Apple could face a record fine running into billions of euros if a European Commission (EC) investigation finds the firm benefited from illegal tax deals with the Irish government.
The EC ordered the probe as part of a wider crackdown on multinational tax avoidance after Apple admitted in May 2013 to sheltering $30bn in international profits in Irish subsidiaries.
Apple chief executive Tim Cook also told a US Senate hearing that Apple had struck a deal with the Irish government in 1980 to limit its domestic taxes there to 2%.
But Apple and the Irish government denied breaking any laws or that Apple benefited from state aid.
Details of the probe are to be published this week, but preliminary findings claim Apple benefited from illicit state aid, reports the Financial Times, citing people involved in the case.
The findings of the EC probe are expected to focus on whether Apple alone benefited from special tax treatment in Ireland.
Depending on the probe’s findings, Apple could face a record fine as the EC has powers to recover illegal state aid to companies for a period of up to ten years.
The fine will depend on whether Apple’s 1980 and subsequent 2007 tax agreements with the Irish government stand up to EC scrutiny.
More on tax dodging
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- Government wants suppliers to reveal UK taxes
- Google is tax law compliant and key to UK growth, says Eric Schmidt
- MPs quiz Google over UK tax avoidance
Luca Maestri, Apple’s chief financial officer, has denied that Apple agreed to bring move jobs to Ireland in exchange for preferential tax treatment.
“We know that we didn’t do anything that was against the law,” Maestri told the Financial Times.
“We are very confident that through the investigation it will be shown that there was no selective treatment in our favour at any point in time,” he said.
Ireland is the European base of several major technology companies such as Amazon, Facebook, PayPal and Twitter because of its relatively low corporate tax rate of 12.5%.
The Organisation for Economic Cooperation and Development (OECD) this month began efforts to crack down tax avoidance by multinational companies using complex tax structures.
These structures help companies reduce the tax paid on profits by shifting profits to subsidiaries based in tax havens like Ireland.
In June 2013, the UK led efforts to lobby the OECD for international tax rules to be brought up to date for the internet world.
The move followed a call by the Public Accounts Committee (PAC) for a full investigation of Google’s alleged tax evasion practices in the UK.
The PAC also said it wanted to see multinational companies like Apple, Google and Amazon paying more tax where their customers are located.
G20 leaders subsequently asked the OECD to draw up reforms.
In January 2014, the tech-dominated Digital Economy Group (DEG) called on the OECD to halt reforms.
In an open letter to the OECD, the DEG claimed enterprises using digital communications do not organise their business operations differently as a legal or tax matter.
"We believe that [digital] enterprises operating long-standing business models, subject to established international tax rules, should not become subject to altered rules on the basis that they have adopted more efficient means of operation," the DEG’s letter said.
The 34 OECD nations have since proposed new international measures aimed at forcing companies to report their profits and holdings country-by-country to stop them shielding profits from tax.