Apple Inc. (NASDAQ:AAPL) and Starbucks Corporation (NASDAQ:SBUX) are facing pressure from the EU in the form of a tax investigation. The EU has launched an investigation stating that the US based companies got Tax benefits from the Irish government.
Apple Inc. (NASDAQ:AAPL) says that didn’t get any favorable treatment from Ireland and even the Irish government says that same, while the EU has launched an official investigation to look into this issue. Similarly an investigation has been launched on Starbucks Corporation (NASDAQ:SBUX) for breaching state laws to save taxes in the Netherlands.
So the issue is not about the US Corporations that are re incorporating in many of these countries to gain tax benefits and transfer the money back to US without paying many taxes. This is all about companies moving the Intellectual property into the countries out of US and running a lot of things from those countries. Apple Inc. (NASDAQ:AAPL) has about 4000 employees in Ireland. But as a whole, these investments in countries like Ireland definitely save taxes for companies like Apple Inc. (NASDAQ:AAPL) and Starbucks Corporation (NASDAQ:SBUX).
On CNBC, Jim Cramer saw the case of Apple Inc. (NASDAQ:AAPL) different than Starbucks Corporation (NASDAQ:SBUX). He sarcastically mentioned that the CEO of Starbucks would tell anyone that all they to is to be compliant. He has visited a lot of companies launching their plants in Ireland. The reason according to Cramer for companies to move to the tax haven is not just to saves taxes. Ireland has the highest percentage of doctorates, highly educated and unemployed youth as compared to the whole of the EU and hence the tech companies like Apple Inc. (NASDAQ:AAPL), Intel Corporation (NASDAQ:INTC) move to the country and not just saving taxes. Here is what Cramer said:
“Many companies in technology move to Ireland. I went to an Intel opened up plant there, I went to an EMC plant there and they move there because workforce is the most over educated and least employed.”
In another conversation, Catherine Boyle said that the tax investigation will have to go back 10 years to take a look into the deal that was struck between the Irish government and Apple Inc. (NASDAQ:AAPL). However, Boyle felt that this is not just about the tax benefits of a few companies and the EU is looking into the way countries like Ireland and Netherlands have been handling their tax affairs. Moreover, this investigation would hurt the recovery of Ireland and impact the investments that come into the country. She also mentioned that she has been getting mixed responses from people in Ireland, where few were concerned that being less competitive in tax structure would hurt the nation’s economic recovery and the rest were of the opinion that being a tax Haven would bring in a lot of jobs but not a lot of $ which is what Ireland currently needs.
Constantin Gurdgiev, professor of finance at Trinity College Dublin, also on CNBC, pointed out that this investigation might just be the beginning of much more to come. Gurdgiev said that the effective tax rate for Apple Inc. (NASDAQ:AAPL) was 3.6% on all income that it earned outside of the United States, which accounts for 60% of its global revenue. The number was even lower in 2012, at a mere 1.9%. Here is what Gurdgiev stated about Apple’s revenue from Ireland:
“In 2009-2012, it is estimated that Apple has channeled about $104 billion through Irish operations.”
He said that the Irish government has provided all the required information complying with the EU investigation unlike Luxembourg which failed to provide the details in the Fiat investigation.
When asked if the EU was correct going after the companies like Apple Inc. (NASDAQ:AAPL) because all the companies state that they abide by the tax laws of a particular country instead of the government that lays such tax laws hurting other countries, Gurdgiev pointed out that the EU cannot technically go after the individual government’s tax arrangement. However, it can investigate the “so called” unfair practices which grant tax benefits to individual companies. So this case of Apple Inc. (NASDAQ:AAPL) and Starbucks Corporation (NASDAQ:SBUX) might just be opening the Pandora’s box.