EU Policy on Taxation and the Case of Apple

In cooperation with the Institute of International Studies, IES organized a roundtable discussion on September 20 that provided both European and American perspectives on the EU’s recent $30 billion lawsuit against Apple. The panel featured scholars from across the Berkeley campus, including Alan Auerbach (Dept. of Economics), Robert D. Burch (Dept. Economics and Law); Helena Malikova (EU Commission and EU fellow at IES); Gabriel Zucman (Dept. of Economics), Carl Shapiro (Haas School of Business), and Joseph Farrell (former chief economist of the Federal Trade Commission and the Department of Justice). To begin the discussion, Malikova offered an introduction to state aid regulation, pointing out that it is forbidden for individual member states to provide multinational companies with discriminatorily lower tax rates. She further suggested that, as was the case with Apple in Ireland, American multinational companies operating in different jurisdictions tend to shift profit to a paper-only or non-operational branch in countries with minimal or no taxation.

Then, Auerbach highlighted some general trends in profits, which exhibit a shift from the Untied States to low-tax countries. As he argued, such shifts pose a threat to the current taxation rule. To counter these threats, he proposed a change in the multinational tax calculation regime that would rely on sales apportionment or destination-based taxation rather than on residence. Zucmen further examined problems with the current taxation rule for multinationals. Rules dictating that companies pay taxes to countries where profits have been made, he stated, can result in artificial profits appearing in low-tax jurisdictions. Next, he argued that pricing that treats subsidiaries as separate entities are easy to manipulate through transfer pricing. Finally, he pointed out how bilateral agreements made only for taxation purposes encourage treaty shopping to generate stateless income.

To conclude, Shapiro compared and contrasted the mentalities of American and European competition authorities, referencing major infringement cases in the EU against other large American multinational companies. Following the individual presentations, the audience asked a number of questions ranging from the difference in principles between EU and US competition law enforcement to potential challenges with the proposed multinational taxation regulation reform.