The Tax Haven That's Saving Google Billions
businessweek.com
businessweek.com
Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes? I understand that governments might want to consider these as loopholes and seek to end the right of U.S. taxpayers to avail themselves of these tax-minimization strategies. But, as long as it is legal, why should a company voluntarily seek to expose itself to higher tax rates when it has the choice not to?
I guess when you as a company claim the high ground ("do no evil"), you will have people making their own judgments about what ethical standard ought to govern your conduct and this would explain this professor's remark. By that measure, though, one could argue that companies such as Google should seek to attribute all their revenues to California because that is where their main intellectual property development efforts have occurred and hence pay corporate tax rates at one of the highest rates around simply because they "owe" it to California.
I get this question all the time from web-based startups: why run our revenues through a high-tax state when we have the option of running them through all sorts of lower-tax venues and saving on taxes? The universal answer for smaller companies is "set your company up in a way that let's you pay the least tax you can legally."
Why should Google be held to a different standard on penalty of having its perfectly legal actions castigated as "evil"? Is it the view of some or many in the HN community, for example, that a private enterprise has a form of "social responsibility" to voluntarily subject itself to the tax rates of whatever domicile it happens to have its major operations in (in this case, California) when it legally has the option not to do so? That seems unwise by free enterprise standards and I am genuinely curious to know why refusing to do this would be called "evil."
When taxes come up, it tends not to be a well-thought, cohesive, pros-and-cons thing. It tends to be an emotional/identity thing. Some people think and almost always argue it'd be a good thing if companies gave more money over to governments.
Me, I think it's very good for the world on every level for Google to pay less taxes. They're hiring the best people, acquiring companies and giving liquidity to founders, run amazing free services (search, Gmail, Google Earth, Google Maps, Google Finance, Google News, Google Voice, Google Reader, Feedburner, many many others). Also, they're internally investing in energy and robotics like the auto-driven cars thing, and their high level personnel seem to invest really well too (like in genetics research). Anyone who thinks that England would do a better job with the money than Google hasn't been to England, or hasn't thought this through very much.
Thankfully though, we are a nation of laws. As much as I despise the practices of some businesses, I am perfectly happy that it's not any one person's single opinion that keeps these companies in business.
It doesn't matter whether it would do better with the money. I think I could do better with my tax money than the US government. But then, that's not my choice to make. My job is to work to make sure that the US government does better with my tax money. Not to deny the government the money. If I don't pay, someone else will have to. And that's not okay.
It's like saying I need your sandwich more than you do. I'm hungrier, I could make better use of it, therefor I should get your sandwich. Even if I could legally take your sandwich. It's still not okay. It's your sandwich! If I take it, you go hungry.
See, I'd disagree with you and say the opposite. I think England taking money from Google would mean less infrastructure and research out there in the world, meaning common citizens would be forced to pay more for services instead of Google's free services, or make do with less.
> I think I could do better with my tax money than the US government. But then, that's not my choice to make.
I believe it should be. Really, I mean that, I think taxes on productive labor are evil. Really, actually, unmitigated evil. I'm not against taxes, I'd actually be in favor for high property taxes divided split between federal, state, and local, which would encourage economy of space, reduce waste, and discourage real estate speculation while encouraging development. High taxes are okay. But taxing earned income, no way. Demanding a percent of honest labor to me seems no different than claiming ownership over a percent of a man. I think it's tyranny, and that in the future people will look horrified at income taxes the way we look at feudalism, serfdom, slavery, and other forced claims over a man's labor. But I understand I'm currently in the minority on that point of view.
To make $250 million honestly, you'd have to produce value far in excess of $250 million. And yes, taxing people for producing value with their own labor is wrong to me. This is not an argument that all taxation is bad. You need taxes to run society. But taxing earned income seems wrong to me - the government doesn't own you, nor does it own your labor. I believe that. It's your life, you own it, and you own the product of your hands and mind. You should pay for the property you use, which effectively means you're paying for wherever you receive services. Wealthier people tend to use more property, meaning they pay more naturally. This seems sensible to me. Claiming ownership over a man's labor does not seem sensible to me.
