--amounted to illegal state aid.

"In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes," said EU antitrust chief Joaquín Almunia.

The commission has requested information from two other EU countries--the U.K., in relation to Gibraltar, and Belgium--as part of the same broad investigation, Mr. Almunia said.

At issue are so-called transfer-pricing arrangements, under which companies can redistribute profit within a group by charging for goods or services sold by one subsidiary to another, typically located in different countries. Experts say transfer pricing can help companies to minimize their tax bills.

Mr. Almunia said that such arrangements could violate EU rules on state aid if certain companies are allowed to engage in transfer pricing that doesn't reflect market terms.

The commission is concerned that in the three cases under investigation, tax deals that were blessed by national authorities "could underestimate the taxable profit and thereby grant an advantage to the respective companies," it said.

"We have serious doubts about these three decisions" by national tax authorities, Mr. Almunia said. If the commission finds the companies did indeed benefit from state aid, they could be asked to pay it back, he said.

The commission has opened formal infringement proceedings--which could ultimately lead to fines--against Luxembourg for not responding fully to its requests for information on its tax regime, Mr. Almunia added.

"We have received very, very small parts of the information we need and requested," Mr. Almunia said. "The quality of the information received is not the best one."

Ireland's government said it was confident that its tax arrangements with Apple didn't breach EU rules. Ireland will defend all aspects of the case vigorously, if necessary in the European courts, a spokesperson said.

The Dutch government said it was confident that its tax arrangements with Starbucks didn't breach EU laws. A spokesman for Luxembourg declined to comment.

Apple denied that it had received selective treatment from Irish officials, and said its taxes in Ireland had increased tenfold since 2007. "Apple pays every euro of every tax that we owe," the company said in a statement.

Fiat and Starbucks couldn't immediately be reached for comment.

In a parallel investigation, the commission has also requested information from nine EU countries relating to their use of patent boxes, under which national authorities levy lower tax rates for income from intellectual property, Mr. Almunia said.

The probes are part of a broader crackdown on tax evasion and tax avoidance in Europe in the wake of the region's financial crisis, as politicians aim to boost depleted national coffers and soothe voter anger over cuts to welfare programs.

Write to Tom Fairless at tom.fairless@wsj.com

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This article appears in: Commodities

Referenced Stocks: AAPL , SBUX

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