$14.5B tax hit in Ireland small potatoes for Apple
Penalty is just 6% of iPhone maker’s total cash, investments
Apple’s tax policy caught up with it Tuesday after the European Union demanded $14.5 billion to be repaid after a decade of lucrative tax breaks in Ireland.
A blow that big could sink many companies, but it’s a drop in the bucket for Apple.
A tax repayment of $14.5 billion would wipe out the entire year’s profits of 487 companies in the Standard & Poor’s 500, individually.
Apple isn’t most companies, though. It can easily afford to pay back the money.
For Apple, the $14.5 billion fine amounts to a mere 6% of its cash and investments of $232.4 billion as of June.
Apple generates nearly four times more than the size of the tax penalty in free cash flow in just one year, making this $14.5 billion hit a little more than a financial annoyance.
Apple paid an effective tax rate of 1% on its European profits in 2003 and as little as 0.005% in 2014, according to a report to cli- ents from Credit Suisse to clients co-authored by analyst Kulbinder Garcha. Investors wonder what the loss of this lucrative tax shelter will mean for profits going forward, which is the more important consideration at this point. “The implications of this ruling remain unclear and difficult to determine,” according to the Credit Suisse report. Taxes could suddenly become a more important line item to Apple. The company was able to reduce its tax load using a variety of “complex entities” such as Apple Sales International and Apple Operations Europe, Credit Suisse says.
Credit Suisse estimates that Apple’s effective tax rate should have been roughly 5% higher than it was. Apple’s effective tax rate over the past 12 months has been 25.6%.
Investors seem to be taking the decision in stride. The stock was down less than 1% at $105.92 in early afternoon trading, but closed at $106, down .77%.
Perhaps investors figure Apple can appeal its way out of making the entire repayment.
“We believe Apple will not likely pay this entire amount as both Apple and Ireland have stated that they will appeal the ruling,” the Credit Suisse report says.