You sit at home and come up with a great new piece of software that’s worth 250 million and sell it IBM. Why should you pay more taxes than the bum sitting at home next door? After all you did not use land or resources protected by your countries military and police forces. You did not use public infrastructure (roads, bridges, dams) or government backed institutions (banks, phone lines), or even workers or customers educated by the public school system.
Ask yourself why would IBM pay for such a thing? Well they have customers that use land and an educated workforce. And what about your bank? How do they keep from being robbed? Heck, what’s to stop your bank or IBM from simply shooting you vs. letting you keep the money?
Face it, without a government service there is no way to generate extract and keep 250 million in value. Because even Drug Lords depend on governments banning their drugs.
PS: If you disagree you can always leave and renounce citizenship.
Did you actually read my comment? I think you're reacting to something I didn't say - taxes are fine, and you'd wind up paying for services you use in property taxes.
Land, resources, military, police, roads, bridges, dams, banks (really shouldn't be government provided as that causes all sorts of problems like we've recently seen, but that's a side discussion), schools - those are all local-based services. You'd pay for where you were using them, when you were using them.
> PS: If you disagree you can always leave and renounce citizenship.
Totally unnecessary and counterproductive to a decent reasonable discussion.
Anyway, I wonder what your thoughts are on the central idea. Mainly our ability to generate value is directly related to the value the government provides us. The ability to walk the streets unmolested is hard to quantify but the economic value is directly related to our income. Also, murder investigations are independent of the amount of land we own. And things like food safety and public vaccinations are cheap and valuable so bundling all of that stuff up and simply taxing income seems more reasonable than trying to have individual taxes on every transaction with the government.
As to leaving I think that's an important option. It's what separates slaves of the state from people that can accept the deal or move on. A young talented American can has many options for relocation to another area, the fact that so few do suggests our system has many benefits even if they are not all obvious.
If something can't be proved false, you know...
I see this argument all the time: "If you don't like it, leave." While that's always an option, I think it's disingenuous to suggest that's the best option or even a reasonable one.
This is a democracy! You can affect change in your government. Get out there and vote, run for office. You don't have to just lie down and accept things the way they are.
No CEO could possibly make decisions more important, more weighty or more valuable than the leaders of nations. And the leaders of nations make an order of magnitude less than the average big company CEO.
So no, I wouldn't produce value far in excess of $250 million. I would be getting paid way too much.
Second how long did you take advantage of government services before you became a productive citizen? What did you get from it?
Let's assume England. Just off the top of my head - for the first 14-21 years of your life you got: health care, a primary and secondary education, protection of the military, a higher education, use of the roads, clean water, clean air, sewage, trash removal and the BBC.
How much do you think you owe the government for 14 years of the use of those services? How much interest do you think you're paying on that debt? How about for the continuing use of those services?
Income tax is not the government claiming ownership over a man's labor, it is simply the minimum payment on a debt and the fee for continuing use of services.
Do you know any CEOs in the mold you're describing? I know... one. He was VP running one division of a company that was flagging, actually the whole company was flagging. He systematically promoted, trained, recruited, and refocused his division, until it became 80% of the company's revenues, and 2/5ths of the rest of the company was closed off. He massively grew the company. He took over for a very smart guy who, for whatever reason, was slowly running the company into the ground. The company literally wouldn't exist without him, and not many others have that skillset. He doesn't make $250 mil, but he's worth everything he makes. The company wouldn't exist without him.
> But he receives advice from countless people on those decisions,
Who get paid for that role.
> and countless more people make those decisions a reality.
Who also get paid for that role.
> Companies create value through the actions of hundreds if not thousands of people.
...who also get paid for that role.
> The decisions of its well paid leaders are more valuable than the actions of the average worker on the factory floor, but not that much more valuable.
Executives don't get paid a massive amount out of their boss's benevolence... they get paid because it's a brutally hard, rare skillset that not many people can do. A good executive absolutely can be the difference between making billions of dollars or the company failing and going out of business.
> So no, I wouldn't produce value far in excess of $250 million. I would be getting paid way too much.
You're either underestimating how hard being a good executive is or underestimating how much value a good executive can create. How much would it be worth to Yahoo to have had better leadership? How much has Steve Jobs brought in value to Apple? How much would Yahoo be willing to pay Jobs to take over? Would he be worth it?
