WEBVTT - Bloomberg's Larson on Apple's $14 Billion Back Tax Bill (Audio)

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<v Speaker 1>Global business news twenty four hours a day's Bloomberg dot

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<v Speaker 1>ed Lalan. Good afternoon, Charlie, Manu. S averages are lower today,

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<v Speaker 1>with the Dow down sixty five points, SMP fall seven

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<v Speaker 1>and NASDAC declines nineteen, Small Cat six center loses one,

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<v Speaker 1>and the US tenure yield at one point five seven percent.

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<v Speaker 1>Nine of tennessem P sectors are lower, led by losses

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<v Speaker 1>three percent. Leaders to the downside and the down include Boeing, Nike,

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<v Speaker 1>and Apple, while down leaders to the upside include Goldman,

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<v Speaker 1>Sachs and JP Morgan, Canada's Potash and Agraham confirmed they

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<v Speaker 1>are in merger talks. Shares trade up eleven and seven percent, respectively.

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<v Speaker 1>Other industry players Mosaic and CF Industries both gain on

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<v Speaker 1>merger excitements. United Continental hires a new president away from

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<v Speaker 1>American Airlines. United shares up eight percent. Hershey declines eleven

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<v Speaker 1>percent after Mondale abandoned merger talks and Abercrombie and Fish

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<v Speaker 1>loses twenty percent after reporting a larger second quarter loss

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<v Speaker 1>and missing comps sales estimates. Live from the First Word

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<v Speaker 1>breaking news desk at Lan Charlie all right, hey, thank

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<v Speaker 1>you very much, Adam to hear live breaking news over here.

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<v Speaker 1>Bloomberg Times Squawk sq you a w K on your terminal.

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<v Speaker 1>I'm Charlie Pelt that sub Bloomberg Business Flash. This is

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<v Speaker 1>taking stock with Kathleen Hayes and Pim Fox on Bloomberg Radio.

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<v Speaker 1>A very big story as Apple was ordered to pay

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<v Speaker 1>a record thirteen billion euros that's fourteen and a half

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<v Speaker 1>billion dollars plus interest after the your commission, your your abuse,

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<v Speaker 1>give me the European Commission. The EU said Ireland illegally

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<v Speaker 1>slashed the Iphonemaker's tax bill in a crackdown on fiscal

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<v Speaker 1>loopholes that also risks inflaming tensions with the U. S.

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<v Speaker 1>Treasury and is actually causing a little bit of consternation

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<v Speaker 1>among Irish voters, according to our Dublin Bureau chief yesterday,

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<v Speaker 1>dar A Doyle, who said, they're kind of wondering why

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<v Speaker 1>the Irish government says they don't want to take the

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<v Speaker 1>results of this fine. So let's bring in Matt Larson.

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<v Speaker 1>He's litigation analyst at Bloomberg Intelligence, which provides real time

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<v Speaker 1>research and context on industries and market and government factors

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<v Speaker 1>that impact business, which you can access on your Bloomberg

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<v Speaker 1>b I go. So, Matt, you were among the few

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<v Speaker 1>who said that this this loophole on transparency, a tiny

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<v Speaker 1>little loophole, could lead to a very big fine. What

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<v Speaker 1>did you see then and what do you see now? Yeah,

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<v Speaker 1>that's right. Back um. Back in January, we took a

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<v Speaker 1>look at the investigation that EU had launched, specifically the

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<v Speaker 1>European Commission. UH kind of read through the document, looked

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<v Speaker 1>at how they were assessing Apple's current tax arrangement UM

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<v Speaker 1>in Ireland and kind of ran through the numbers. UM

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<v Speaker 1>did an estimate based on internal pricing. This whole investigation

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<v Speaker 1>had to do with how transfer pricing arrangements are taxed.

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<v Speaker 1>So when Apple sells intermediate product to itself, UM, what

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<v Speaker 1>revenue was realized there? We came up with an estimate

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<v Speaker 1>of about eight billion dollars just kind of back of

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<v Speaker 1>the envelope. UM. JP Morgan's rod Hall put out an

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<v Speaker 1>estimate that was around twenty billion, and the final bill

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<v Speaker 1>came out to be right in between the two. So

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<v Speaker 1>basically what the EU was looking at is did Ireland

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<v Speaker 1>give Apple an advantage in the way that they kind

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<v Speaker 1>of tax this revenue at a much lower rate than

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<v Speaker 1>their usual twelve point five percent corporate tax rate? So, uh,

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<v Speaker 1>this is a done deal. Now. It went back and

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<v Speaker 1>forth for a while. You know, the Apple ended up

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<v Speaker 1>paying you say, just almost no tax in Ireland. So,

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<v Speaker 1>h how does it risk inflaming tensions with the U. S. Treasury?

