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Apple Inc. (AAPL) Delivers Island Windfall as Storm Brews

Apple Inc NASDAQ:AAPL

Apple Inc.   just closed the most profitable year in US firm history, and it’s having a major effect outside of the firm’s share price. Ireland, the country which Apple runs much of its international business out of, has noticed a surge in corporation tax.

Apple Inc NASDAQ:AAPL cash

That might have more to do with the way that Luca Maestri and Tim Cook organized the firm’s accounts than the increase in sales that Apple managed during the period.

Apple pays more tax in Ireland

It’s hard to unravel the complex tax web that Apple has spun, but there are indications that many big firms are moving profits booked elsewhere to Ireland. The Atlantic island state booked total corporation tax of €4.75 billion for the year through October. The country’s tax office forecast receipts of just €2.7 billion.

It’s not clear why the country’s tax receipts have spiked, but those in charge of tax policy don’t seem ready to describe any sort of process behind the increase. A statement from Ireland’s revenue commissioners on the change said that “overperformance in the year to date is broad-based and primarily relates to improved trading and some timing factors”.

Apple’s effective tax rate, across its entire business, jumped to 26.4 percent for the fiscal year 2015. That’s ahead of the firm’s 26.1 percent rate booked in 2014 and the 26.3 percent booked in 2013.

In its annual filing the firm said “The higher effective rate during 2015 compared to 2014 was due primarily to higher foreign taxes”. Apple says that it will pay corporation tax of $19.12B for fiscal year 2015. That’s a 37.5 percent increase on the $13.9B hit in 2015.

Apple net profit rose year-on-year by just 35 percent. The gap between the two numbers may mean the firm is paying more in Ireland, or paying a higher effective tax rate in the state.

 Rod Hall of JPMorgan calculated earlier this year that the firm’s effective tax rate would rise to 33.5 percent if it were to pay the headline tax rate in Ireland. Ireland’s corporation tax sits at 12.5 percent, but Apple pays much less than that. In 2013 the firm said that its tax on Irish subsidiaries came in at around 2 percent.

Ireland is a safe tax haven for Apple

The spike in tax in Ireland may simply be due to Apple , and other major firms, deciding that the country is the safest tax refuge in the world.

With the OECD putting together a program, called BEPs that would seek to reduce tax losses to multinationals, and the EU and US states working on forcing firms to pay more, it may be better for a firm like Apple to operate inside Ireland rather than in the Bahamas or Bermuda.

There is no clear reasoning for the boost in Ireland’s tax receipts, nor is Apple very open about the way it pays taxes. Carl Icahn, one of the firm’s largest investors, reckons that Apple still books an effective rate that’s far too high, and the firm should be able to lower its tax rate to 20 percent or so with a few small changes.

Apple’s decision making, and Ireland’s tax boom, aren’t clearly explained, but it’s clear that tax havens around the world are becoming less and less safe. The European Commission is set to decide later this year on whether Apple’s tax relationship in Ireland has been legal.

The result of that decision could bring another windfall to Ireland, which might be spent on another budget expansion, but in the long term the island nation likely needs a low tax rate to convince firms like Apple to keep investing.

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