When the economy of a country is in dire straits and joblessness rears its ugly head and local companies are not doing much to cure the malaise, The government turns to overseas investors to come in and bail them out and in the process, bends over backwards, roll out the red carpet to investors from foreign lands.
When the company happens to be the largest and richest company in the world governments welcome them with open arms offering them all sort of tax breaks and incentives so long as they set up the base and create jobs for the local populace.
Free land or at very subsidized rates to set up plants is offered everything is done to make the rich investors happy.
The giants take advantage of the incentives and tax breaks and set up camp and everything is hunky dory for years with no problems in sight.
However, at times the bubble can burst and serious problems crop up. This is exactly what has happened in Ireland with Apple the computer titan being recently slapped with a humongous back tax bill to the tune of a whopping 13 billion Euros (11 billion dollars).
Ireland, which is a part of the European Union has been accused of providing what amounts to illegal state aid to Apple.
Governed by EU trade laws, Ireland, in clear violation of the EU stipulations made a deal with Apple whereby Apple was charged only 1% tax going down to 0.5 % in 2014 while the usual rate is 12,5 %.
EU laws clearly and specifically states that EU member states cannot give tax benefits to selected companies.
This is a very disturbing and concerning news for the parties involved as well as for trade relations between the United States and the EU for it does not involve a run-of-the-mill company but the behemoth of companies.
The revenue sales and budget of Apple are greater than the Gross Domestic Product (GDP) of most of the developing countries of the world.
The complex investigation took three years to complete and was conducted by the European Competition Commissioner, Margrethe Vestager.
Vestager’s ruling will not go down well for US and EU trade ties with Apple and Ireland have reacted angrily to the judgement.
Apple’s chief executive, Tim Cook, has been blunt in his reaction that the ruling
could have severe adverse effects on the job market as companies would now be reluctant to invest in Europe.
Moreover, more companies will come under scrutiny and their tax dealings probed.
According to the commission, the deal with Apple and the Government between 1991 and 2015 had allowed the US company to attribute sales to a “head office” that only existed on paper and could not have generated such profits.
Apple produces a state of the quality products such as Iphones, Ipads, Ipods, computers, accessories and its quality unequalled, Only Samsung gives them a run for their money.
Their latest products in 2016 are iPhone 7, iOS 10, and new Macbooks.
It is being said that Apple avoided tax on all profits from its multi-billion euros sale of Iphon 7s as profits were booked in Ireland rather in the country of sale.
Apple and Ireland said they intend to appeal against the ruling.
The case may drag on for years but if Apple loses and has to pay it will be a windfall for Ireland and the figure of €13bn plus interest is monumental in the annals of EU tax records.
Irish campaigners called for the windfall to be invested in public housing.
The taxable profits of Apple Sales International and Apple Operations Europe did not correspond to economic reality, the commission said.
Vestager said: “The commission’s investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years.”
Vestager suggested other countries, including the US, might now examine how Apple did business within their borders. These other jurisdictions might then claim a share of the unpaid tax from Apple for the same period. This would reduce the bill owed to Ireland.
However, Tim Cook, Apple’s chief executive, is confident that the company will win the case.
In the 30 years that it has been based in the City of Cork the company generated from 60 to 6000 jobs during this period.
Cook clearly states that the company never asked for special favours or incentives.
Washington will not take matters lightly and may take action against European firms operating in the U.S.A.
The bill in itself is no big deal for Apple as the company sits atop a mountain of cash of more than $ 230 billion in cash and securities held outside the USA.
The Irish government is not interested in collecting the bill and wants the ruling to be reversed because it wants to preserve its status as a low tax base country for overseas companies.
The Irish finance minister, Michael Noonan, said Dublin would appeal against the ruling subject to cabinet approval as the integrity of the Irish tax system is at stake.
This clearly brings to mind that since the EU has so much clout over the affairs of its member states, did Britain do the right thing to leave the union.
The British have their own currency and was always at loggerheads with the EU on major issues. It did not join the Euro family and retained the pound.
The Irish government will hold a cabinet meeting to discuss the fallout of the ruling. The government insists that the ruling will not go down well with other US companies aspiring to invest in the country.
The main opposition party which has a host of ministers serving in the coalition government support the low-tax regime for multinationals because it has created hundreds of thousands of jobs.
Richard Murphy, a tax campaigner and a professor in international political economy at City University in London, said: “This is a great day for the sovereignty of the EU’s nations when it comes to tax. They will now be able to choose their own tax policies knowing another state should not be consciously undermining them when doing so. The Irish state has for too long been committed to tax abuse, unfair competition and secrecy, all of which are designed to undermine fair competition and increase inequality.”
Many will also question that does the EU have the right to impose its stipulations when it comes to the economic well-being of a sovereign state.
It is not well clear which side will prevail according to a US expert Peter Kenny, senior market strategist at Global Markets Advisory Group.
His opinion says that the appeal may be rejected which would be a clear indication that the business and investment landscape for US companies is changing in Europe.
U.S companies have readily invested in Europe because it was an easy way to circumvent a higher US corporate tax code.
The Stock market did not reverberate with ripples of shockwaves and Apple share price,was hardly affected. Shareholders are fully conscious of the magnitude and cash strength of Apple and know very well that their investment is safe.
The US Presidential elections are just round the corner and as Apple is the richest, largest and strongest representative of the economic strength of theUnited States it will certainly come up as a theme on in the campaign trail.
Donald Trump, pursuing his agenda of “ Make America Great again” has already lamented that US companies have gone abroad or outsourced its needs and he will push to bring back them to operate within their own borders .He has said that he will also lower the US corporate tax rate.
His Democratic rival, Hillary Clinton, has also hinted that she might lower the corporate tax rate. She has closer ties to Apple than Trump. Cook held a fundraiser for Clinton last in August and this bodes well for the company.
Apple is such a company that countries around the world would do anything to woo them to set up house in their country. It goes to the credit of the man who built the company Steve Jobs and his partners Steve Wozniak and Ronald Wayne who established the on April 1, 1976, from a garage.
Had Jobs been alive today he would have come up with a solution acceptable to all for the creative genius and innovative thinking he was gifted withstood him apart from his peers.
The ruling by the European Commission is a minor dent for Apple and the amount involved may be described as pittance or paltry or small change.
The reputation of Apple will remain unscathed and as long as they make such high-grade quality products the question of sales slumping is quite unlikely.
It would do the Europeans and The EU well to come to some sort of compromise arrangement or settlement with the company for if you mess with a company like Apple which has improved manifold the economy and job market wherever it has invested, it would not be a prudent move.