> Second how long did you take advantage of government services before you became a productive citizen? ... How much interest do you think you're paying on that debt?
In every other sphere, you can't sign contracts to be indebted to someone before you're mature enough to commit to them. Because the government provided a service to a 5 year old doesn't mean the government can assert any ownership over the child later. Think about if Nike gave you shoes, clothes, and food when you were younger, and then said you owed something later. It's ridiculous. People can't sign their life away before they know what they're signing.
> Income tax is not the government claiming ownership over a man's labor, it is simply the minimum payment on a debt and the fee for continuing use of services.
I agree that you should pay for the services you use. But the government isn't charging for services, they're saying that when you do productive labor, then you owe them money. Big difference. I disagree with that. The debt notion is crazy to me, you can't go in debt as a minor for something you didn't agree to it. It used to be that if someone provided services to you as a child, you'd become indebted or enslaved to them, but thankfully we got rid of that. The fact that you can't sign contracts until you're old enough to understand them is pretty clearly established in Western thought, and a good thing.
Look, I'm not against taxes. Services must be paid for, agreed. Just not out of your labor. You should never incur a tax for doing productive, honest work with your hands or mind. It's immoral to claim a share of a man's labor by force. By all means, charge for services. But you own your life and your labor.
Edit: Gotta head out, the cafe I'm at is closing (11 at night here). If you're actually interested in discussion, feel free to email me - this has been good fleshing out my thoughts more clearly on paper, and I've enjoyed the discussion. Email's in my profile.
Look at the people actually taking salaries that high. They're the financial industry executives who just ran their companies into the ground and had to be bailed out. Look at the people actually creating tons of value. The people who are heros to most of the people on HN. Steve Jobs has a salary of $1. So do Larry Page and Sergey Brin.
Good executives do not think so highly of themselves that they pay themselves that much more than their employees. Granted, the people in question can afford to do this because they are wealthy in stock and dividends.
If the government wants Google to pay taxes, they should enact laws that establish that. It's as simple as that.
> I think I could do better with my tax money than the US government. But then, that's not my choice to make.
At least, it's not your choice to make yourself. When you agree to live in a certain place, you generally have to play by the rules.
Writing laws is like programming. There are bugs. But its even harder than programming because fixing the bugs isn't as simple as finding the spot in the code and releasing a patch. It means bringing the laws back up for discussion and debating with 100+ other people about the best way to fix the bug. And not all those people actually have fixing the bug in mind. So it isn't as simple as the government enacting laws to close the loopholes.
By taking advantage of the loopholes like this Google is acting like black hat hackers who take advantage of the bugs. They are taking advantage of the bug in the government's code that allows them to use the government's services with out paying for them.
Really, the same reasoning could be applied to the government with regards to taxation.
If the government wants to collect more tax, the government can close tax incentives. There's no individual duty not to exploit tax incentives if they're open to you.
Incentives were put there intentionally and using them is following the spirit of the law.
Google's shareholders deserve part of Google's profit much more than US government.
Shifting money from government to shareholders increases likelihood of further innovations.
Common fallacy. No they're not, and no they can't. See, eg
That paper just expresses a limitation of conclusions that can be drawn from a single case, Dodge v Ford.
The notion that shareholders can bring about a suit in the United States because Google is not dodging enough taxes enough is absurd.
See http://en.wikipedia.org/wiki/Fiduciary#Relationships
Under Corporation-Stockholders, Dodge v Ford is not cited.
There are actual corporate laws regarding shares and shareholders and corporate boards and whatnot, but they are mostly about trying to keep the game clean and not defrauding people, not "maximizing shareholder value."
Edit: So long as we're referencing wikipedia...
http://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Company
"Dodge is often misread or mistaught as setting a legal rule of shareholder wealth maximization. This was not and is not the law. Shareholder wealth maximization is a standard of conduct for officers and directors, not a legal mandate. "
It's actually a very interesting case, because the DODGE in Dodge vs. Ford is actually the guys behind the Dodge motors brand. They were using their investment in Ford motors to make money in order to start their own competing car company.
