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Retroactive tax sought from Apple’s operations in Ireland by European Commission

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Apple Inc. faces taxation challenges in Ireland by the European Commission for apparent charges of not paying the required taxes a corporation is due to pay. Instead, Apple received major tax incentives in sales for their company operating in Cork, Ireland.

Apple has had an established place in Ireland’s technology world for the past 35 years, since 1980. To date, it has been one of Cork’s major employers. And since this time the tax law that was in place was followed and strictly adhered to by the Apple company. Then, in 1991 the tax law changed and the Irish authorities and Apple Inc., lead by Chief Financial Officer Luca Maestri, mutually agreed to follow this new tax law. This agreement was set to begin in 1991 and continue through 2007.

However, like in the US, Apple’s popularity of products – particularly its iPhone – caused a huge growth in sales in Ireland. This was when Ireland decided to change its tax law as a direct. Probably a valid play on the part of Ireland. Attempting to work with the Irish authorities, Maestri stated that Apple “asked for an “advanced opinion” to deliver “complete certainty” about the company’s tax liabilities.” This change came on the heels of Apple investing $100 million into its operations in Ireland for its products. This change was a bit of a surprise for Apple.

Anyone on the outside looking in would not fault Apple and Maestri for trying to do the right thing in this situation and ensure that Apple was paying their fair share in corporate taxes to the Irish authorities. He wanted to do the responsible thing. Therefore, Apple wanted to work out the tax agreement with Ireland by trying to find out exactly how much had to be paid to Ireland. In an interview with Financial Times, Maestri said,

“If countries change the tax laws, we will abide by the new laws and we will pay taxes according to those laws.”

It was later found out that Ireland had changed their tax laws close to ten times since 2007. And Apple has adhered to their laws every day. Now that the Irish authorities are seeking back taxes from Apple, who are still willing to work with them, as long as it’s a fair fight.

So, when Apple received what was called “tax incentives” dating back to when the company was first established in Ireland, it began to raise the eyebrows of other countries as well. It’s now been seven years since the last agreement between Apple and Ireland, and the OECD (Organization for Economic Cooperation and Development) is making headlines by pursuing permanent policies between Europe and America that would stop countries from offering any kind of tax benefits (rewards) to companies. Ireland is not the only country that has offered these tax benefits in the past. Namely, Luxembourg and the Netherlands have also offered them.

The OECD cannot strong arm Ireland, or any other country, to adhere to these new policies. So, they involved the assistance of the European Commission to charge any country with large companies like Apple offering them tax incentives, with a forced “state aid” that they must pay. This state aid is an anti-competitive tax put on companies like Apple that have businesses in countries with low taxes.

Now the European Commission would be charging these companies this new imposed tax simply because it believed that the company was getting undocumented and unfair tax advantages solely because they are large companies. In the long run, this hurt other businesses that would competition for these already established companies. (It also turns out that Apple is not the only company getting hit with this new tax policy. Other companies like Starbucks in Luxembourg is also getting hit.)

Apple seems to be a direct target of the European Commission because the company is so large and so popular. The notoriety of the Apple iPhone has caused other competitors like Nokia in Ireland to weaken and essentially crumble. In fact, Microsoft had to step in and acquire Nokia in Ireland from its financial group. However, this still resulted in the loss of numerous jobs for Irish workers. This seems like a personal vendetta of the European Commission against Apple. The truth is, neither Apple nor Ireland committed anything illegal with their original tax agreement years ago. Maestri was quoted as saying,

“There’s never been any special deal, there’s never been anything that would be construed as state aid.”

When compared to their counterparts, Apple pays a lot more in taxes for their company. Therefore, Apple is not going down with a strong fight. They claim that the European Commission to impose payment of unpaid back taxes, or taxes that should have been paid but weren’t because Apple received some kind of special deal, hold no weight and are completely invalid. The policies of anti-competitive state aid to be paid by companies has actually not been adopted by Ireland, therefore Apple argues that they should not be made to pay it. In addition, with the large amount of taxes Apple already pays for its company in Ireland, the European Commission should be satisfied with that.

