Italy has launched an investigation into Apple's tax declarations for 2010 and 2011 after claiming the tech giant hid €1bn from local authorities.
According to two unnamed judicial sources cited by media sources, Milan prosecutors believe Apple hid €853m in taxes in 2011 and €206m in 2010.
"Checks on the size of the tax are under way," said one of the sources.
Authorities believe Apple 'hid' the bumper tax amounts by booking some profits through Irish-based subsidiary Apple Sales International (ASI).
This step would mean Apple lowered its taxable income in Italy and paid competitive corporate tax rates in Ireland.
Apple said in a statement that it "pays every dollar and euro it owes in taxes and we are continuously audited by governments around the world."
"The Italian tax authorities already audited Apple Italy in 2007, 2008 and 2009 and confirmed that we were in full compliance with the OECD documentation and transparency requirements.
"We are confident the current review will reach the same conclusion."
Tax Avoidance Crackdown
In October, Ireland revealed that it planned to make it illegal for a company to have no tax domicile, in a bid to knot tax loopholes in the country.
Apple's complex financial arrangements means it has three subsidiaries in Ireland, where the corporate tax rate is just 12.5%.
Due to the now-closed loophole, these subsidiaries did not appear to be tax-residents of any nation.
According to analysts, Apple has sheltered $40bn from taxation using Ireland's loophole.
Governments around the world are seeking to close tax loopholes following intense public pressure as some of the globe's largest companies are perceived to pay very little tax in comparison to the billions of dollars worth of profits it books.
In the US, Ireland's decision to change its taxation system has received positive feedback from lawmakers.
"Ireland's promise to reform its tax rules to stop multinationals from using Irish subsidiaries to escape or defer paying taxes anywhere in the world is encouraging," said Senators Carl Levin and John McCain in a joint statement.
"Important questions do remain including whether the new rules will continue to allow Irish subsidiaries to dodge taxes by, for example, excluding substantial income from the 12.5% Irish tax rate, calculating taxable income in ways that produce a lower effective tax rate, or simply declaring tax residency in a tax haven with no corporate tax."
Apple has denied using "tax gimmicks" claiming it is one of the highest US taxpayers, having paid $6bn in federal corporate income tax for the 2012 financial year, and expects to pay over $7bn this year.