The commission will look into allegations that Apple received selective tax treatment from the Irish authorities which helped it to significantly lower the overseas tax burden.
Per Reuters, since 2013, EU’s competition authority was already investigating corporate tax arrangements in several member-nations including Ireland.
The current focus of the investigation will be on tax laws that are alleged to favor certain companies like Apple and its peers Google (GOOGL) and Microsoft (MSFT).
Nations like Ireland, Bermuda and the Cayman Islands are considered tax haven for U.S.-based companies that are required to pay a hefty corporate tax of 35.0% on domestic income.
In comparison, Ireland’s statutory tax rate is only 12.5%, which makes it an attractive destination for enterprises looking to lower their tax burden.
The difference in tax liability also lies on the way it is calculated in the U.S. and Ireland. In the U.S., enterprises pay tax as per their state of incorporation, while Ireland decides on the location of the people managing the company.
Although Apple has three Irish subsidiaries, its business activities are managed by U.S.-based employees. Hence, Apple need not pay taxes in either of the countries.
Tax controversies are not new for Apple. Last year, United States Senate’s Permanent Subcommittee on Investigations unveiled a report that alleged Apple of avoiding tax in the U.S. on at least $74.0 billion of profits between 2009 and 2012.
The report claimed that Apple used multiple subsidiaries in Ireland to avoid this tax liability.
The report also claimed that Apple used transfer pricing to send profits earned in the U.S. to its Irish subsidiaries.