According to a recent testimony before the US Senate, Tim Cook, Apple’s CEO, stated that the company paid $6 billion in federal taxes for that previous year. This amount was the largest paid by any American corporation. In 2013, Apple’s tax rate was 26.2 percent. Its counterpart, Microsoft, reports paying a much lower rate of 19 percent for their European companies in places like Ireland and Singapore.

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Apple’s Effective Tax Rate from 10K Filings

Tim Cook used his time before the US Senate to also address the current tax laws to enable major companies like Apple to use its foreign earnings domestically. He mentioned South Korea’s tax rates of 20 percent and recommended that the US do the same. According to Cook,

“The tax code has not kept up with the digital age.”

The current tax policy prevents companies like Apple from spending their foreign earnings in the US because of the 35 percent tax rates.

The tax policies of OECD have not been embraced South Korea, and because of this, they can provide very low tax rates for companies like Samsung, who current tax rates are 12-16 percent. However, even though South Korea may be a good example of low tax rates that will benefit large companies, they are also not exempt from shady dealings, particularly with Samsung’s chairman. According to the NY Times, the South Korean government “pardoned the company’s chairman of multimillion embezzlement and tax evasion convictions so that he could both avoid prison and retain his membership at the International Olympic Committee.” Subsequently, this controversy, even with the seemingly large benefits of low tax rates, has hurt Samsung’s profits.

Since the European Commission is pushing their tax policy, and seemingly attempting to target Apple for more money, it implies that Apple because wealthy and successful in Ireland with the help of the Irish taxpayer. This is overwhelmingly not true. However, if the European Commission is successful in pushing their policy through and demanding state aid from Ireland and Apple, it could result in a huge rollout.

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HealthKit apps finally make their way to iOS 8

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Apple users are very familiar with new iOS updates. So, it was nothing new when the new iOS 8 update was scheduled for all Apple devices. However, Apple’s HealthKit apps could not be implemented when Apple’s iOS 8 was released because of a few problems that occurred with iPhone 6 customers using the HealthKit apps. This made way for Apple to immediately release a new update called iOS 8.0.2.

Once the new update made way, Apple users were able to utilize the benefits of the HealthKit apps. One of those benefits was an app called FitPort, an app that tracks the user’s health and fitness goals and limitations. So what exactly are these health and fitness goals and limitations? According to the company that created the HealthKit apps and FitPort app, the app will be capable of: tracking your running and walking distances, your dietary intake (including dietary goals and needs), active calories, body fat, and weight.

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FitPort App

Having the availability and convenience of a health app on your phone that gives you the ability to track your health and fitness goals, checking off these goals once you’ve accomplished, and the ability to set limitations on these parameters is a win-win situation for both Apple and its users. Apple is able to once again implement a system utilizes apps that people can incorporate into their daily lives, thus using their iPhones and iPad for more than just phone calls and the occasional game. Apple users are also able to use technology in a new, innovative, and thoughtful way to not only communicate with others, but to also help themselves in their personal goals.

When using the FitPort app, if the Apple user chooses, the set parameters of health and fitness that they track can then be linked to the Health App. If users want to link this personal health information to the HealthApp, they will have to do so by giving written permission to the apps within the settings feature of the iOS. The FitPort app is used as a dashboard, or platform, for the user to check their health and fitness stats and also record these stats on their own by hand. Once this is complete, the user can then store this information on their secure Health app.

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Apps available for Health

The HealthKit app is very functional, and will no doubt become popular. Although it is available to Apple iPhone users, it seems that Apple is being cautious about it since it hasn’t featured HealthKit apps yet on its App Store page.

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Tim Cook urges companies to share their carbon footprint

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Apple’s CEO Tim Cook is an innovative voice that is quickly listened to by many when he speaks. So, when Tim Cook spoke at the UN Climate summit in NYC admonishing companies to make a larger gesture and show the environmental impact their products have, many of these companies were listening. Cook mentioned that, “the time for inaction had passed”.

Cook has called on these companies to be more transparent with their customers by sharing with them the cost of their company’s sustainability efforts. This will in turn, help customers make more informed decisions about the companies they purchase their technology from, and chose the ones that have more of a global perspective on climate and the effects their products have on the environment. There was a time when a conservative investor in Apple suggested this same thing to Cook, and Cook responded angrily. Now, he’s embracing this same transparency.

