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Apple Tax Ruling: Here's What Tim Cook & Ireland Have to Say
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Apple Inc.(AAPL - Free Report) has been making headlines over the last couple of days owing to the Irish tax issue. In a ruling this Tuesday, the European Commission said that Apple will have to pay $14.5 billion (and interest) in taxes to Ireland.
The European Commission alleged that Apple received undue tax benefits so far in Ireland, violating EU state aid rules. Apple inked a deal with Ireland nearly two decades back, which allowed the company to compute taxes only on its sales in Ireland instead of paying taxes on its global sales, per media reports. As such, Apple pays a small portion of taxes to Ireland while a major portion goes to the U.S. treasuries as Apple claims that most of its research and development (R&D) is done in the U.S. office.
Media reports even state that the U.S. government is taking initiatives to repatriate the tax that Apple paid to the European Union.
Per the latest updates, both Ireland and Apple intend to appeal against the European Commission’s ruling.
What Does Ireland Say?
Ireland is considered a tax haven as it is known for giving waivers to companies in return for job creation and economic development in the region. Not only Apple, other major tech companies like Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) , Facebook , HP, Dell, IBM and others have their operations or even European headquarters in the region.
Though Ireland’s economy will tremendously benefit from over $14.5 billion received in taxes from Apple, it does not bode well for the company as it puts in stake the jobs generated. This ruling may set a precedent for other companies and might even lead some of them to alter their base. This is a serious concern, especially if we consider Brexit.
The response to this ruling in the country has been mixed with several influential people willing to appeal against it. Per reports, the country’s finance minister Michael Noonan “disagreed profoundly” with the ruling against Apple.
While the country’s cabinet members ponder over the line of action, the government has adjourned the cabinet till Friday when a decision will likely be reached. The country does have another couple of months to make an appeal.
Apple’s Response
Tim Cook in an open letter has stated that “The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don't owe them any more than we've already paid.”
Apple defended itself by saying that as most of its core work, R&D, takes place in California, the maximum share of its profit is taxed in the U.S. Though the issue remains to be settled, Cook affirmed that he plans to continue investing in Ireland.
Bottom Line
The tax issue is far from being resolved at present. Though Apple has the resources to pay the tax amount, it will weigh on its bottom line. Moreover, it will likely increase concerns about growth of the Irish economy.
Meanwhile, Apple is gearing up for its key event this month where it is expected to launch the iPhone 7 (and start a new growth cycle).
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Apple Tax Ruling: Here's What Tim Cook & Ireland Have to Say
Apple Inc.(AAPL - Free Report) has been making headlines over the last couple of days owing to the Irish tax issue. In a ruling this Tuesday, the European Commission said that Apple will have to pay $14.5 billion (and interest) in taxes to Ireland.
The European Commission alleged that Apple received undue tax benefits so far in Ireland, violating EU state aid rules. Apple inked a deal with Ireland nearly two decades back, which allowed the company to compute taxes only on its sales in Ireland instead of paying taxes on its global sales, per media reports. As such, Apple pays a small portion of taxes to Ireland while a major portion goes to the U.S. treasuries as Apple claims that most of its research and development (R&D) is done in the U.S. office.
Media reports even state that the U.S. government is taking initiatives to repatriate the tax that Apple paid to the European Union.
Per the latest updates, both Ireland and Apple intend to appeal against the European Commission’s ruling.
What Does Ireland Say?
Ireland is considered a tax haven as it is known for giving waivers to companies in return for job creation and economic development in the region. Not only Apple, other major tech companies like Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) , Facebook , HP, Dell, IBM and others have their operations or even European headquarters in the region.
Though Ireland’s economy will tremendously benefit from over $14.5 billion received in taxes from Apple, it does not bode well for the company as it puts in stake the jobs generated. This ruling may set a precedent for other companies and might even lead some of them to alter their base. This is a serious concern, especially if we consider Brexit.
The response to this ruling in the country has been mixed with several influential people willing to appeal against it. Per reports, the country’s finance minister Michael Noonan “disagreed profoundly” with the ruling against Apple.
While the country’s cabinet members ponder over the line of action, the government has adjourned the cabinet till Friday when a decision will likely be reached. The country does have another couple of months to make an appeal.
Apple’s Response
Tim Cook in an open letter has stated that “The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don't owe them any more than we've already paid.”
Apple defended itself by saying that as most of its core work, R&D, takes place in California, the maximum share of its profit is taxed in the U.S. Though the issue remains to be settled, Cook affirmed that he plans to continue investing in Ireland.
Bottom Line
The tax issue is far from being resolved at present. Though Apple has the resources to pay the tax amount, it will weigh on its bottom line. Moreover, it will likely increase concerns about growth of the Irish economy.
Meanwhile, Apple is gearing up for its key event this month where it is expected to launch the iPhone 7 (and start a new growth cycle).
Apple currently has a Zacks Rank #3 (Hold).
APPLE INC Price and Consensus
APPLE INC Price and Consensus | APPLE INC Quote
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Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>