Apple accused of illegal tax deals with Ireland’s government

The European Commission is going to accuse Apple Inc. of exploiting illegal tax deals with Ireland’s government for over twenty years. The Cupertino-based iPhoner make could be facing a multi-billion euro fine when the European Commission unveils details of an investigation.

According to the Commission’s preliminary findings, Apple, which has been paying less than 2% corporate tax for several years in Ireland, benefited from illegal state aid after arranging deals behind closed doors with Irish officials.

The Commission says it will publish its preliminary decision in the Apple case early this week, probably on Monday. It will explain why it believes that two tax agreements between the US computer, software and mobile phone maker and the Irish government – in 1991 and 2007 – were considered as illegal forms of state aid.

Apple has been in Ireland for 34 years. The company says the agreements set up with the Irish government are not illegal. In an interview with the Financial Times, Apple’s chief financial officer, Luca Maestri, said “There’s never been any special deal, there’s never been anything that would be construed as state aid.”

Joaquín Almunia, the EU’s competition chief, says the investigation could span much wider into several other countries.

In US Senate hearings in 2013, it was revealed that Apple had moved billions of dollars in profits out of the United States into subsidiaries around the world. The hearings sparked an investigation by European authorities. Apple insists it has paid all taxes due worldwide.

EU crackdown on corporate tax avoidance

The European Commission launched a probe into Apple’s tax affairs in Ireland dating back to 1991. According to the EU’s competition commissioner, Joaquín Almunia, the investigation is part of a wider crackdown on multinational tax avoidance. (Tax avoidance is legal, while tax evasion is illegal).

The EU crackdown is going through several multinational’s tax affairs with a toothcomb, including those of Starbucks, Apple and Fiat Finance and Trade.

The Commission found that Apple managed to strike a special tax treatment deal with the Irish government, meaning it was able to enjoy business conditions that other companies could not, which would have given the company an uncompetitive edge.

According to EU legislation, regulators can claw back illegal state aid to companies from as far back as ten years ago. Apple is likely facing a multi-billion euro settlement to put its European affairs back in order.

Apple Inc., which prides itself in its squeaky-clean corporate image, risks having a giant stain on it if it is found that its $137.7 billion in offshore cash was built on the back of special favors with the Irish government.

A spokesman for the Irish government said “(The Irish government is) confident that there is no breach of state-aid rules. (The Irish government) has already submitted a formal response to the commission earlier this month, addressing in detail the concerns and some misunderstandings.”