Inside the Apple Tax Bombshell: Why It’s Not Good for Anyone

Apple investors seemed on Wednesday to be taking in stride the $14.5-billion tax bill levied on the company by the European Commission a day earlier. Apple shares actually were up modestly in Nasdaq trading, rising about a half-percent to the vicinity of $106.50.

Perhaps there are good reasons for complacency. The EC's order that Apple pay 13 billion euros to Ireland as back taxes will be appealed by both the company and Ireland, which could mean years will pass before a single euro is paid on the bill, if ever. Even if the full sum were to come due, Apple has the cash. The bill is about one-fourth of the company's 2015 profits and 6% of its revenue, and it could be paid easily out of the $180-billion cash Apple is holding overseas -- out of reach, for now, of the U.S. tax authorities.

But there also are grounds for Apple investors -- and those of other U.S. corporations that have been playing international tax rules like an orchestra for profit -- to be worried about the EC investigation and its outcome. First and foremost, the jig is up.

Edward Kleinbard, USC's peerless corporate tax expert, may have said it best during an appearance Monday on CNBC, a day before the EC issued its widely-anticipated ruling: "The easy days of single-digit tax rates are going to be over."

International corporations have been so brazen about manipulating the rules that the EC and its member countries were already tightening up; Ireland ended some of the practices that benefited Apple last year. But remaking the system is going to be painful for all concerned. Not only will companies be paying higher taxes, but organizations such as the EC will have to undertake a politically-delicate rebalancing of tax rates. In the U.S., Congress and the White House...

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