Cook wants Apple to do their part to help the environment and address the concerns of the customers and the environment. He urges,

“Companies have to communicate to consumers about what they are selling, and they have to do it in a way that incorporates the whole of their footprint, not just one piece of it, that they are looking good.”

So, has Cook and Apple only talked the talk, and not walked the walk? It turns out that Apple has been a leader of the pack. In order to address these environmental concerns, Apple has released an environmental checklist that goes alongside every new product. This checklist cites that the new product is free of toxins, recyclable, and energy efficient. They have also set goals for their facilities and data centers that includes ensuring that they are powered with 100 percent renewables and solar power.

They’ve have many naysayers when it comes to their plan. However, Cook is not swayed by them. Cook says that this new sustainability plan is not only good for the environment, but also for economics.

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Apple’s 2013 Carbon Footprint

Apple’s approach is to evaluate their entire footprint. They examine the amount of energy a product uses after it’s purchased, and the manufacturing and recycling of that product.  This takes a lot of time and effort, and also detail. Cook has said that he continues to hear from doubters who say that Apple must choose between the economy and the environment, because the commitment is far too great to do both. To that Cook says, “What we found, both are doable. If you innovate and set the bar high, you will find a way to do both.”

Cook believes that the consequences of ignoring climate change over a long period of time will be far too big to be ignored. And he wants his company, Apple, to be the frontrunner in the fight to bring more awareness to it. For him, it is not a choice of economics over environment. It’s a no brainer to create a plan and a way to mesh the two together. Apple has created a plan, especially on the heals of debuting its new iPhone 6 and iPhone 6 Plus, where they will minimize its greenhouse emission gases by the year 2020. A lofty goal it seems, but one that Cook sees as valuable for the sustainability and livelihood of the next generation.

Apple’s goal in climate change awareness is, “to be one of the pebbles in the pond that creates the ripple.” And we all know that whatever Apple does, they are bound to have a following.

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Apple could be shutting down Beats Music

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Rumor has it, or better yet sources/employees at Apple and Beats music has said that Apple plans to discontinue its relationship with Beats Music. Right now this only seems to be a rumor, so we’ll have to wait and see what happens.

However, the lingering question is: what is the relationship between Apple and Beats Music? Beats Music is a customizable music app that Apple was offering to all its customers on its iPods and iPhones. However, it seems that this relationship may be on shaky ground. It seems that Apple does have intentions to shut down Beats Music as a separate entity and instead roll it into its iTunes music program. So what would this mean?

If Apple were to move Beats Music into iTunes this would mean that the first thing to happen would be that the Beats Music app would be removed from the iTunes App Store. (This would then mean that Apple would have to provide streaming through its iTunes store. We’ll have to wait and see when this happens.) Apple is still not confirming any reports of a shut down, however.

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Itunes vs. App Store – Source: Morgan Stanley

Nonetheless, one thing that does, and should, raise a few eyebrows is the fact that with the launch of the new iPhone 6 and iPhone 6 plus, the Beats Music app seemed to have been missing from both phones. All of the other familiar and expected apps were there, but Beats Music was missing. This was exhibit A. Exhibit B was another red flag, when at the time of the Apple Watch reveal, Beats Music was not even mentioned. This would have really created some doubts and questions about Apple’s relationship with Beats Music. Tim Cook, however, did speak once about Beats Music at the Apple Watch reveal when he announced that the band U2 would be offering their album there.

In fact, even though Beats Music was not mentioned much at all in the Apple Watch reveal, another app was mentioned called the Remote app. This app has an icon image of a blue play button on the phone screen. When this icon was tapped during a demo, music instantly began to play.

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Severing ties with Beats Music, would actually be a smart move for Apple, and make lots of sense. Here’s how it would break down…Apple users and customers are used to Apple’s simple and streamlined screen, apps, and interface. If Apple were to keep Beats Music alongside iTunes, then Apple customers would have to learn a whole new interface. This might bring confusion and frustration. It is also widely known that the CEO of Beats Music, Ian Rogers, is also in charge of iTunes radio at Apple, which means that if Apple were to keep Beats Music as part of their lineup Mr. Rogers would be pulled in two different directions. This would hinder him from focusing his attention solely on Beats Music.

