European authorities have launched a probe into whether Apple’s(s aapl) corporate income tax arrangements in Ireland are legal, or whether they qualify as unlawful state aid.
Ireland is the base of choice for many large tech firms’ international operations, largely because of a low corporation tax rate and favorable laws that enabled complex avoidance tricks like the legendary Double Irish arrangement (set to be shut down starting in January 2015 after U.S. lawmakers complained about Apple paying nearly no corporation tax anywhere).
The particular issue here is the “tax rulings” that were issued by the Irish authorities in Apple’s favor, confirming that the iPhone maker could continue with its transfer pricing schemes. If these rulings are found to specifically advantage the company, or indeed a group of companies, then they rulings may be seen as illegal state aid.
The European Commission has also opened similar probes in regard to Luxembourg and the carmaker Fiat, and the Netherlands and coffee peddler Starbucks(s sbux). It said in a statement:
If tax authorities, when accepting the calculation of the taxable basis proposed by a company, insist on a remuneration of a subsidiary or a branch on market terms, reflecting normal conditions of competition, this would exclude the presence of state aid. However, if the calculation is not based on remuneration on market terms, it could imply a more favourable treatment of the company compared to the treatment other taxpayers would normally receive under the Member States’ tax rules. This may constitute state aid.
Preliminary investigations suggest the Irish Apple rulings “could underestimate the taxable profit,” hence the “in-depth” investigation that commenced on Wednesday.