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<v Speaker 1>I mean, I guess just because it's now clear that

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<v Speaker 1>Apple exploited this loophole not just a little bit, but

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<v Speaker 1>to a very large degree. Yeah, and you know, there's

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<v Speaker 1>been a big debate um internationally and in the US

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<v Speaker 1>about how how tech companies should be taxed. A lot

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<v Speaker 1>of companies will transfer patent holdings or will do license

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<v Speaker 1>agreements with international subsidiaries to kind of send revenue overseas

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<v Speaker 1>into lower tax jurisdictions. Part of that is their high

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<v Speaker 1>corporate tax rates in the US and there are other

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<v Speaker 1>places where it's more favorable. So, uh, this kind of

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<v Speaker 1>triggers that discussion. Apple is known to have a large

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<v Speaker 1>amount of cash overseas, you know, upwards of UM, and

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<v Speaker 1>so a lot of countries are looking at that and saying,

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<v Speaker 1>wait a second, shouldn't you know some portion of that

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<v Speaker 1>have been taxed in in our country? And even even

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<v Speaker 1>today there are comments about other countries may actually be

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<v Speaker 1>entitled to a slice of UM of some of what

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<v Speaker 1>was awarded to Ireland. So there's some rumblings about that.

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<v Speaker 1>But I think this could definitely drive tax policy discussions

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<v Speaker 1>in the US about how what behaviors are being incentivized

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<v Speaker 1>and how companies are being um you know, moved to

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<v Speaker 1>to set up their international tax structures. Large new or

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<v Speaker 1>litigation analyst for Bloomberg Intelligence, I guess we can expect

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<v Speaker 1>more litigation, maybe in the form of an appeal from Apple.

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<v Speaker 1>I believe that chief financial officer has accused the EU

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<v Speaker 1>of using a completely made up number when it comes

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<v Speaker 1>to Ireland, So there was no special deal from the Irish. Yeah,

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<v Speaker 1>you know, there's definitely gonna be a lot of litigation

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<v Speaker 1>to follow, both Apple and UH and Ireland. Although you think,

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<v Speaker 1>you know this might be a windfall for Ireland, they

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<v Speaker 1>will also be appealing the decision UM, and that process

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<v Speaker 1>is going to take at least a couple of years.

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<v Speaker 1>There's some similar UM investigations that might might come ahead

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<v Speaker 1>of this to preview what what the European courts are

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<v Speaker 1>going to do with these types of decisions. UM. And

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<v Speaker 1>you know Apple's Apple is right in the in the

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<v Speaker 1>sense that they negotiated their their tax arrangement with Ireland.

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<v Speaker 1>It was signed off on. Apple paid every penny that

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<v Speaker 1>was due under these UM kind of pre certified arrangements. UM.

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<v Speaker 1>But you know, the question is was the way this

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<v Speaker 1>tax calculated um? The way that it should be done

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<v Speaker 1>from an economics perspective is are these transfer pricing arrangements

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<v Speaker 1>taxed appropriately in Ireland? And so I don't you know,

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<v Speaker 1>I don't. I don't think that from a Bloomberg Intelligence perspective,

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<v Speaker 1>we see that dollar going down to zero, but you

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<v Speaker 1>may see it come down a little bit further, and

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<v Speaker 1>they're gonna be some policy considerations. As you referenced earlier,

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<v Speaker 1>the US Treasure has been getting involved. They put out

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<v Speaker 1>a white paper about a week ago that signals, um,

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<v Speaker 1>they're going to be supporting Apple. Um, you know, maybe

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<v Speaker 1>with a little bit of self interest in trying to

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<v Speaker 1>get some dollars back to the US. But the fight

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<v Speaker 1>is far from over. Well then, I know that you

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<v Speaker 1>are far from ending your appearances here on taking stock

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<v Speaker 1>Matt Larson, because this story, is you point out, is

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<v Speaker 1>just beginning and it is a very important one, not

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<v Speaker 1>just for Apple and you and Ireland more broad because

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<v Speaker 1>he said, we're looking at taxes, what corporations pay, Are

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<v Speaker 1>they paying the right amount? Are they exploiting loopholes? Very

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<v Speaker 1>especially an election year, very hot topic. Thanks to Matt Larson,

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<v Speaker 1>litigation analyst for Bloomberg Intelligence, I'm Kathleen Hayes. Keep it

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<v Speaker 1>right here, this is Bloomberg. We are going to be

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<v Speaker 1>taking a look at the energy market oil. Where is

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<v Speaker 1>that price heading and what does it mean for some

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<v Speaker 1>of the big ETFs investing in Stephen Shork of the

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<v Speaker 1>Short Report, he's coming up now