“On June 10th, the European Commission announced that it would launch a formal investigation of Apple’s (AAPL) tax arrangements in Ireland,” Kyle Spencer writes for Seeking Alpha. “The European Commission and ECN together comprise the enforcement end of Europe’s competition law regime, which functions in a similar fashion to the U.S. antitrust laws in preventing the formation of market leaders, cartels and monopolies, as well as regulating market leaders and state aid. That puts Apple’s Double Irish with a Dutch Sandwich tax avoidance strategy squarely within the Commission’s purview.”
“The Commission’s decision to crack down on Ireland’s tax laws isn’t happening in a vacuum,” Spencer writes. “Rather, it’s part of a global crackdown on multinational corporations launched by the OECD and endorsed by the G20 known as the Base Erosion and Profit Shifting Action Plan, or BEPS, scheduled to launch late next year… While U.S. multinationals are furiously lobbying against BEPS in Washington, it’s unclear what the US Congress can actually do to stop its implementation. Taxation is fundamentally sovereign prerogative, and BEPS is a non-binding policy prescription. The adoption of tax harmonization rules by the majority of European states would effectively eliminate most of the available opportunities for treaty arbitrage regardless of US adoption.”
“If there’s one thing the markets hate more than higher taxes, it’s uncertainty about higher taxes. I expect the market to throw a temper tantrum once it sinks in that Europe and other OECD member states might actually be coming to collect,” Spencer writes. “Investors should keep one eye on the progress of OECD BEPS and the other on tech valuations over the next 12 months and ask themselves if the former is accurately priced into the latter. If not, the correction will be both swift and painful.”
Read more in the full article here.
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