Apple Inc. has raised a flag about the potential cost if the company is required to pay past taxes to Ireland as part of a European Commission investigation that started last year.

While Apple hasn’t been able to estimate the amount, it could be “material,” the Cupertino, California-based technology company said Tuesday in a filing with the U.S. Securities and Exchange Commission. It had said in January that such an action could “adversely” affect its cash flows and financial condition.

The European Commission last year said it was looking into whether Ireland improperly gave Apple’s two subsidiaries state aid. In September, the commission said Irish tax authorities failed to conform to international guidelines when they “reverse engineered” an agreement with Apple to determine the company’s bills. The findings were preliminary.

“The company believes the European Commission’s assertions are without merit,” Apple said in the filing. “If the European Commission were to conclude against Ireland, the European Commission could require Ireland to recover from the company past taxes covering a period of up to 10 years reflective of the disallowed state aid.”

The European Commission’s review of state aid can take more than a year and decisions can be challenged at the European Court of Justice in Luxembourg.

Apple “did not receive selective treatment and was taxed fully in accordance with the law,” the Irish Finance Ministry has said.

Over a four-year period, Apple shifted $74 billion in profits to an Irish entity that had no “tax residence” anywhere in the world, and thus owed minimal income taxes to any country, the U.S. Senate Permanent Subcommittee on Investigations found in 2013. Apple finished the most recent quarter with $194 billion in cash and securities. More than $171 billion of that was held outside the U.S., according to Apple.

David Fuller's view

Not to be too cynical but the EU needs money and Apple has a stash.  In fact, most governments are short of cash, including the US mentioned in the last paragraph above, and Apple is not the first Autonomy to be challenged by tax authorities.  

This latest warning from Apple (daily & weekly) is almost certainly responsible for the share’s wobble over the last two days, after its run-up to new highs.  Moreover, the share had a downside key day reversal on Tuesday.  

Apple may now face distracting and protracted legal action and a potentially significant tax claim extending over 10 years, according to the article above.  If so, iconic Apple will lose some of its appeal, potentially reversing its bullish influence on the US stock market, at least until this tax problem has been fully discounted. 

This could also be a medium-term problem for Ireland (daily & weekly) which has had a very good run since mid-October but saw a big downward dynamic today.  Some mean reversion towards the rising 200-day (40-week) MA is now likely.  

In another smaller problem for Apple, see this video: Apple Said to Have Found Defect in Watch Component: WSJ.