EU says Ap­ple must re­pay € 13 bln over ‘il­le­gal’ Ir­ish tax deal

Financial Mirror (Cyprus) - - FRONT PAGE -

The Euro­pean Com­mis­sion said on Tues­day that US tech gi­ant Ap­ple must re­pay EUR 13 bln ($14.5 bln) in back taxes af­ter rul­ing that a se­ries of Ir­ish tax deals were il­le­gal, ac­cord­ing to EurAc­

“Two tax rul­ings granted by Ire­land have ar­ti­fi­cially re­duced Ap­ple’s tax bur­den for over two decades, in bridge of EU State Aid rules,” EU Com­pe­ti­tion Com­mis­sioner Mar­grethe Vestager said at a press con­fer­ence.

Vestager said that Ap­ple’s “se­lec­tive treat­ment” in Ire­land gave the US tech gi­ant a “sig­nif­i­cant ben­e­fit com­pared to other com­pa­nies.”

Both rul­ings al­lo­cated the prof­its be­tween Ap­ple’s Ir­ish branch, which is sub­ject to the nor­mal 12,5% Ir­ish cor­po­rate tax, and the com­pany’s head of­fice, Vestager ex­plained.

“Or I should say so-called head of­fice,” she con­tin­ued, “be­cause it only ex­isted on pa­per: it has no employees, it has no premises, and it has no real ac­tiv­i­ties”.

This al­lowed Ap­ple’s head of­fice to sub­ject to no tax, whether in Ire­land else­where, Vestager said.

In­deed, un­til 2013, Ir­ish law al­lowed for “state­less com­pa­nies” which are not sub­ject to tax­a­tion. And a “vast ma­jor­ity of prof­its” gen­er­ated by Ap­ple was at­trib­uted to the so­called head of­fice.

“The ef­fec­tive tax rate fell to a bare 0.005% by 2014,” Vestager said, ex­plain­ing that Ap­ple only paid EUR 50 per mil­lion in prof­its.

The Ir­ish govern­ment re­acted straight af­ter the an­nounce­ment, say­ing that Ire­land has “no choice” but to ap­peal against the Euro­pean Union rul­ing.

“The de­ci­sion leaves me with no choice but to seek cab­i­net ap­proval to ap­peal the de­ci­sion be­fore the Euro­pean Courts,” Fi­nance Min­is­ter Michael Noo­nan said in a state­ment.

Ap­ple also is­sued a state­ment, say­ing that they will “ap­peal and we are con­fi­dent the de­ci­sion will be over­turned.“ be or

The Euro­pean Com­mis­sion had opened in­ves­ti­ga­tions against Ap­ple in June 2014, al­leg­ing the com­pany of hav­ing been given spe­cial tax ben­e­fits for set­ting up shop in Ire­land. Both Ap­ple and the Ir­ish De­part­ment of Fi­nance have de­nied the ex­is­tence of a spe­cial tax deal which could potentially have vi­o­lated EU state aid rules. Ap­ple isn’t the only U.S. com­pany un­der scru­tiny for al­legedly dodg­ing taxes in the EU, which is why the U.S. Trea­sury De­part­ment has now weighed in on the mat­ter. In a re­port pub­lished on Wed­nes­day, the Trea­sury al­leges the EU’s gov­ern­ing arm of ini­ti­at­ing “dis­pro­por­tion­ately more in­ves­ti­ga­tions against U.S. com­pa­nies” and ex­presses “strong con­cerns” about the Com­mis­sion’s cases against Ap­ple, Star­bucks and other U.S. com­pa­nies. Ap­ple is cur­rently hold­ing more than $200 bln in for­eign prof­its out­side of the United States. Bring­ing that money back to the United States would re­quire them to pay the cor­po­rate tax rate of 35% plus state taxes which would amount to more than $80 bln. Ap­ple CEO Tim Cook has pub­licly spo­ken out against this rule, say­ing that his com­pany wouldn’t repa­tri­ate any of its for­eign cash un­til “there‘s a fair rate”. (Source: Statista)

Five years ago, on Au­gust 24, 2011, Tim Cook was ap­pointed CEO of Ap­ple af­ter Steve Jobs had re­signed due to his ill­ness. So how did Tim Cook mas­ter the chal­lenge of suc­ceed­ing Ap­ple’s charis­matic co-founder and long-time CEO? Af­ter all, Jobs was one of the most iconic busi­ness fig­ures of the past cen­tury and is still cred­ited with Ap­ple’s un­prece­dented rise fol­low­ing the iPhone’s re­lease in 2007.

Given that the most ob­vi­ous in­di­ca­tor of how a pub­lic com­pany such as Ap­ple has fared in the eyes of pri­vate and in­sti­tu­tional in­vestors is its share price, we de­cided to take a look at the com­pany’s stock per­for­mance un­der Cook’s watch.

At first glance, Ap­ple’s share­hold­ers have noth­ing to com­plain about: ad­justed for splits and div­i­dends, any­one who in­vested in Ap­ple stock the day of Cook’s ap­point­ment has more than dou­bled his ini­tial in­vest­ment. That’s only half of the story though, as our chart il­lus­trates: in­vest­ing in Ap­ple’s com­peti­tors Google, Mi­crosoft and Ama­zon yielded sig­nif­i­cantly larger re­turns over the same pe­riod. Con­sid­er­ing that the Nas­daq Com­pos­ite In­dex, a mar­ket- cap­weighted in­dex of roughly 2,500 com­pa­nies, also dou­bled since 2011, Ap­ple just barely beat the mar­ket, which isn’t great for a com­pany of Ap­ple’s am­bi­tions.

One thing that most ex­perts agree on is that Ap­ple’s ex­treme growth over the past decade wouldn’t have been pos­si­ble with­out Tim Cook, who ex­cels in lo­gis­tics and sup­ply chain man­age­ment. Now that the iPhone busi­ness is slow­ing down though, he’s go­ing to have to prove that he can do more than main­tain and build on Steve Jobs’ le­gacy. He needs to find his own “one more thing”.

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