The European Commission has announced an investigation into Irish corporate tax arrangements with Apple.

The formal investigation will look into whether tax breaks used to attract international companies here have breached the EU rules on State aid.

It is believed that tax arrangements at tech giant Apple are set to be a focal point of the investigation.

The probe, which is also examining Luxembourg and The Netherlands, was announced by the EU competition chief Joaquin Almunia.

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

The Taoiseach Enda Kenny has told the Dail that Ireland is cooperating fully with all investigations.

The Commission says it has been investigating certain tax practices in several member states, following media reports alleging some companies have received significant tax reductions by way of "tax rulings" issued by national tax authorities.

"Tax rulings as such are not problematic: they are comfort letters by tax authorities giving a specific company clarity on how its corporate tax will be calculated or on the use of special tax provisions" the Commission says.

But it adds that "tax rulings may involve State aid within the meaning of EU rules if they are used to provide selective advantages to a specific company or group of companies".

'We pay every euro of every tax we owe'

In a statement the Department of Finance said it is confident there was no State aid breach and that it will defend its position "vigorously".

But the statement adds "We understand that the European Commission has a responsibility to investigate potential breaches of state aid rules, so we will continue to do everything we can to ensure that they have the full information they require".

And Apple has said "Apple pays every euro of every tax that we owe. Since the iPhone launched in 2007, our taxes in Ireland have increased tenfold".

EU countries have promised to crack down on loopholes which have allowed companies such as Amazon, Starbucks and Apple to pay tiny amounts of tax on their European operations.

Last November, the Commission unveiled plans to prevent firms from setting up 'letter-box' companies in different countries to reduce their tax bill.

The EU executive estimates that tax avoidance and evasion in the EU cost about €1 trillion each year.

Apple was revealed to be paying a tax rate of 3.7% on their profits made outside the US by designating its office in Cork as the firms' international headquarters.

The issue was most recently raised by the Governor of California, Jerry Brown, who criticised Enda Kenny and Irish law over the system, making reference to tax payments by Apple in Ireland.

The Apple CEO Tim Cook has previously insisted that the company has no special tax rate here.

Peter Vale is a tax partner at Grant Thornton. He told Newstalk Lunchtime he is hopeful Ireland will come out clean from this investigation.

Ireland was labelled a tax haven by observers after Mr. Cook appeared before a US Senate hearing in 2013. A US Senate report said the iPhone maker avoided paying tax by setting up companies in Ireland which paid little or no tax on sales of the company's products outside America.

The report by the Senate Permanent Subcommittee on Investigations said Apple had agreed tax a rate of just 2% with the Irish government. That is well below the corporation tax rate of 12.5%.

However, the Organisation for Economic Co-operation and Development (OECD) has insisted that Ireland is not a tax haven.

An expert from the body told the Oireachtas Finance Committee previously that Ireland is not on its list of countries which allow deliberate tax-dodging.

While Sinn Féin Finance Spokesperson Pearse Doherty has said the expected announcement by the EU Commission of a formal investigation "is a result of the government adopting a 'head in the sand' attitude to Ireland’s Corporation Tax dealings with Apple".

The EU Commission will appear before the Finance Committee's sub-committee on Global Taxation today where they are expected to be questioned further on this issue.