Back payments are only the beginning; Europe needs to work together to stamp out tax avoidance in the future

Back tax repayments, even those in the billions, will not put a stop to the egregious level of corporate tax dodging

Europe has long been a most fertile of hunting grounds for multinational companies and their tax lawyers. These predators – Amazon, Apple and Facebook among the best known – play by a new set of rules, shifting profits between one member state and another, smarter, faster and tougher than any governmental tax authority. They have returned to corporate headquarters (those not built out of paper) with some stunning prizes: it was revealed last month that Facebook paid less UK tax in 2014 than the average British citizen. But public disgust has produced more than vituperative comments on corporate social media accounts. It would be an exaggeration to say that the predator is about to become the prey, but European authorities are finally showing some teeth.

The European Commission is expected to rule today on the “sweetheart” tax deals of Fiat and Starbucks. The companies face a requirement to pay around £110m and £15m in back taxes to the duchies of Luxembourg and the Netherlands respectively. Yet that would only be the curtain-raiser. Investigations into Apple and Amazon may produce repayments rising into the billions. Under the guidance of the steely EU Competition Commissioner Margrethe Vestager, a serious blow is expected to land on the tech giants, whatever the final level of the settlement. Apple has warned investors that a “material” impact on its finances could lie ahead. Legal challenges will follow, to put it mildly. But the Commission has built an impressively robust case.

The investigations dig into whether the tax deals between countries such as Ireland and companies such as Apple amount to illegal state aid. EU member states are allowed to offer companies a variety of legal inducements to set up shop within their borders – such as loans below the market rate, or even straightforward cash injections. The question is whether preferential tax deals of the kind agreed between Apple and the Dublin government tip over into an illegal form of state subsidy, and the answer appears to be yes. The Commission claims, for example, that Apple was explicitly allowed to shelter profits from tax (it paid between £1.5m and £15m within Europe in 2011) in return for keeping jobs in Ireland. Never before has Brussels questioned the legality of such arrangements, which lie to the extreme end of traditional (and thoroughly legal) tax competition. To do so shows considerable imagination, not to say chutzpah.

The governments of Ireland, Luxembourg and the Netherlands claim they have done nothing wrong, but they are on the back foot, as are their multinational partners. It has been suggested that the Commission’s ruling may be watered down so that Apple is censured but not compelled to hand over any of the taxes it avoided through its “sweetheart” deal. This would be a mistake. An empty warning shot will not be enough to deter this kind of corporate abuse in future: in all cases the “big bazooka” of recovery orders must be employed.

Looking to the future, the OECD this month put forward measures that will improve international transparency, through its Base Erosion and Profit Shifting project. The European Commission is heaving itself once more into the pursuit of a policy that would prevent multinational tax avoidance by compelling companies to calculate their taxable income for the entire EU, rather than member state by member state. Back tax repayments, even those in the billions, will not put a stop to the egregious level of corporate tax dodging. They must count as no more than a start.