Changes to Irish tax law a 'minor issue' for Apple, Barclays says
Though Ireland is set to close its tax loopholes in January of next year, the changes won't be applied to Apple and others until 2020, resulting in a "relatively neutral" outcome for AAPL shareholders, investment firm Barclays said this week.
Apple's headquarters in Cork, Ireland, via Flickr user Sigalakos.
Analyst Ben A. Reitzes characterized the upcoming changes to close the so-called "Double Irish" tax loophole as a "minor issue" for Apple. With the effect coming in 2020, he said the temporary relief balances against slightly lower long-term earnings power.
Last year Apple paid $1.1 billion on foreign taxes on $30.5 billion in overseas pretax earnings. That resulted in a tax rate of about 4 percent, thanks to tax loophole laws in Ireland.
The Irish statutory tax rate, however, is 12.5 percent. If that rate were to be applied to Apple's foreign pretax earnings, Reitzes estimates that the company's earnings would come down by about 7 percent.
With the "Double Irish" issue apparently addressed, Reitzes seemed more concerned as to whether the European Union would decide to impose a fine on Apple and others for its tax strategies. The legislative arm of the EU announced last month that it believes Apple received special treatment from Ireland in the form of tax agreements that could be viewed as illegal.
Ireland's finance minister announced this week that it would end the "Double Irish" accounting scheme starting in 2015 for new companies. Those currently leveraging the strategy -- including Apple, Google and others -- will have until 2020 to find another country with favorable tax provisions.
The "Double Irish" provision allows companies with operations in Ireland to route profits to another Irish subsidiary, which has tax residency in a tax-free nation, such as the Cayman Islands.
In Ireland, only companies that are managed and controlled in Ireland are considered tax residents. Apple Operations International is incorporated in Ireland, but is not managed and controlled there.
After the EU investigation into Apple was announced earlier this year, the company responded this week and denied dodging EU tax laws or receiving special treatment from Irish authorities. The iPhone maker said it "pays every euro of every tax" that it owes.
Barclays has maintained its "overweight" rating for AAPL stock with a price target of $116.
"Supported by margin upside, large stock repurchases and a growing dividend, we believe Apple's shares can outperform in a very tough tape," Reitzes wrote.
Apple's headquarters in Cork, Ireland, via Flickr user Sigalakos.Analyst Ben A. Reitzes characterized the upcoming changes to close the so-called "Double Irish" tax loophole as a "minor issue" for Apple. With the effect coming in 2020, he said the temporary relief balances against slightly lower long-term earnings power.
Last year Apple paid $1.1 billion on foreign taxes on $30.5 billion in overseas pretax earnings. That resulted in a tax rate of about 4 percent, thanks to tax loophole laws in Ireland.
The Irish statutory tax rate, however, is 12.5 percent. If that rate were to be applied to Apple's foreign pretax earnings, Reitzes estimates that the company's earnings would come down by about 7 percent.
If Apple were to pay the full Irish tax rate of 12.5 percent, Ben A. Reitzes of Barclays estimates it would bring earnings down by 7 percent.
With the "Double Irish" issue apparently addressed, Reitzes seemed more concerned as to whether the European Union would decide to impose a fine on Apple and others for its tax strategies. The legislative arm of the EU announced last month that it believes Apple received special treatment from Ireland in the form of tax agreements that could be viewed as illegal.
Ireland's finance minister announced this week that it would end the "Double Irish" accounting scheme starting in 2015 for new companies. Those currently leveraging the strategy -- including Apple, Google and others -- will have until 2020 to find another country with favorable tax provisions.
The "Double Irish" provision allows companies with operations in Ireland to route profits to another Irish subsidiary, which has tax residency in a tax-free nation, such as the Cayman Islands.
In Ireland, only companies that are managed and controlled in Ireland are considered tax residents. Apple Operations International is incorporated in Ireland, but is not managed and controlled there.
After the EU investigation into Apple was announced earlier this year, the company responded this week and denied dodging EU tax laws or receiving special treatment from Irish authorities. The iPhone maker said it "pays every euro of every tax" that it owes.
Barclays has maintained its "overweight" rating for AAPL stock with a price target of $116.
"Supported by margin upside, large stock repurchases and a growing dividend, we believe Apple's shares can outperform in a very tough tape," Reitzes wrote.
Comments
Barclays bough some AAPL I see.
Barclays bough some AAPL I see.
For as long as I have been buying Apple products (9 years), the financing option for Apple hardware has been a Barclays credit card. Unless this is a different Barclays with the same name.
What is your tax on the tax haven in your country?
It's Jimmy Barclays. He lives down the block. Wanted to pick up a few shares then catch a football game. ????
I knew that was coming, it more of a change for any new company wishing to set up business not Apple, they being grandfather for a period of time.
Apple and hundreds of other large multinationals that have created similar corporate structures to apply the same tax strategies in Ireland. The early birds get the choicest worms.
The EU is far more parasitic and insidious than the companies they are dogging.
How? These benefits come as nothing more than cosmetic point of presence staffing being restructured.
Further Irish IP law extends significant advantages to Apple above and beyond even the Caymans and their special economic zone. For instance Irish patent protection is available for up to 20 years and be renewed indefinitely and provides automatic domestic and international registration. Uniques Apple designs can be protected up to 25 years and copyright protection is automatic, not registration required. For IP reasons alone I suspect Apple will stay rather than leaving.
Because Apple has been paying Ireland at a tax rate of as little as .005% on earnings according to official records, a 3% effective tax rate (special IP tax zone) as you suggest would hugely benefit Ireland and not really hurt Apple either. Win Win.
Funny how you shout-demand fair play regarding GTAT's demise and then proceed to espouse a piratical style low rent attitude to fair taxation shopping. :no:
If you mean the money made it onto Apple's balance sheet, then yes. As far as I know, Apple has stated that foreign earnings are still offshore whereas you are insinuating that it's in US secret accounts which would mean illegal repatriation. Is that what you are saying?
No they're not secret accounts at all, Apple has mentioned them before. They're technically owned by the stateless AOI (ASI), with the money controlled by Braeburn, Apple's Nevada-based investment arm. It's not at all uncommon for foreign countries and corporations to keep their money in the relative safety of US-based accounts. All perfectly legal.
According to testimony in last years congressional look at Apple's tax strategies:
"AOI has no owner but Apple. AOI has no physical presence at any address. In thirty years of existence, AOI has never had any employees. AOI’s general ledger, its major accounting record, is maintained at Apple’s U.S. shared service center in Austin, Texas. AOI’s finances are managed by Braeburn Capital, an Apple Inc. subsidiary in Nevada. Its assets are held in a bank account in New York."
Apple and hundreds of other large multinationals that have created similar corporate structures to apply the same tax strategies in Ireland. The early birds get the choicest worms.
but not all of them have the same sweatheart deal as Apple has, their total deal dates back 80's as we know. This is why EU has focused on Apple and Ireland, the other company are not getting the same benefit as Apple.
I wonder if they'll receive the same treatment.
The EU is far more parasitic and insidious than the companies they are dogging.
Anything specific reason?
Anything specific reason?
Yes. This precise issue. Ireland will not benefit from this EU peer pressure.