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EC to investigate tax affairs of Apple, Starbucks and Fiat

July 2014

The tax affairs of Apple, Starbucks and Fiat are now to be formally investigated by the European Commission. All have been accused of avoidance, largely by switching to more favourable tax locations.

Apple, the huge US electronics multinational, was said by the Senate last year to have received special treatment in the Irish Republic, where it has tax residency.

The investigation will determine whether parts of the Apple group charged others excessively for goods and services to minimise tax liability. Commission rules insist on charges being at the market rate.

In the Irish Republic Apple paid only 1.9% tax on its $37bn (£22bn, €27.3bn) overseas profits in 2012. Both Apple and the Dublin government deny any special arrangement.

The Starbucks inquiry will scrutinise the coffee multinational’s tax deal with the Netherlands government, through which it can transfer money to its Dutch sister company in royalty payments.

Starbucks, whose tax policy has recently been attacked fiercely, responds that it complies with all relevant rules, laws and guidelines, and the Netherlands finance ministry says its system is “robust”.

Fiat, the Italian vehicle manufacturer, which has so far escaped intense interest, cuts tax bills by raising debt, mainly bonds, and lending on sums to companies within its group – and by being based in Luxembourg. The group answers that it follows applicable codes of conduct.

In Britain, the central London store of the pharmacy, healthcare and beauty products chain Boots faced demonstrators accusing the company of avoiding £1.21bn ($2bn, €1.51bn) in tax since 2007.

Protesting charity activists and health services professionals claimed this could have covered the annual starting salary for 85,000 NHS nurses or two years’ prescription costs.

Len McCluskey, general secretary of the Unite union, said: “Boots has abused the trust of the British public and needs to come clean on its tax affairs, and act more responsibly towards this country.”

The protesters say a private equity company used the interest due on the £9bn borrowed to buy Boots in 2007 to cut its tax by 95%. On purchase the Boots headquarters was moved from Britain to low-tax Switzerland and is owned by a Gibraltar-based company.

Boots, now Alliance Boots, replies that it complies with tax laws wherever it operates, and pays more tax today than in 2007. Last year its tax payments rose more than 40%, and its UK corporation tax totalled £90m, up from £64m.

Demonstrators targeted Vodafone shops too. UK Uncut, a group proposing alternatives to the government’s austerity policies, claimed Vodafone had paid no corporation tax since 2011 when it sold its shares in the US mobile phone group Verizon for £84bn.

The company’s US stake is owned by a Netherlands holding company and is tax-exempt in Britain, but £3.2bn will be paid in the US. However, Vodafone says that even if the US shareholding was held in Britain there would be no gains tax. A 2002 agreement exempts companies from liability on profits from selling at least a 10% stake in other companies held for more than a year.

Margaret Hodge, the parliamentary public accounts committee chairman, said: “We need assurances that [the tax authority] has crawled over this deal and done its damnedest to make sure taxpayers receive the highest amount of this sudden windfall.”

The UK tax authority estimates it misses £35bn every year, £8.8bn from big business. Some observers believe £100bn is lost through avoidance and evasion.

Europe | Tax Avoidance

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