Unpacking the Consequences of EU’s Record-Breaking $14.5B Ruling Against Apple

The headlines today are dominated not just by tech news, but international affairs as well, pivoting on the pivotal drama unfurling between the tech giant Apple, the Republic of Ireland, and the European Union. The conflict at the heart of the matter: the European Commission has slammed Apple with a staggering order to pay around €13b ($14.5b or 5.7tr Naira) in back taxes it alleges have been dodged illegally over the years. This matter complicates matters in the Republic of Ireland, a popular harbor for tech behemoths like Microsoft and Facebook.

The EU Position
The EU maintains that two of Apple’s entities – Apple Sales International and Apple Operations Europe, sidestepped tax liabilities by recording their international sales through Irish offices, instead of the countries where the products originally sold. By doing this it alleges Apple took advantage of its preferential tax deal with the Irish government, thereby paying lower taxes. A clear illustration of this alleged imbalance, the EU points out, is that Apple Sales International raked in around $22b in profit in 2011, but only paid $56m in taxes. Critics say this is unfair, particularly given that other companies, often local, who aren’t making as much as Apple, end up paying more in taxes.

Apple and Ireland: The Counter Punch
Apple CEO Tim Cook, in his letter addressing the controversy, confidently asserts that the allegations have no legitimate basis. He maintains that Apple did not decide to avoid the taxes, and that the charges were something Ireland was entirely aware of and has decided to appeal against.

“The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process…,” writes Cook, passionately defending the company’s innocence. He reiterates Apple’s commitment to tax compliance, and stresses that the company pays substantial taxes in countries where they’re registered to do business, especially the United States and Ireland.

Michael Noonan, the Irish Finance Minister, coming to Apple’s defense, said in a statement that Apple had complied with its tax obligations and did not receive special treatment. “It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment.”

In the grand economic scheme, Ireland would be happier to invest in long-term employment for its citizens, which currently number at 6,000 under Apple’s fold, as opposed to pocketing the proposed $14b in taxes. This approach makes sense as these jobs, by way of tax collection, fund government programs. Established 36 years ago with just 60 employees, Apple’s Irish operations have come a long way, and who knows how far they can go in the next 36 years?

Possibility of an Apple Exodus to the United Kingdom?
In the hypothetical scenario that Ireland loses the appeal and Apple is forced to foot the bill for an issue largely caused by the Irish government, could we foresee a potential relocation of Apple to a non-EU single market nation like Britain? The possibility remains a matter of speculation and conjecture given the massive cost that a relocation of this magnitude entails.

Is the EU Playing Favorites?
The EU is raising eyebrows with its ongoing investigations of other big American companies like Amazon, McDonald’s, and Google, in addition to Apple. All this poses the question – is the EU strategically penalizing American giants to prop up its own rivals? Perhaps the answer lies in the old saying – follow the money.

Who Bears the Burden?
In the face of this feud, the likely losers are the major stakeholders: the EU, Ireland and the United States. The EU which is witnessing an economic crisis and political turmoil, the last thing it wants is to lose jobs, especially after the recent exit of the United Kingdom from the Union. Ireland, on the other hand, has not only jobs, but also huge financial stakes hanging in the balance. A $14b financial vortex in the system could spell disaster with around 6,000 jobs on the line. As for the United States, it could see a significant dent in the Federal budget as it often rescues American companies, as explained by Samual Burke, CNN’s tech correspondent who also mentioned that the US Treasury Secretary Jacob Lew condemned the EU ruling.

Apple itself, however, is also not immune. With its recent dip in iPhone sales, preserving its financial reserves is of paramount importance. As a consequence, we may well see all involved parties directed by necessity towards the negotiating tables in the coming months, or even years.

While the world watches this high stakes drama unfold, as an Apple customer there is little reason to worry. After all, Apple doesn’t expect this to affect its groundbreaking operations for the foreseeable future.
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