A global crackdown on corporate tax avoidance ramped up Wednesday as the European Union launched an investigation to determine whether the tax relationships Apple, Starbucks and Fiat have with several EU nations violate antitrust law.
The probe will specifically address whether decisions made by tax authorities in Ireland, the Netherlands and Luxembourg breached EU rules on state assistance.
"Under the EU's state aid rules, national authorities cannot take measures allowing certain companies to pay less tax than they should if the tax rules of the Member State were applied in a fair and non-discriminatory way," said Joaquín Almunia, the European Commission's competition commissioner, in a statement announcing the investigation.
Apple said the tech giant is "proud to have been doing business in Cork, Ireland, since 1980" and has grown its workforce there to more than 4,000 employees. "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," the company said.
"Apple pays every euro of every tax that we owe. Since the iPhone launched in 2007, our taxes in Ireland have increased tenfold," Apple added.
Fiat Finance and Trade in Luxembourg said it was confident the EU's inquiry will confirm the legitimacy of the tax ruling it received from Luxembourg tax authorities.
Starbucks said, "We comply with all relevant tax rules, laws and OECD (Organisation for Economic Co-operation and Development) guidelines, and we're studying the Commission's announcement related to the state aid investigation in the Netherlands."
Eric Wiebes, state secretary of finance for the Netherlands, said his country would cooperate with the investigation. "I am confident that the ultimate conclusion is that there is no question of state aid and that the agreements with Starbucks ... comply with the OECD guidelines on transfer prices."
Similarly, Ireland's finance ministry said it is "confident that there is no state aid rule breach in this case" and pledged to "defend all aspects (of the investigation) vigorously."
But a May 2013 report by the U.S. Senate Permanent Subcommittee on Investigations concluded that Apple avoided tens of billions of dollars in U.S. taxes on its income by shifting the funds through a global web of offshore entities, including three that had no official tax residency in any nation.
The three entities were run by some of Apple's top U.S.-based executives. But they were located, on paper, in Ireland, where the Senate report said they negotiated a special corporate tax rate of less than 2%.
One of the entities reported $30 billion in net income for 2009-2012, yet filed no corporate tax return and paid no income taxes to any government during those years, according to the report.
Testifying at the Senate panel's hearing on the report, Apple CEO Tim Cook insisted the global tech giant doesn't use tax "gimmicks" and said, "We pay all the taxes we owe, every single dollar."
Michael Collins, Ireland's ambassador to the U.S. at the time, formally disputed the report findings and declared his nation was not a tax haven for Apple. In a letter to the subcommittee, he wrote that Ireland's 12.5% tax on corporate income is set by law, "so there is no possibility of individual special tax rates being negotiated for companies."
Amid questioning of Cook during the hearing, Sen. Carl Levin, D-Mich., the subcommittee chairman, described Apple's drive for lower corporate taxes as "the Holy Grail of tax avoidance."
Levin on Wednesday said the EU investigation "adds momentum to an ongoing global effort to ensure that profitable corporations, which count on governments to provide a host of basic public services, do not shrug off their tax obligations to support those services."
Hjelmgaard reported from London and McCoy reported from New York