Issues Facing Multinationals After Apple’s Tax Headlines

Apple in Ireland

This week Apple has taken a blow from the European Commission as the EU demands Apple pay their withstanding taxes to Ireland to the tune of about 14.5 billion US dollars. While Apple would be the one with a large bill, the focus lies heavily on the Irish government for what the EU defines as selective treatment or creating a special benefit for an individual or company. However, Ireland refuses to claim the taxes. Why?

By accepting the $14.5 billion Ireland will put at risk its reputation for being a cheap and stable market in which to perform business. As of 2014, Ireland had $350 billion or 311 billion euros of foreign direct investment which was 165% of GDP. Despite what is sure to be a costly fight with the European Commission, Ireland can not afford to lose these large investors. This, in effect, will damage Ireland’s relationship with the many multinationals functioning there such as Facebook and Google who have their European headquarters in the country.

Apple & the Big Brother

Apple CEO, Tim Cook, has issued a clear letter addressing Europe’s Apple community stating that the opinion issued by the European Commission has no factual basis as Apple pays the taxes it owes. The company continued to say that as nearly all of Apple’s R&D (research and development) is performed in California the vast majority of their profits are taxed within the US. This year Apple is lined up to spend about $10 billion on R&D increasing their research spending by about 30% from 2015. The letter concluded by drawing attention to proactive rather than retroactive lawmaking and by committing to further investment in Ireland and the European market.

Why has the US government supported Apple in this fight? For some time there has been conversation regarding the repatriation of profits being made abroad. While bringing the era of parking money offshore to an end would be beneficial for the US, allowing Apple to pay the sum would potentially add to the federal deficit. Additionally, Washington has stated its concern regarding the European Commission encroaching on US Government Jurisdiction. However it seems that not only the US is getting involved.

Bigger Fish to Fry

This is only the beginning of much more to come – governments worldwide have been struggling with how to tax the intangible multinationals and now the conversation has been opened. The question is; will these multinationals be forced to pay for their previous agreements or will rulings move from the current period forward?

If you would like to discuss the R&D Tax Incentive further, please do not hesitate to contact one of Swanson Reed’s offices today.

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