UPDATED: European Commission to investigate Apple's tax arrangements

Competition Commissioner Joaqin Almunia to announce probe into what US has previously called "the Holy Grail of tax avoidance"

The European Commission is about begin a formal investigation into Apple's tax arrangements in Ireland, The Netherlands and Luxembourg.

The announcement of the investigation into the firm behind the iPhone and iPad was made today by Competition Commissioner Joaquin Almunia.

"In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes," he said.

"Under the EU's state aid rules, national authorities cannot take measures allowing certain companies to pay less tax than they should if the tax rules of the Member State were applied in a fair and non-discriminatory way."

A European Union inquiry into Apple's tax arrangements comes after a report by a US Senate congressional committee, which claimed last year that Apple avoided paying $9bn in taxes during 2012 alone by taking advantage of offshore loopholes.

This reportedly included storing intellectual property in Ireland, rather than at its California headquarters, thus allowing the firm to avoid billions in taxes.

Ireland has denied giving special treatment to Apple, but US Senator Carl Levin has described the structure of the arrangement as "the Holy Grail of tax avoidance".

Nonetheless, Irish Prime Minister Edna Kenny told journalists that he was confident in the legality of Ireland's tax system, although he declined to comment on whether the European Commission was set to launch an investigation.

"We believe that our legislation ... is very strong and ethically implemented and we will defend that very robustly," said Kenny.

Algirdas Šemeta, Commissioner for Taxation, argued that the investigation is needed in order to ensure a level playing field for businesses.

"Fair tax competition is essential for the integrity of the Single Market, for the fiscal sustainability of our Member States, and for a level playing field between our businesses. Our social and economic model relies on it, so we must do all we can to defend it."

If the investigation does find Ireland to have offered 'illegal' state support to Apple, the company could be forced to cough up the taxes it is alleged to have avoided paying.

However, previous probes into tax avoidance have not seen the Commission push for this, owing to an assumption that the companies did not know they were acting illegally.

Apple has previously expressed confidence that it does not undertake any illegal activity when it comes to tax. "We pay all the taxes we owe - every single dollar," Apple chief executive Tim Cook told US Senate committee investigators last year.

Apple is not the only technology firm to have come under the scrutiny of the European Commission. A three-year antitrust investigation into Google came to an end earlier this year.

Starbucks and Fiat Finance and Trade also also set to be investigated by the Commission.