European Commission orders Apple Inc. to pay Republic of Ireland $13.5 billion

A heated debate has erupted between the Republic of Ireland and the European Commission after the latter revealed in an investigation that US tech giant Apple Inc. had abused it's status as a multinational corporation by booking its profits from European operations to its Irish based Apple Sales International company to unfairly benefit from the low tax rate charged by that country.

In concluding its investigation the European Commission ruled that Apple Inc underpaid $13.5 billion to the Irish ficus and ordered the California based tech company to pay the tax bill. Both the government of Ireland and Apple have expressed their intention to appeal the ruling.

Although a staggering amount, the implications of such a ruling relating to the taxation of large multinational corporations using countries like Ireland as a haven to pay less tax within its operations in the European Union could shift the playing fields in favour of fairness at the risk of a substantial divestment from these firms in the region.    

The argument for enforcing the ruling has won over many individuals who feel the necessity in shifting the tax burden away from citizens and onto entities who have a far greater ability to generate incomes than the masses. This comes at a time when questions around the integrated sustainability of the European Union mounts with debt piles accumulating at alarming rates.

But some critics say the EU is playing a dangerous game in chasing companies for unpaid taxes for short term gains whilst forgetting the wider impacts that will affect the economic state of play in the long term.

In this case both the Irish government and Apple have stated the relationship between them has mutually benefited both parties by providing employment and economic value creation for Ireland as well as a gateway into European territories for Apple to sell its products.

But is it enough to accept gains in economic value generation in exchange for tax breaks?

EU ruling on Apple reignites U.S. tax reform debate: https://t.co/ixwSKdPekf $AAPL pic.twitter.com/xmXeMDKcQQ

— Reuters Business (@ReutersBiz) August 31, 2016  

If speaking in the context of Ireland as a country on its own, it could very well be prosperous but the fact of the matter is Ireland is one piece in an integral puzzle that all adds up to form a free market which we know as the European Union where countries adopt a common currency yet still have a considerable degree of control over their sovereignty.

Enacting a country's right to elect a tax regime means a level of discretion when setting an appropriate rate to charge those being taxed whether it be individuals or companies. This translates into many different tax rates charged throughout the European Union thus creating a competitiveness in attracting foreign investment to its shores.

Apple was fully in its right to take advantage of the tax rate offered to it by Ireland even if it says it hadn't negotiated special terms in paying over its fair share. Sovereignty hasn't been surrendered although Ireland needs to abide by the rules imposed on it by the EU to stay inside.

But how consistent are those rules?

If truly committed to enforcement we could probably assume Greece would've been evicted out of the trade bloc long before the political chaos erupted onto the street of Athens. We could also say the propensity to stay within Europe for the UK could've been avoided had it not been for the lapse of security detail on European borders that compromises citizens safety.

Europe's big push to coerce member nations to give up their sovereignty is failing to convince nations of its worth if a common currency free market agreement hasn't worked. This is just another example of the EU's attempt to create fairness in how it sees it but neglects to take into account the different political will and beliefs that occur in each nation.  

It's highly unlikely it'll succeed in proving its case in this matter and will continue to create a divergence in tax rates charged amongst member nations that'll ultimately prove the concept of a united Europe is doomed to fail.  

Alphabet ready to takeover the title of largest listed company

Three months ago I penned two articles (Who's the Apple of the markets eye? and Does Apple run a risk of falling behind the curve?) that detailed the demise of Apple as the world's largest listed company following reports that sales growth wasn't inspiring investors and fears had risen in the market that perhaps the tech giant of the noughties wasn't in the same comfortable position it had gotten use to after surpassing Exxon Mobil in 2011.

Much of the blame can be shouldered on management's failure to adequately invest in R&D that has led the company into a dry season in terms of new product offerings that hasn't maintained the same allure that drew consumers to previous gadgets launched in yesteryear.

The company reported its first ever quarterly drop in iPhone sales since first introducing the generational changing device to the world in 2007, alluding to the fact that the smartphone market was oversaturated and remaining bleak about the outlook for the second quarter of this year. Management also went on to say that it had concentrated on boosting investment in R&D after falling short for a number of years hoping their fortunes could be turned around with new products.

Analyst have marked a trend that's emerged in recent months that would suggest that the production of gadgets no longer holds staying power with aesthetics but rather the functionality in terms of operating systems and ease of use when it comes to the end user. This is evident in companies such as Alphabet (formerly called Google) and Facebook performing stronger than the broader market in the past few months.  

Apple falls below $90 as iPhone worries fester https://t.co/UgT6gGu6gV pic.twitter.com/1EU5LdCrnu

— Reuters Science News (@ReutersScience) May 13, 2016

More importantly though is the situation where Alphabet Inc. is on the cusps of knocking Apple off its perch at a time where the latter is facing headwinds that could blow it off course. An advantage Alphabet has over Apple is the technological innovation it prides itself in by investing considerable time and money in finding solutions to the most elementary problems with the assistance of computing technology.

And as much as most research and development of new ideas don't often find their way onto the market, the benefit of having a pool of products and services being churned out constantly gives Alphabet the edge over its competitors by supplying them with the latest technology at the speed of management's decision to commit long term to it, something Apple has lacked over the years.

We won't know officially when Alphabet will be classified as the world's largest listed company until its spent enough time above Apple, having experienced a brief spell earlier in the year only to suddenly fall out of bed. However with the strength in the trend backing Alphabet and sentiment changing against Apple one does get the feeling that Alphabet has the upperhand here and more likely to exceed previous records set by the latter in terms of market capitalisation.

As for Apple, it needs to go back to the drawing board and rethink the way it sees its business and how best to mould it around the changing environment by taking advantage of consumers evolving nature. I don't have any doubt that Apple won't feature in the future of technology simply because its built itself enough reputation to stand out amongst its competitors that it would be impossible for them not to lead the sector in the path of the most stylish expression of the latest gadgets but what will define them as the world's biggest listed company if they wanted to keep that title would come down to its ability to produce a perpetual money making machine, a feat that judging by the past is yet to be found.