Why Apple is an easy target

By Raz Koroh

Lately, Apple has been in the news for various reasons.  The latest one is its subsidiary in Ireland being ordered to pay tax arrears to the amount 13 billion euros or USD14.5 billion, to the Irish government.  Both Apple and the Irish government question the European Commission’s right to order the company to pay.  However, the question remains whether Apple will get to keep its tax dollars away from the Irish government.  Indeed, the real question is whether it needs to fight against the EU ruling at all.

Here are two possible factors to consider.

Profitability.  It is no secret that Apple over the last ten years had performed amazingly, even by the standard of the likes of blue chip corporations Walmart and Coca Cola.  Its earnings per share over the last yen years indicate that the company has been growing at the rate of around 30 per cent annually.  Of course a big question mark arises as to whether it can keep this up, but just assuming that it can, Apple will repeat this feat for the next ten years and ends up with an earnings per share of around USD87.85 by 2026 (!), compared to just USD6.62 in 2016.  As its price to earnings ratio has ranged from 11.4 to as high as 43.5 over the last ten years, even assuming a conservatively low 12.0, Apple’s share price would balloon to USD1054.24 by 2026 (!), compared to just USD103 presently (8PM, Eastern Time, Sept 9, 2016).  Even better, since the company has given out an average of USD1.50 dividend per share to its shareholders over the last five years, by 2026 it would have handed out an extra USD15 per share on top of its expected market price by 2026, giving Apple shareholders a total of USD1069.24 per share (!) by 2026, compared to just USD103 per share presently.   This represents an average annual rate of return in excess of 23 per cent a year over the next ten years.  If a shareholder today buys 1,000 Apple shares valued at USD103,000, he would make a profit of USD966,240 if he sells the 1,000 shares in 2026.  In just 10 years!  Corporations like Apple are in high demand not only in the U.S., but also worldwide.

Investment.  Ireland alone has benefitted from two decades of continuous foreign direct investment from American corporations, which at the reported USD277 billion, is more U.S. investment than that received by much larger economies like Brazil, Russia, China and India.  That means USD277 billion worth of investment that could have benefitted the U.S. economy itself instead of Ireland.  The reasons for this are numerous but one that U.S. Presidential candidates Donald Trump and Hillary Clinton like to zoom on is the comparatively high corporate tax rate in the United States.  In just four years, U.S. corporate presence in Ireland has ballooned from 600 to around 700 today, directly giving employment to 130,000 Irish workers.  Needless to say, Ireland’s low corporate tax of 12.5 per cent and other controversial tax incentives (which other EU economies say unfair to them) are directly responsible for this.  Hence, telling the Irish government to collect the tax arrears from Apple and other U.S. corporations based in Ireland is easier said than done.  The more likely outcome is EU authorities quietly letting go of the issue in favour of Ireland (and Apple), for fear that Ireland may take the inevitable route of Irexit, which will only speed up the breakup of the European Union.  If the European Commission would not take the initiative to drop the case, then Germany will force it to.

Comments welcomed.