Europe says Apple garnered more than 13 billion euro ($14.5 billion) in “undue tax benefits.” By recording all of its European revenue within its Irish subsidiary, Apple managed to “avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market,” the statement reads. Apple CEO Tim Cook argues the Commission is trying to "rewrite Apple's history in Europe, ignore Ireland's tax laws and upend the international tax system in the process."
The pricey settlement the European Commission is seeking certainly raises the attention of other U.S. tech companies being investigated over their tax treatment across the Atlantic, and the forthcoming appeals and arguments could certainly produce changes in corporate tax structures. But for Apple investors the seemingly massive tax bill should be of little concern from a dollars and cents standpoint.
Apple has more than $210 billion in cash sitting offshore. The $14.5 billion hit would be less than 7% of that hoard if Apple elected to just settle the tax bill quietly. Apple and the finance minister of Ireland, the country that the European Commission says is owed the money, have both said they will appeal the decision.
For further context, even with Apple’s sales and profit falling in recent quarters, it takes barely more than three months for the company to generate $14.5 billion in net income and free cash flow.
“We do not view this as a material event for Apple shares,” Citi analyst Jim Suva wrote in a brief note to clients Tuesday, noting that Apple changed its tax structure in 2014, rendering any concerns about ongoing exposure to penalties on the issue moot.
UBS analyst Steven Milunovich was slightly less dismissive, noting that taking about $14 billion from net cash has about a $3-$5 impact to the stock price in his discounted cash flow model. With shares currently fetching $105.99, that measures to less than 5%. The stock was down a bit less than 1% Tuesday morning.
According to FactSet, Apple has generated more than $250 billion in European sales since it started breaking out the region’s revenue in its fiscal year ended September 1999. Over the 2003-2014 period the European Commission is demanding Ireland recoup unpaid tax for, European sales totaled $194 billion.
Repaying $14.5 billion in back taxes, if it comes to that, is a drop in the bucket. For Cook and Apple the reason for such strenuous objections over small change may be to make sure that tax collectors in other parts of the world aren't emboldened by Europe's stand to start making a grab for their own bigger piece of Apple's profit pie.
(*Ed. note: This story has been clarified to note that the European Commission's demand is for a repayment of taxes owed plus interest, thus a tax bill rather than a fine or penalty.)