None of those products/services would be possible but for the government spending taxpayer money to develop the infrastructure behind those services (the internet, roads, GPS, etc).
I'm sure that GOOG pays enough taxes in one way or another to pay for its fair share of the world's roads. This is more than I can say for the bum sitting on the street corner.
This is sloppy reasoning. Just because A contributed in some measure to B does not imply B could only have come about because of the contributions of A, nor does it imply that more of A will yield more Bs.
Further, absent a parallel world in which such different choices were made, one could just as easily argue on economic grounds that the resources confiscated would have been otherwise put to more effective, productive use in satisfying the wants of the common man.
I'm not saying that at all. Google can offer the services that it does because it can ride on the back of the infrastructure developed beforehand and the taxes we pay now will enable future entrepreneurs to provide services utilizing potentially different infrastructure.
I'd argue that the infrastructure would have been built regardless.
My current field, public health, is an example. The US Gov't spends billions into research that doesn't lead to tangible products or services. But without it, we wouldn't know that cigarettes are bad, or that heart disease is correlated with red meat consumption.
There are lots of non-infrastructure advantages that exist only because the government has tax money.
Epidemiological studies have been carried out since the early 1800's.
And I'm curious if you could give me examples of a few epi studies that were done before Fisher's time. I was under the impression that he started everything to do with statistics (and that the field didn't really blossom until we could compute the coefficients digitally. Read "The lady tasting tea" for more background on the origins of this stuff).
I'd posit that, for many of these advantages, government is not a necessary cause. That is to say, these non-infrastructure advantages can exist independent of government.
> But without it, we wouldn't know that cigarettes are bad...
This is demonstrably false.
"In 1938 a study by a John Hopkins University scientist suggested a strongly negative correlation between smoking and lifespan."[1][2]
"In 1953 scientists at the Sloan-Kettering Institute in New York City demonstrated that cigarette tar painted on the skin of mice caused fatal cancers."[3]
The Sloan-Kettering Institute is by and large funded by the Rockefeller family.[4]
> "or that heart disease is correlated with red meat consumption."
The original research supporting this is, in fact, from a government institute. However, the study has been criticized using an improperly validated food frequency questionnaire[5], which has been shown to have low accuracy.[6][7] A later Harvard study found evidence that it's processed meat that causes heart disease, not red meat.[8]
> The US Gov't spends billions into research that doesn't lead to tangible products or services.
I'm constantly amazed at how many products came out of the space race. Enriched baby food, scratch resistant glasses, advances in water purification, even more aerodynamic golf balls! It's truly marvelous.
[1]http://www.sciencemag.org/cgi/reprint/87/2253/216?ijkey=ecbc...
[2] John Hopkins is a private university, but they receive a not insignificant amount of funding from the government in the form of tax breaks, grants, etc. I think it's fair to say that this study, however, originated in the private sector.
[3]http://en.wikipedia.org/wiki/Health_effects_of_tobacco#cite_...
[4]http://www.smokershistory.com/MSKCC.htm
[5]http://en.wikipedia.org/wiki/Red_meat#cite_note-19
[6]http://en.wikipedia.org/wiki/Red_meat#cite_note-20
[7]http://en.wikipedia.org/wiki/Red_meat#cite_note-21
[8]http://online.wsj.com/article/SB1000142405274870431490457525...
However, after further consideration I don't think the tobacco-cancer example was a particularly good one for me to bring up. It was highly controversial in the epi/stats community for many years, mainly because RA Fischer (the father of applied statistics) never believed in the validity of the tests. While I'm sure we could each pick studies that backed the public/private side of things, the truth is that there just wasn't a consensus (about cigarettes) until Congress started investigating. So it's probably not the best topic for me to have brought up.
Given things like the Broad Institue, the Allen Brain Atlas, Microsoft Research, the Google guys' funding of the Singularity Institute, DE Shaw's funding of protein folding, etc. it's pretty clear that billions in private money is spent on R06 research.
It's also not clear that the current system of indentured servitude for grad students and postdocs is optimal. Frankly, in biomedicine, it's the top 10-20 places (and really the top 5) that primarily invent and discover new stuff, as quantified by citation rates[1].
