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The iTaxes Affair


Image source: Hadrian / Shutterstock.com

What's going on?

The European Union ordered Apple to pay €13 billion to the government of Ireland. It claims Apple received illegal tax benefits from Ireland between 2002 and 2014. The amount was way bigger than most observers expected and could pose problems for other US companies operating in Europe.

What does this mean?

The EU says Apple’s low taxes amounted to special treatment from the Irish government, which is illegal under EU law. It’s a claim that Apple and Ireland dispute: both parties are expected to appeal the decision in the courts, where it will likely take years to get sorted out (yes, Ireland, for now at least, is agreeing with Apple that it does not owe Ireland the tax – although it’s a politically contentious topic in Ireland).

Why should I care?

The bigger picture: Europe’s tax environment is becoming a lot less favorable for US companies.

While the scale of this charge far exceeds what’s expected from any other investigation, the same EU department is also investigating McDonald’s, Starbucks (among others) and it signaled that it might investigate Alphabet (Google’s parent company) for their European tax affairs. The US government was critical of the EU’s decision, calling it “unfair” and saying it was bad for Europe’s business environment. Investors, who tend to like stable and predictable laws, might agree.

For the stock: Apple’s operating performance is more likely to be in focus for investors than this tax issue.

Apple is expected to launch the iPhone 7 next week and, for the next few quarters, investors will be moderately obsessed with how many it manages to sell. Apple is trying to shift to more of a services-driven company (think: Apple TV), but the iPhone still accounts for the majority of its revenue and, therefore, its sales command a lot of attention.

Originally posted as part of the Finimize daily email.

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