The European Union has ramped up its scrutiny of multinational corporations in recent years. From tax cases to antitrust investigations, the world’s largest tech companies have faced record-breaking fines.
One of the most recent high profile cases was a $15 billion tax charge levied against Apple Inc. (NASDAQ: AAPL). The EU accused the company of evading taxes through a special deal with the Republic of Ireland.
In a landmark decision, an EU court has cleared Apple of any wrongdoing.
Apple’s Situation Isn’t Unique
Apple has its European headquarters in Ireland, where it enjoys a low tax rate, sometimes paying less than 1% on its revenue.
Multinational companies can pay taxes for the entire EU in the country where they base their operations. Ireland is attractive for large corporations because it offers low tax rates. Even with rates close to 1%, the nation of just 4.8 million can generate significant revenue to allocate towards social services, infrastructure, and other national interests. With a lucrative system, Ireland attracts investment that stimulates its economy.
In 2016, the EU Commission said that Apple’s tax deal with Ireland was illegal. However, the EU General Court ruled this week that the Commission had failed to demonstrate that there was “an advantage” derived from the relationship between Apple and Ireland.
The General Court, which is the second-highest in the EU, directly criticized the Commission saying that it was wrong to state: “had been granted a selective economic advantage and, by extension, state aid.”
Both Apple and the Irish government were happy with the ruling. Ireland said that it had offered no special treatment to Apple. Tim Cook, Apple’s CEO, was frank earlier in the case, saying that it was “total political crap.”
Good News for Apple Investors
$15 billion in back taxes isn’t pocket change. By avoiding this hefty bill, Apple has also avoided potential fallout with investors. Even better is the fact that this ruling ensures Apple can continue to operate in the EU through its Irish hub, with a low tax rate secured for the years to come.
With tax efficiency, the company will have more financial resources to return to shareholders and expand its business. As it stands today, It continues to be one of the most compelling tech stocks on the market, with plenty of opportunity for growth, even considering the current health crisis.
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