September 22, 2016

The European Union recently ordered Ireland to collect $14.5 billion in unpaid taxes from Apple, but the technology giant will get little sympathy from Nobel economics laureate Joseph Stiglitz.

“The first corporate responsibility of companies,” Stiglitz told an audience at SIPA on September 21, “is paying their fair share of taxes.”

The comment came at a panel discussion on “Tax Avoidance and Privacy Issues in the Digital Age,” billed as a Transatlantic Citizens’ Dialogue in partnership with the European Commission, Bocconi University of Milan, and others. The program was also a signature event of SIPA's ongoing 70th-anniversary celebration.

Stiglitz, a University Professor at Columbia and SIPA faculty member, was joined by Margrethe Vestager, the current EU commissioner for competition, and—via video link from Milan—Bocconi president Mario Monti, one of Vestager’s predecessors in office. Dean Merit E. Janow of SIPA moderated the panel.

Vestager then launched the conversation by noting how the rule of law and fair competition binds open societies together.

“The benefits of the open market are not being felt by everyone,” she said. “It’s important to make sure that people don’t feel left out.”

To achieve this goal of inclusivity, Vestager said it’s “crucial” to enforce competition law.

“The U.S. and EU both have mechanisms for antitrust and merger control,” she said, “but the richest, biggest, and most willing member states shouldn’t give incentives and aid to big companies that will allow them to outcompete their competitors.”

Monti, a former prime minister of Italy and current EU senator, observed that conflicting decisions between the European Commission in Brussels and U.S. antitrust officials are not common, but not surprising in this case. He recalled a 2001 case during his own term, in which the EU Commission blocked a GE-Honeywell merger that had been blessed by United States regulators. The EU, he explained, thought the merger would harm consumers.

Despite occasional differences of opinion, “the U.S. should not believe [the EU takes] pleasure in going after U.S. nationals,” Monti emphasized. “We do this even against our own companies and states.”

Stiglitz addressed the Apple-Ireland case head on.

“Multinationals use globalization to avoid paying taxes,” he said. “There needs to be reform. The OCD and the G20 recognize this. But transfer pricing is a problem. The distortionary effects of the tax loophole illustrates the power imbalance.”

Stiglitz said companies like Apple want to decide for themselves what they should be paying to the government—without oversight from citizens at large. But, he reminded, Apple wouldn’t exist without government research.

“What’s disturbing about this case is the secrecy of it,” he said. “Deals are being done so that the citizens of a country don't know what’s going on. If everyone were doing this, it would totally erode the tax regime.”

[After alluding to the downsides of globalization,] Stiglitz said that globalization is ultimately a force for good because it provides additional checks on governments to capture instances of secrecy and democratize competition policy.

Anya Schiffrin, director of SIPA’s Technology, Media, and Communications specialization, was on hand to welcome the audience in New York and Milan and note the opportunity to discuss transparency, accountability, and human rights in the wake of the Apple decision.

The panelists later took questions from audience members in the rooms and online.

Responding to an inquiry about the statute of limitations in the Apple case, Vestager and Stiglitz agreed that retroactive enforcement would be limited.

“U.S. law allowed us to recover only 10 years of unpaid taxes, but the Apple tax deal went on for 20 years,” Vestager said.

In 1997, Monti added, EU member states called on the Commission to define when tax competition is state aid. A group was set up to review tax schemes with preferential elements.

Asked to elaborate on issues of globalization and competition and how they affect average citizens, Vestager described the paradox of globalization that creates a more open world with trade that creates more prosperity, but then individuals can lose their jobs and wonder what the benefit is to them.

“Transparency in trade issues is important for the acceptance by citizens.” she said.

Stiglitz emphasized the importance of a good policy framework that will provide job assistance and retraining to lessen the blow of these impacts of trade.

“Without adequate social protections, everyone can lose from globalization,” he said.

“Globalization must be accompanied by good governance,” said Monti. “We don’t want integration to see increasing dominance by large companies to have abusive behavior.”

Addressing the challenge of harmonizing taxes across jurisdictions, Stiglitz said the process could start by getting rid of tax havens such as Panama, the British Virgin Islands, and the Cayman Islands. He said the international system of attracting businesses with tax incentives is a destructive race to the bottom.

Vestager agreed, underscoring the point with clarify:

“Europe is open for business,” she said. “Our point is that it’s not open for tax evasion.”

— Ginger Whitesell MPA ’17

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