The European Commission has opened three investigations to examine whether decisions by tax authorities in Ireland, The Netherlands and Luxembourg with regard to the corporate income tax to be paid by Apple, Starbucks and Fiat Finance and Trade, respectively, comply with the EU rules on state aid. The opening of the investigation gives interested third parties, as well as the three countries concerned, an opportunity to submit comments.

The Commission has been investigating under EU state aid rules certain tax practices in several European countries following media reports alleging that some companies have received significant tax reductions by way of "tax rulings" issued by national tax authorities. Tax rulings as such are not problematic: they are comfort letters by tax authorities giving a specific company clarity on how its corporate tax will be calculated or on the use of special tax provisions. However, tax rulings may involve state aid within the meaning of EU rules if they are used to provide selective advantages to a specific company or group of companies.

Tax rulings are used in particular to confirm transfer pricing arrangements. Transfer pricing refers to the prices charged for commercial transactions between various parts of the same group of companies, in particular prices set for goods sold or services provided by one subsidiary of a corporate group to another subsidiary of the same group. Transfer pricing influences the allocation of taxable profit between subsidiaries of a group located in different countries.

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 European tax rules. This may constitute state aid.

The Commission will examine if the three transfer pricing arrangements validated in the following tax rulings involve state aid to the benefit of the beneficiary companies:

- the individual rulings issued by the Irish tax authorities on the calculation of the taxable profit allocated to the Irish branches of Apple Sales International and of Apple Operations Europe;

- the individual ruling issued by the Dutch tax authorities on the calculation of the taxable basis in the Netherlands for manufacturing activities of Starbucks Manufacturing EMEA BV;

- the individual ruling issued by the Luxembourgish tax authorities on the calculation of the taxable basis in Luxembourg for the financing activities of Fiat Finance and Trade.

The Commission has reviewed the calculations used to set the taxable basis in those rulings and has concerns that they could underestimate the taxable profit and thereby grant an advantage to the respective companies by allowing them to pay less tax.

EC said that Luxembourg, contrary to The Netherlands and Ireland, only provided a limited sample of the information requested, which included the ruling for Fiat Finance and Trade, but not the complete information. It has therefore initiated infringement proceedings against Luxembourg by issuing letters of formal notice.

Apple said it has not received any selective tax treatment from the Irish authorities, while the Irish government said it was confident that it has not breached state aid rules will defend its position vigorously.

Apple in the United States entered into deals with the Irish subsidiaries whereby the Irish units received the rights to certain intellectual property that were subsequently licensed to other group companies, helping ensure almost no tax was reported in countries such as Britain or France.