It only seems natural to maintain Beats Music’s cool status as an accessories brand, with its stand-out headphones, instead of using Beat Music as software. There are some individuals, like Beats Music employees, who have been told to look normal and keep everything business as usual.

Still, dropping Beats Music would give Apple the opportunity to direct its attention to its existing iTunes customers and users. This staggering number is 800 million, with over 400 million credit card numbers of these users on file.

In addition, showing up late to the party has not helped the popularity or growth of Beats Music. They came behind the music program greats like Pandora, Spotify, Rdio, and Google Music. The familiarity was already established with these companies and their customers, which made it hard to Beats Music to join the group. In addition, Beats Music attempted to set itself apart from its counterparts by having curated playlists and mood-based radio. This move, however, failed to draw the attention from the customers of the already established music programs. Also, AT&T customers were offered a seven-day trial of Beats Music and about 5 million people accepted this free trial, but only about 25,000 people signed up for a subscription to Beats Music.

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Beats Music App

When you compare these numbers to other music apps like Spotify, they are very small and daunting. Spotify has 10 million paid subscribers and 40 million listeners; Pandora has the largest amount with 76.4 million active listeners. Yet, when you measure Beats Music alongside Apple’s iTunes, there’s no comparison at all because iTunes has such a vast number of users.

With all that has been said about Beats Music’s relationship with Apple, Beats Music may still help Apple through talent, technology, and industry relationships. Apple’s biggest challenge through all of this is what the will choose to do with streaming music into iTunes. Can Apple handle this? This best decision Apple can make is to provide streaming through iTunes. This means that Apple will still maintain its iTunes customer base, while also attracting new customers to its streaming option.

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iPhone 6 buying frenzy in China is out of control

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Everyone, from people in the US to people in China, know of the popularity of any and all Apple products especially its iPhone. The new iPhone 6 and iPhone 6 Plus have made their debut in full force all across the world. However, the price of the new iPhone is what all the buzz has been about, especially in China. The iPhone 6 is now selling for approximately 6 times the price it’s sold for in the United States.

For the base model iPhone 6, the price is selling for $1,430 (with a carrier contract). This is a steep price. In order to purchase the upgraded model, the iPhone 6 Plus, you need to be prepared to shell out even more, approximately more than $2,400!

Who in their right mind would want to pay these prices for a phone? Street smugglers in China selling these phones are confident that they will have buyers. This is evident in the long lines outside of the Chinese mall, Taikoo Li, of people clamoring for this latest upgrade in technology. Long lines outside of Apple stores in Hong Kong are also proof that people are willing to do whatever it takes to get the latest Apple technology available no matter the price.

These long lines outside of the Apples stores in Hong Kong did not come from the stores themselves, but from the smugglers who brought the phones across the border days before they the new phones made their official appearance in Hong Kong Apple stores. This is because there are no restrictions on these products in Hong Kong like there are in China.

These same smugglers have also said that people are even willing to pay top dollar, higher than the already high prices, just to have the iPhone 6 Plus delivered right to their door. Since its debut, weekend reports of the iPhone’s popularity in sales have come from sources in Japan, where overseas Chinese are trying to make iPhone purchases. There are also Chinese in the United States that are trying to make iPhone purchases and have them shipped back to their homes in China for big profits.

A filmmaker in New York, attempted to capture the buying frenzy of Chinese buying iPhones by bringing a Mandarin interpreter along to ask the Chinese in line who they were buying the phone for. This Chinese buying frenzy is a problem for some and a shining opportunity for other, like Chinese smugglers. This is in part because Apple has only allowed two out of three required regulatory steps to be passed, but not the most important one that provides licenses for network access from the Ministry of Industry and Information Technology. Passing this will provide regulatory permission for China to provide phones to everyone when they want them at a much lower price than what the smugglers charge.

Until this happens, smugglers are enjoying their thriving business of purchasing and selling iPhones on the black market. They are making thousands and thousands of money. An example of this was seen in the flashy businessman who was seen purchasing nine iPhone 6 phones in cash!