By Tom Fairless
BRUSSELS--European Union regulators will explain on Tuesday why
they believe that tax deals granted to Apple Inc. and Fiat SpA
violated EU law, an EU spokesman confirmed on Monday, marking the
next formal step in the bloc's drive against alleged tax avoidance
by multinationals.
The European Commission, the EU's central antitrust authority,
opened formal investigations in June into whether tax deals granted
to Apple in Ireland, Fiat's finance arm in Luxembourg and Starbucks
Corp. in the Netherlands amounted to illegal state support for the
companies.
The commission will publish its so-called opening decisions in
the Apple and Fiat cases on Tuesday, explaining why it believes
that tax deals agreed on between the companies and the governments
in question amounted to illegal state aid, the spokesman said.
"We have doubts that [the companies] may have been granted
selective treatment, preferential treatment, compared to what
another company" would have received under the countries' general
tax laws, the spokesman said.
Apple, Fiat and other interested parties will have a month to
respond to the decisions once they are published in the EU's
Official Journal, which will take place in "a few weeks," the
spokesman said.
The regulator isn't yet ready to publish its opening decision in
the Starbucks investigation because negotiations with the Dutch
government over which information to release publicly are taking
longer, the spokesman added.
An Apple spokesman pointed to comments by the company's chief
financial officer, Luca Maestri, that "there's never been any
special deal, there's never been anything that would be construed
as state aid." The company said in June that it "pays every euro of
every tax that we owe."
A spokeswoman for Fiat had no comment, and Starbucks didn't
respond to requests for comment.
A spokesman for the Irish government said it is "confident that
there is no breach of state-aid rules" in the Apple case. Ireland
"has already submitted a formal response to the commission earlier
this month, addressing in detail the concerns and some
misunderstandings," he said.
The decision to examine the tax deals through the lens of the
region's state-aid rules, a first for the European Union, means the
commission could eventually demand that the companies return any
unpaid taxes, tax experts said. It wasn't clear how large these
sums would be.
The publication will shed light on the EU's investigation into
alleged illegal sweeteners offered to multinationals in several EU
countries, which is understood to have been under way for more than
a year.
EU competition chief Joaquín Almunia has said the investigation
could be broadened. It has already covered Ireland, Luxembourg, the
Netherlands, Belgium and the British territory of Gibraltar.
At issue are the comfort letters, known as tax rulings, sent by
governments to multinationals to give clarity on how a specific tax
will be calculated. These would be illegal if they gave selective
advantages to some companies.
This week's expected moves are a formal step aimed at giving
interested third parties--such as Apple and Fiat, which aren't
themselves under investigation--a chance to comment, said Martina
Maier, an antitrust lawyer with McDermott Will & Emery in
Brussels.
The published documents are unlikely to contain confidential
information such as the sums of money involved, Ms. Maier said. But
they will shed light on the reasoning behind the commission's
decision to open the investigations, she said.
While the companies themselves aren't under investigation, their
input is being sought because they would be required to return any
unpaid taxes.
The investigation will focus on "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 companies can use transfer pricing to minimize their
tax bills.
While not illegal, such arrangements could violate EU rules if
tax authorities allowed specific companies to charge prices
internally that didn't reflect market conditions.
In the three cases under investigation, the commission is
concerned that national tax authorities allowed the companies
concerned to underestimate their taxable profits, thereby granting
them an unfair advantage over competitors, Mr. Almunia said in
June.
Mr. Almunia is to leave his post at the end of October and will
be succeeded by former Danish Economy Minister Margrethe
Vestager.
The commission will base its decision in Apple's case on
guidelines on transfer pricing established in 2010 by the
Organization for Economic Cooperation and Development, a club of
rich countries, a person familiar with the matter said.
The move came after earlier efforts by the EU to crack down on
tax avoidance and tax evasion made painfully slow progress and
yielded little. Despite much hand-wringing by some politicians over
Ireland's low corporate tax rate, tax policy remains largely in the
hands of national governments, which can veto EU decisions.
Write to Tom Fairless at tom.fairless@wsj.com
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