THE European Commission has begun an investigation into allegations that Ireland offered special tax deals to US multi-nationals, it is understood.
The probe follows massive controversy in the United States, Britain, Germany and France about the low taxes charged on US companies with operations in Ireland.
A finding against Ireland could mean that the companies would have to pay back billions of euro in taxes and would be a massive blow to Ireland’s ability to keep and retain foreign investment.
Attracting foreign companies to this country has been the cornerstone of successive government’s economic policy - but it angers other countries that lose billions in unpaid taxes.
Earlier this year, Apple told a US committee that it had a special deal with Ireland, sparking outrage in Washington.
The European Commission’s competition authorities have now asked the governments here and in Luxembourg and the Hague to explain how tax rulings work.
Europe has strict rules on state aid to encourage competition through out the EU.
The present investigation is an informal probe but could mark the beginning of a formal probe of the Commission identifies wrong doing.
Multi nationals are particularly fond of a tax arrangement that uses Irish and Dutch tax laws and enables many companies to pay virtually no tax. The government in the Hague has promised a crackdown on some tax laws and is due to begin hearings on the issue today.
The G20 meeting in Moscow last weekend saw leaders once again promise to crackdown on tax avoidance but the news of the probe is the first concrete step to tackle the problem.
The Department of Finance was not immediately available to comment in detail on reports of the European Commission probe, but said it was not aware of any investigation.
Earlier this year, Taoiseach Enda Kenny and Trade Minister Richard Bruton insisted that former Irish governments did not reach a secret tax deal with Apple - which is the single largest foreign employer in Ireland but manages to pay taxes that equal around 2pc of profits.
Thomas Molloy and Ailish O’Hora