The European Commission, European Union’s executive branch, has ordered Ireland yesterday to collect back taxes from Apple Inc. amounting to 13 billion euros or $14.5 billion as the competition enforcer ruled that the tech giant was granted illegal tax breaks by the Irish government. EU Competition Commissioner Margethe Vestager questioned how anyone might think an arrangement that allowed Apple to pay a tax rate of 0.005%, as Apple’s main Irish unit did in 2014, is fair.
"Tax rulings granted by Ireland have artificially reduced Apple's tax burden for over two decades, in breach of the EU state aid rules. Apple now has to repay the benefits," Vestager told a news conference.
The EU says that illegal tax breaks investigation centered on two tax rulings that Ireland gave Apple, it began in 1991 and renewed in 2007. However, they can only order recovery of illegal state aids from 2003, where Apple paid an effective corporate tax rate of 1% on its European profits, to 2014 where it was down to 0.005.
“If my effective tax rate would be 0.05 percent falling to 0.005 percent -- I would have felt that maybe I should have a second look at my tax bill,” she told reporters.
For decades, businesses like Apple that generate significant revenue around the globe flocked to Ireland, the Netherlands, and Luxembourg, where they counted on amenable fiscal regimes to reduce their tax, even if they had minimal operations on the ground. So what Apple did was every time their products are purchased in London, Paris, or Milan, the company books the profit at a subsidiary in the Irish city of Cork called the “head office,” which only existed on paper, has no employees, don’t own any premises, and has no real activities. Said head office was subject to no tax in Ireland or elsewhere.
Why Ireland Doesn’t Want the Back Taxes
The amount of said taxes is more than twice the country’s entire 2015 corporate tax take, equivalent to $3,000 for every man, woman, and child. It could cover the entire annual Irish health budget, build about 100,000 homes for the poor, or pay off a chunk of the nation’s debt. So why doesn’t the government want the pot of gold?
On Tuesday, Irish Finance Minister Michael Noonan vowed to fight the commission’s ruling, saying that, "There is no economic basis for this decision. It's bizarre and it's an exercise in politics by the Competition Commission."
He kept firm that Ireland didn’t do any wrongdoing and no sweetheart deal was ever agreed. He also said that companies didn’t have responsibility for taxes and they are opening a back door through state aid to influence tax policy in European countries when the European treaties say tax policy is a matter for sovereign governments.
“It’s all about our reputation,” said Peter Vale, tax partner at Grant Thornton Ireland in Dublin. “It’s not the number that is a problem per se, it is the implication that Ireland engages in some kind of funny business around tax, the idea that we give special deals and so on.”
Some people are speculating that the Irish government is afraid that by taking the money, they would drive away present or future investments to their countries. They lowered tax rates to attract investors in the first place.
Effects to APPL Shares
Apple Inc. said that it would pass an appeal, and although they had more than $200 billion in cash and readily marketable securities at the end of June, they still warned that the case is likely to drag out for years in EU and possibly Irish courts. What could this mean for the company’s stocks?
On August 30, it traded from 106.49 to 105.56. Range is above its 50-day (101.95), 100-day (100.42) and 200-day (102.61) SMA. Although it is considerably lower than yesterday’s trade, it seems that on August 19 its 50-day and 100-day SMA has changed positions, indicating an uptrend. However, looking at how close the 50-day and 200-day SMA are, the uptrend is weak, it could only just be a correction and would return to a downtrend soon.
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