How Apple’s Tax Games Make Globalization Look Like a Big Scam
Whenever Brussels makes noises about getting tough with large U.S.-based firms, top U.S. politicians, business executives and commentators tend to fall into a reflexive response pattern and turn into crybabies. They immediately criticize the European Commission as an overbearing bureaucracy, hostile to innovation (and the United States per se), creating uncertainty, pursuing backward-oriented industrial policy, undermining investment in the EU and acting in an unfair manner.
U.S. Treasury Secretary Jack Lew’s latest complaints after Apple was hit with a 13 billion euro fine this week by the Commission neatly fit into that pattern. Lew said the EU’s action was “inconsistent” with well-established tax law and the uncertainty caused by the fine might ultimately hurt Europe’s economy.
Meanwhile, Apple CEO Tim Cook’s remarks that the EU’s tax ruling is “total political crap” carry an imperialistic tone, as Europeans wonder if only US authorities can investigate and financially punish
European institutions, but not the other way around. Cook may be defending Apple’s tax practices in Ireland, but he should consider looking at it another way: If corporate giants like Apple negotiates with tiny Ireland, which without much of an industrial base is still desperate to collect as much in corporate taxes as it can, that is not a negotiation among equals.
From a European perspective, one could be forgiven for thinking that very often the real cause for this stereotypical reaction pattern is that any regulatory actions by the European Commission that affect U.S. interests are considered more or less as an act of “lèse majesté” – an insult to the king – by U.S. political and business interests.
The underlying suggestion is that a faithful and grateful European “ally” would not engage in any actions that may have a negative bearing on U.S. corporate interests. The related assumption is that, since markets are “free,” any government action whatsoever is unwelcome because it not only restrains freedom, but also economic growth and therefore jobs.
In view of that ready-made analysis, let’s look at the basic set of facts that shapes the political economy across the Atlantic:
First, U.S. corporations do engage in business policies that have anti-competitive effects. Callously gaming the tax system adds to a corporation’s bottom line and strengthens its competitive position, to the point of depressing the business fortunes of other, non-U.S. firms in the field. Note as well that the European Commission unquestionably also goes after European corporations engaging in similar activities and imposes hefty fines on them. Witness, for example, the EU probe related to illegal subsidies provided to electricity suppliers.
Second, the U.S. political process has been effectively captured by U.S. corporations at all levels. This manifests itself both via the cancer of campaign finance as well as troublesome hiring trends. For example, former officials of the Obama Administration have already taken quite a number of senior management positions with Silicon Valley firms. More are to follow.
Given those two realities, the question is whether anybody in political power in the United States will stand up to these corporations or let them have free rein. Unfortunately, that is largely a purely rhetorical question. Since the latter option is usually the one that is chosen, this may be good for these corporations’ future profit prospects.
In the absence of government actions against abusive and unfair business practices, there also is significant collateral damage: Ordinary citizens, who cannot escape fair taxation with “nifty” moves, will find themselves at the short end of the stick. They feel increasingly disempowered and doubtful about continuing on the globalization path. Declining support in opinion polls provides ample evidence of that.
Citizens around the globe have the feeling that large corporations collaborate with politicians at great liberty in order to create loopholes that give these firms special privileges.
This is especially noticeable on matters of taxation. Multinationals employ armies of lawyers and accountants to circumvent if not the letter of the tax law, then at least its spirit. Consider the latest developments in Brussels in that very context. Apple has long feared that the EU authorities’ investigations of the firm’s special tax deal with Ireland may be found to be unlawful and that this would trigger a hefty penalty.
It is these corporations’ ability to “manage” their tax domicile that directly undermines public support for globalization. On the one hand, these firms benefit from having a global playing field. On the other hand, they hollow out public authorities’ ability at the national level to govern this process.
To the public at large, this increasingly makes globalization look like a scam conducted on behalf of the high and mighty – those who have got it made anyway.
This is what happens when corporations basically get to choose to pay taxes in a different jurisdiction from where they actually earned them. Add to that the fact that the outlandish salaries of top corporate executives (who are the chief instigators of these practices) keep rising – and the public’s frustration is not just fully comprehensible. It is also totally legitimate.
Never mind that U.S. corporations, when active in Europe, like to prey upon the “little guys” – such as Ireland and Luxemburg. Those countries, with their small economies, are by and large as eager to please corporate interests as the U.S. Congress in Washington itself.
All this leads to one clear-cut conclusion: The European Commission, for all its self-evident faults and shortcomings, is the last bastion standing in the way of the unabashed corporatization of all public interests. (No small irony given the heavy criticism it receives for being far removed from the interests of the voting public.) It is, in effect, the only powerful international body that stands in the way of these firms having a free roam of all lands.
That also makes the European Commission in Brussels the most relevant defender of managing globalization in a fair and equitable manner – the price for maintaining public support for its continued expansion.
It is high time that all those voices who have a long-term interest in globalization not unraveling (with U.S. businesses ranking very prominent among them) recalibrate their thinking about Brussels in this regard. Europe’s regulators are not the enemy, in the long-term view.
Unfortunately, in the real world, the reaction pattern of U.S. government officials like Jack Lew and of major U.S. corporations points into the opposite direction. They are laboring hard to turn Brussels into another Washington. However, the continued effort to hollow out the public’s interest and serve narrow corporate interests is bound to backfire.
Citizens are increasingly on edge almost everywhere.
Stephan Richter is editor-in-chief of The Globalist.