Commission to launch corporate tax probe into Ireland and others

BRUSSELS - The European Commission is to launch a formal investigation into whether tax breaks used to attract international companies breach the EU’s state aid rules.

The probe, which is likely to target Ireland, Luxembourg and the Netherlands, is set to be announced at a news conference on Wednesday (11 June) by EU competition chief Joaquin Almunia i.

Irish broadcaster RTE on Tuesday reported the launch of an investigation into the arrangements of US-based software giant Apple, but EU officials have also been gathering information on tax deals in Luxembourg and the Netherlands since last autumn.

EU countries have promised to crack down on loopholes which have allowed companies such as Amazon, Starbucks and Apple to pay tiny amounts of tax on their European operations.

Last November, the Commission unveiled plans to prevent firms from setting up 'letter-box' companies in different countries to reduce their tax bills.

But although combating corporate tax avoidance has climbed the political agenda in recent years as governments look at ways to bolster tax revenues lost during the economic crisis, the EU executive estimates that tax avoidance and evasion in the EU cost about €1 trillion each year.

Almunia has previously described the practice of "aggressive tax planning" as going against the principles of the EU's single market and "socially untenable".

"Because of the gaps in national tax laws, many of the largest multinational companies pay very low taxes, and they don't need to break the law to do it," he told the European Competition Forum earlier this year.

Apple was revealed to be paying a tax rate of 3.7 percent on their profits made outside the US by designating its office in the Irish city of Cork as the firms' international headquarters.

Elsewhere, coffee shop giant Starbucks paid UK corporation tax of £8.6 million between 1998 and 2011 despite reaping sales of over £3 billion during that period.

Meanwhile, Amazon and Skype have set up bases in tax haven Luxembourg where their profits are taxed at just 4.5 percent.

"[Some firms] manage to avoid paying their proper share of taxes by reaching out to certain countries and shifting their profits there," said Almunia.

The Irish government has maintained that all foreign corporations registered in the country pay its minimum corporate tax rate of 12.5 percent.

"We believe that our legislation ... is very strong and ethically implemented and we will defend that very robustly," prime minister Enda Kenny i told journalists in Dublin on Tuesday (10 June).

Setting tax codes is one of the policy areas most jealously guarded by national governments in the EU. In 2011 Ireland resisted French and German demands that it increase its tax rates on companies in return for more generous terms to its bailout programme.

The last legislature also saw national ministers kick a Commission plan to establish rules on a common corporate tax base into the long grass.