EU reveals details of Apple tax probe

Questions over Apple's (AAPL) tax strategies deepened Tuesday as European Union antitrust officials published details about a decision to open an in-depth investigation into the tech giant's tax agreements with Ireland.

In a letter to Irish authorities on the European Commission's website, regulators wrote: "The Commission is of the opinion that through those rulings the Irish authorities confer an advantage on Apple."

"That advantage is obtained every year and on-going, when the annual tax liability is agreed upon by the tax authorities in view of that ruling," added the letter, which was sent to Irish authorities in June and included details from a 2013 U.S. Senate report that raised questions about Apple's tax deal with Ireland.

Ireland tax rulings granted to Apple between 1991 and 2007 "do not comply with the arm's length principle" of the Organization for Economic Cooperation and Development, the letter stated. That statement refers to how prices for goods and services are set between unrelated parties.

The letter noted that tax treatment of an Apple subsidiary located in Ireland was negotiated in 1991 by the two sides, rather than decided by market conditions.

"This ruling was applied by Apple for fifteen years without revision," the letter said. "Even if the initial agreement was considered to correspond to an arm's length profit allocation ... the open-ended duration of the 1991 ruling's validity calls into question the appropriateness of the method agreed between Irish Revenue and Apple to arrive to that allocation in the latter years of the ruling's application, given the possible changes to the economic environment and required remuneration levels."

The letter raised the potential that Ireland could be required to collect hefty back tax payments from Apple. However, the missive does not constitute evidence that Apple's tax deals with Ireland violated EU law over state aid for taxation purposes.

The investigation is ongoing, said Antoine Colombani, European Commission spokesman for competition, who added the regulator had no further comment at this time.

Apple shares closed up fractionally at $100.75 Tuesday.

"Apple is proud of its long history in Ireland and the 4,000 people we employ in Cork," the company said in a statement Tuesday. "Our success in Europe and around the world is the result of hard work and innovation by our employees, not any special arrangements with the government. Apple has received no selective treatment from Irish officials over the years. We're subject to the same tax laws as the countless other companies who do business in Ireland."

Additionally, Apple' Chief Financial Officer Luca Maestri, told the Financial Times Monday that "there's never been any special deal, there's never been anything that would be construed as state aid," from Ireland.

In a statement issued Tuesday, Ireland's Department of Finance said the European Commission action "is simply the next normal procedural step in the state aid investigation process. At this stage, the Commission has not formally decided that there is state aid, only that it is formally examining this case."

Apple and Irish authorities will receive about a month to respond once the letter is formally published in the EU's official journal over the next few weeks, the commission said.

Separately, the European Commission said it is also examining Dutch taxation of U.S. coffee giant Starbucks (SBUX) on the company's operations in the Netherlands, as well as Luxembourg's tax treatment of Fiat Finance and Trade.

Starbucks in June said it had complied with all tax rules and laws. Similarly, Fiat said it was confident the European Commission would confirm the legitimacy of the tax ruling the Italy-based automaker had received from Luxembourg tax authorities.

The formal European Commission investigation follows the May 2013 U.S. Senate report that said Apple, world-famed for its iPhones and iPads, had also become synonymous with corporate tax avoidance.

The report by the Senate Permanent Subcommittee on Investigations concluded that Apple avoided tens of billions of dollars in U.S. taxes on its income by shifting the funds through a global web of offshore entities — including three that had no tax residency in any nation.

The three entities were run by some of Apple's top executives at the company's Cupertino, Calif., headquarters. But they were located, on paper, in Ireland, though they in some cases had no employees. One entity reported $30 billion in net income for 2009-2012, yet filed no corporate tax return and paid no income taxes to any government during those years, the report said.

Another Apple affiliate received $74 billion in sales income over four years, but paid taxes "on only a tiny fraction of that income," the report said.

"We pay all the taxes we owe, every single dollar," Apple CEO Tim Cook testified at a hearing convened by the subcommittee in response to the report.

The European Commission letter to Irish officials shows that European Commission investigators had received and studied the subcommittee's findings.

"For more than a year, Apple and the Irish government have denied the company's special tax deal in Ireland that dramatically reduces Apple's global tax bill. The EU's investigation has confirmed what my Permanent Subcommittee on Investigations showed: that there is such a deal," Sen. Carl Levin, D-Mich., the panel's chairman, said Tuesday. "The public now has the minutes of negotiations on the agreement that Apple claims didn't exist, an agreement that won Apple a tax rate of less than 1%."