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Speaker 1: ed Lalan. Good afternoon, Charlie, Manu. S averages are lower today,
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Speaker 1: three percent. Leaders to the downside and the down include Boeing, Nike,
Speaker 1: and Apple, while down leaders to the upside include Goldman,
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Speaker 1: are in merger talks. Shares trade up eleven and seven percent, respectively.
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Speaker 1: and missing comps sales estimates. Live from the First Word
Speaker 1: breaking news desk at Lan Charlie all right, hey, thank
Speaker 1: you very much, Adam to hear live breaking news over here.
Speaker 1: Bloomberg Times Squawk sq you a w K on your terminal.
Speaker 1: I'm Charlie Pelt that sub Bloomberg Business Flash. This is
Speaker 1: taking stock with Kathleen Hayes and Pim Fox on Bloomberg Radio.
Speaker 1: A very big story as Apple was ordered to pay
Speaker 1: a record thirteen billion euros that's fourteen and a half
Speaker 1: billion dollars plus interest after the your commission, your your abuse,
Speaker 1: give me the European Commission. The EU said Ireland illegally
Speaker 1: slashed the Iphonemaker's tax bill in a crackdown on fiscal
Speaker 1: loopholes that also risks inflaming tensions with the U. S.
Speaker 1: Treasury and is actually causing a little bit of consternation
Speaker 1: among Irish voters, according to our Dublin Bureau chief yesterday,
Speaker 1: dar A Doyle, who said, they're kind of wondering why
Speaker 1: the Irish government says they don't want to take the
Speaker 1: results of this fine. So let's bring in Matt Larson.
Speaker 1: He's litigation analyst at Bloomberg Intelligence, which provides real time
Speaker 1: research and context on industries and market and government factors
Speaker 1: that impact business, which you can access on your Bloomberg
Speaker 1: b I go. So, Matt, you were among the few
Speaker 1: who said that this this loophole on transparency, a tiny
Speaker 1: little loophole, could lead to a very big fine. What
Speaker 1: did you see then and what do you see now? Yeah,
Speaker 1: that's right. Back um. Back in January, we took a
Speaker 1: look at the investigation that EU had launched, specifically the
Speaker 1: European Commission. UH kind of read through the document, looked
Speaker 1: at how they were assessing Apple's current tax arrangement UM
Speaker 1: in Ireland and kind of ran through the numbers. UM
Speaker 1: did an estimate based on internal pricing. This whole investigation
Speaker 1: had to do with how transfer pricing arrangements are taxed.
Speaker 1: So when Apple sells intermediate product to itself, UM, what
Speaker 1: revenue was realized there? We came up with an estimate
Speaker 1: of about eight billion dollars just kind of back of
Speaker 1: the envelope. UM. JP Morgan's rod Hall put out an
Speaker 1: estimate that was around twenty billion, and the final bill
Speaker 1: came out to be right in between the two. So
Speaker 1: basically what the EU was looking at is did Ireland
Speaker 1: give Apple an advantage in the way that they kind
Speaker 1: of tax this revenue at a much lower rate than
Speaker 1: their usual twelve point five percent corporate tax rate? So, uh,
Speaker 1: this is a done deal. Now. It went back and
Speaker 1: forth for a while. You know, the Apple ended up
Speaker 1: paying you say, just almost no tax in Ireland. So,
Speaker 1: h how does it risk inflaming tensions with the U. S. Treasury?
Speaker 1: I mean, I guess just because it's now clear that
Speaker 1: Apple exploited this loophole not just a little bit, but
Speaker 1: to a very large degree. Yeah, and you know, there's
Speaker 1: been a big debate um internationally and in the US
Speaker 1: about how how tech companies should be taxed. A lot
Speaker 1: of companies will transfer patent holdings or will do license
Speaker 1: agreements with international subsidiaries to kind of send revenue overseas
Speaker 1: into lower tax jurisdictions. Part of that is their high
Speaker 1: corporate tax rates in the US and there are other
Speaker 1: places where it's more favorable. So, uh, this kind of
Speaker 1: triggers that discussion. Apple is known to have a large
Speaker 1: amount of cash overseas, you know, upwards of UM, and
Speaker 1: so a lot of countries are looking at that and saying,
Speaker 1: wait a second, shouldn't you know some portion of that
Speaker 1: have been taxed in in our country? And even even
Speaker 1: today there are comments about other countries may actually be
Speaker 1: entitled to a slice of UM of some of what
Speaker 1: was awarded to Ireland. So there's some rumblings about that.
Speaker 1: But I think this could definitely drive tax policy discussions
Speaker 1: in the US about how what behaviors are being incentivized
Speaker 1: and how companies are being um you know, moved to
Speaker 1: to set up their international tax structures. Large new or
Speaker 1: litigation analyst for Bloomberg Intelligence, I guess we can expect
Speaker 1: more litigation, maybe in the form of an appeal from Apple.
Speaker 1: I believe that chief financial officer has accused the EU
Speaker 1: of using a completely made up number when it comes
Speaker 1: to Ireland, So there was no special deal from the Irish. Yeah,
Speaker 1: you know, there's definitely gonna be a lot of litigation
Speaker 1: to follow, both Apple and UH and Ireland. Although you think,
Speaker 1: you know this might be a windfall for Ireland, they
Speaker 1: will also be appealing the decision UM, and that process
Speaker 1: is going to take at least a couple of years.
Speaker 1: There's some similar UM investigations that might might come ahead
Speaker 1: of this to preview what what the European courts are
Speaker 1: going to do with these types of decisions. UM. And
Speaker 1: you know Apple's Apple is right in the in the
Speaker 1: sense that they negotiated their their tax arrangement with Ireland.
Speaker 1: It was signed off on. Apple paid every penny that
Speaker 1: was due under these UM kind of pre certified arrangements. UM.
Speaker 1: But you know, the question is was the way this
Speaker 1: tax calculated um? The way that it should be done
Speaker 1: from an economics perspective is are these transfer pricing arrangements
Speaker 1: taxed appropriately in Ireland? And so I don't you know,
Speaker 1: I don't. I don't think that from a Bloomberg Intelligence perspective,
Speaker 1: we see that dollar going down to zero, but you
Speaker 1: may see it come down a little bit further, and
Speaker 1: they're gonna be some policy considerations. As you referenced earlier,
Speaker 1: the US Treasure has been getting involved. They put out
Speaker 1: a white paper about a week ago that signals, um,
Speaker 1: they're going to be supporting Apple. Um, you know, maybe
Speaker 1: with a little bit of self interest in trying to
Speaker 1: get some dollars back to the US. But the fight
Speaker 1: is far from over. Well then, I know that you
Speaker 1: are far from ending your appearances here on taking stock
Speaker 1: Matt Larson, because this story, is you point out, is
Speaker 1: just beginning and it is a very important one, not
Speaker 1: just for Apple and you and Ireland more broad because
Speaker 1: he said, we're looking at taxes, what corporations pay, Are
Speaker 1: they paying the right amount? Are they exploiting loopholes? Very
Speaker 1: especially an election year, very hot topic. Thanks to Matt Larson,
Speaker 1: litigation analyst for Bloomberg Intelligence, I'm Kathleen Hayes. Keep it
Speaker 1: right here, this is Bloomberg. We are going to be
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