The European Commission's ruling that Apple should pay Ireland billions of dollars in back taxes was neither punitive nor unfair, one of the world's best-known economists told CNBC on Thursday.
Joseph Stiglitz said the European Commission (the European Union's executive arm) was right to conclude Ireland had granted Apple undue tax benefits. This is illegal under European rules and led the commission to order the Irish government to recover up to 13 billion euros ($14.5 billion) — plus interest — from Apple on Tuesday.
The commission's ruling was a "fair warning" that he supported, Stiglitz told CNBC.
"The fundamental point here is Apple unambiguously was trying to avoid taxes and it was doing it in a dishonest way, with complicity from the Irish government, pretending that the money, the profits, the billions of profits it was making, were really being originated in some Irish company that was registered in cyberspace and therefore did not have to pay any taxes. And anybody looking at that says that is a ruse, that is an attempt at tax avoidance, tax evasion, whatever you want to call it," the 73-year-old U.S. economist said.
EU member countries are allowed to set their own tax rates and Ireland's low corporate rate of 12.5 percent has helped it attract U.S. multinationals, particularly tech and pharmaceutical giants, including Google, Facebook and Twitter. However, the commission said Apple had received "illegal tax benefits" from Ireland that allowed it to pay far less tax than other businesses. It said Apple paid corporate tax of only 1 percent on its European profits in 2003, which fell to 0.005 percent by 2014.
"The tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU single market. This is due to Apple's decision to record all sales in Ireland rather than in the countries where the products were sold," the commission said in a statement on Tuesday.
The Irish government plans to contest the ruling and Apple CEO Tim Cook has condemned the commission's decision, saying it could risk investment and job creation in Europe.
Stiglitz described Cook's behavior as "totally irresponsible" and said the European Union needed to harmonize member nations' tax rates to prevent countries vying to attract multinationals with lower corporate taxation.
"Europe can only work as a political entity if each country within Europe does not take actions that harm other countries. What Ireland was doing was harming other countries," he told CNBC.