Trading on CFD stocks – Apple shares relatively unmoved after EC’s penalty charge.

Apple shares may be down a touch but the €13 billion tax bill landing on its doormat is not one to fret about; the firm has a cash pile of around $200bn. Finding what to do with this – other than buying back stock – has been a headache. So while most companies would baulk at such a hefty charge, Apple can afford it from petty cash.

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But the worry is what this ruling means longer term. The European Commission has set its stall out firmly – it will not tolerate state aid in any form. Aside from US corporate giants potentially caught up in the net, this may have important implications for European banks if they start to run into difficulty. Apple is a low-hanging fruit for the EC. It is not systemically important to the financial system; Deutsche Bank is.

Margrethe Vestager has shown her willingness to tackle Apple and next up is Google, which the Danish commissioner has had in her sights for some time.

Europe-US Battle

 

This is building into a fight between the EC and US companies, but it’s also a turf war between US and European regulators.

The EC claims that the decision has nothing to do with Ireland’s corporate tax rate, which stands at 12.5%. In fact the whole case revolves around the fact that Apple wasn’t paying this rate, or anything like it.

Nevertheless, the Commission seems to be sailing very close to interfering with the tax rules of member states, effectively telling Ireland how much tax it ought to levy. It’s also increasingly becoming a supra-national tax judge. Little wonder the US is complaining that the EC is getting too big for boots as the DoJ has always owned this space.

For Apple and other giants of corporate America, this could be a major moment. On the one hand is an EC baying for blood – anti-Americanism is a rich vein these days and the timing couldn't be more opportune with the (imminent) collapse of the TTIP trade deal.

Caught between the EC and the US clampdown on tax inversions, it’s going to be tough for multinationals to avoid paying the going tax rate. What this means for future earnings growth is unclear. UBS reckons the €13bn hit would equate to a roughly $2-5 hit to the stock. So far the impact has been muted – the stock fell 82 cents on Tuesday following the ruling to trade at $106. Most brokers have a price target above this level – it’s unclear if the judgment will make any revise their estimates. Short-term they may be more interested in the prospects of the iPhone 7, while in the long run it’s going to be about how Apple can drive sustainable revenues from services – iTunes – as the shine comes off the iPhone.

Brexit Benefit?

 

In all this, Britain could benefit. Whether Apple wins its appeal or not, it looks like Ireland cannot offer any sweetheart deals within the EU. With Britain heading for the EU exit, the City of London may be able to offer something more appealing outside the bloc.

Downing St has already sought to make political capital, saying that the tech giant is welcome in the UK at any time. The narrative is simple – Britain is open for business – arguably more open for business than Europe. Again the collapse of the TTIP plays well into this – Britain could be a lot more nimble in agreeing a trade deal with the US and others than the EU.