Tax Bill No Reason to Sell Apple Stock
Big deal is the first phrase that comes to mind.
Indeed, even as European authorities demanded that Apple Inc. (NASDAQ:AAPL) pay close to a dozen billion euros in back taxes. Apple stock barely budged. Yes, it dropped a little at the open but, not even two hours later, AAPL stock gained half a percentage point.
In Cupertino, California, it’s business as usual and the U.S. Treasury Secretary has even expressed support for Apple. Rather than being outraged at the fact that Apple was paying close to zero dollars in taxes—you and I probably pay more—the U.S. Department of the Treasury accused the Europeans of “activism” against American companies. In other words, Apple can just about do no wrong. To prove it, the U.S. Treasury did not scold Apple, as much as it asked Congress to reform the tax system.
Apple Will Lose Neither Sleep Nor Money
And what is the chance of that happening any time soon? If Hillary Clinton wins the election in November—thanks to Silicon Valley liberals, general Democrats, and mainstream Republicans—what incentive would she have to reform the tax system? Should Donald Trump win, would he go against American interests to promote fairer international ones? We would sooner see Trump divorce the lovely Melania while asking Clinton to be Miss Universe.
Given that nobody will alter the status quo, except for those pesky European authorities, Apple will keep raking in the cash. That’s not just figurative. In the case of AAPL stock, cash holdings are quite literal. Apple has a few hundred billion dollars and change, and the $14.5 billion it owes is barely a tenth of its European cash, which is a fraction of the company’s bigger stash. (Source: “Understanding Apple’s tax mess: Why Apple owes $14.5 billion, and why Ireland doesn’t want it,” BGR, August 30, 2016.)
Indeed, Apple is like a hydra of wealth and power; it has multiple heads, one of which stays in Ireland. The other heads and the body cover the globe. Just two of the Apple hydra’s heads manage the fiscal aspects of its business. They are “Apple Operations International” (AOI) and “Apple Sales International” (ASI). None of these heads have had to lose sleep about paying any tax to any government, despite earnings of some $30.0 billion and revenues of $74.0 billion. They did not have to waste time figuring out how to use TurboTax, because they didn’t even file taxes in Europe.
The official EU excuse, however, is that Apple’s failure to pay taxes has basically altered the rules of the market. It has made it harder for competitors to compete, while unloading the burden of unpaid taxes on average taxpayers. Yet, in fairness, Apple was operating within the law. It admitted to paying less than the ordinary rate of 12.5%, confirming it to be even lower than 2%, thanks to an agreement with the Irish government.
Apple Simply Plays the Tax Game Smarter Than Others
Apple has taken advantage of the asymmetry of the different national tax laws, using its different heads. In short, the Cupertino-based company runs operations such that nobody can quite pinpoint where management and control actually occur. Indeed, the system operates as such: costs are concentrated in countries with high taxation while revenues, in the form of intellectual property and sales rights, end up in Ireland.
If Apple has made a mistake, it is the one of arrogance. But should investors care about the kind of arrogance that delivers solid earnings? Apple launched its aggressive tax scheme at least a decade ago, which led the company to hide $ 100.0 billion in Ireland, earned without paying taxes—legally— anywhere in the world, according to the U.S. Senate. (Source: “Apple, Congress and the Missing Taxes,” The New York Times, August 30, 2016.)
So the point after the scandal is that, for AAPL stock, there is no scandal. Apple could even get away with it. Ireland is afraid of losing its tax-haven reputation by accepting the payment. If the U.S. Congress gets together to discuss offshore taxes, it won’t be to single out Apple in order to recoup some over $2.1 trillion that Americans have parked offshore.
The Bottom Line on Apple Stock
The next big move for Apple stock will come shortly, on September 7 to be exact. On that date, the company will likely launch new key products, including the “iPhone 7.” This is the highly anticipated model that many expect will relaunch the Apple smartphone machine. Investors look forward to this latest edition of the iconic iPhone brand, said to have no earphone jack—hence possibly water resistant, thinner, and lighter.
What’s not to like about Apple stock? Just unencumbered earnings and a bright future. For more stocks to like, consider the following report, “Will Tesla Make You Rich Like the Ford Shareholders of 1903?” Click here now to get the full story.