By contrast, a PhD from Directional State is unlikely to do so, and the government funding him or her at the same rate as an MIT scientist is a distortion which is less likely to occur when funding is controlled by individuals rather than politicians with an interest in pork. In the absence of government funding, said marginal PhD candidate would find productive employ as an engineer or scientist in the real economy. (I say all this as a lifelong academic!)
[1] Perhaps the ultimate proof of bibliometry's utility is that it was the inspiration for PageRank.
It would likely be very different than the relatively free/open roads, GPS and internet we have today.
The "internet" would likely be similar to the mesh of networks we had back in the '90's (eWorld/AOL, Compuserve, Prodigy, the proposed Microsoft Blackbird/MSN strategy) and who knows if they would have played well with each other.
Roads would be toll roads each with their own restrictions (and I'm sure some enterprising roadway operator would block self-driven cars or charge them higher fees because they good).
And does anyone believe that a privately developed GPS system would be anything but horribly expensive or unreliably? Just look at satellite telephone. Satellite TV and radio have more reasonable cost structures, but they're partially underwritten by advertiser fees.
Oh, I'm in violent agreement with you on this one.
"The infrastructure" in my comment is meant to refer to something roughly comparable to our current infrastructure. For example, if the government didn't build roads, something would fill the void of a service that facilitates transportation -- not necessarily roads.
> And does anyone believe that a privately developed GPS system would be anything but horribly expensive or unreliably? Just look at satellite telephone.
Remember, public infrastructure isn't free. No infrastructure, no taxes for infrastructure, more money, which one could choose to spend on an expensive satellite phone. It's certainly not that simple, but that's my general point.
That said, I think it's pretty foolish to downvote Anechoic's argument, which is cogent and grounded in historical fact. I don't see how anyone can argue against the role of the public sector in creating major technological infrastructure on a bloody internet forum.
I guess the idea is that many educated and informed consumers will pick among the best companies and competition will drive the costs down.
No, right-wing Americans want to take care of themselves. They would just rather freely pay for certain services (health care, for instance) from competing private firms than be provided it by the government.
Framing the question as "who will clothe and feed and wash us" is implicitly a leftist framing. Taken literally, it rises to absurdity--physically, most people clothe and feed and wash themselves, and even more generally, it's hard to name a successful country where the government provides most people with clothing, food, or soap (though I'll grant the running water).
How so? Most don't own the means to produce all those things.
Most people buy those goods and choose between a range of available products. The fundamental flaw with that (at least as far as I see) is what happens if the products are unsafe. Imagine that FDA wasn't there (or its European equivalent) and companies could sell you anything whatsoever as food. How often have you gone shopping with a pestiside testing kid, a bacterial testing kit and a geiger counter? How do you know that all 15 type of shampoo you can buy don't all have mercury in them?
Basically both extremes don't work. A completely planned economy will not work but I have not seen a liberatrian utopia either so far.
The one advantage of the government is that at least in theory you can cast a vote to effect some change. You could not do that if you are run by Google.
Maybe I don't like Gmail and Gmail is the only mail in town, I can't force Google to change it. But can at least attempt to call my congressman if I don't like a particular upcoming bill.
Why does it have to be a government agency that's doing the testing? What's to stop a private company with a trusted brand from doing the testing and giving its stamp of approval? Their motivation to keep bad products from slipping through is very strong because their brand is their worth.
It is useful to note that it was the meat packers who lobbied the government for the creation of what became the FDA because they knew that the public would require some testing and the FDA would do it for little money. A private brand would of course have to charge more.
>Maybe I don't like Gmail and Gmail is the only mail in town, I can't force Google to change it. But can at least attempt to call my congressman if I don't like a particular upcoming bill.
If you don't like GMail, you can write your own email service. If enough people don't like it, odds are someone will have already written a competing service. Google cannot stop you from doing that. A government, however, can.
Of course, I think there's a middle ground. Too much government regulation is terrible for everyone, but too little disparately impacts those of little means.
Effectively, they have set up shop in an EU country, they are enjoying the benefits like infrastructure, state educated population, health care, and are allegedly paying practically nothing for it.
It is interesting for me as an Irish person to see this brought up as our government (a sorry lot) are under huge pressure to keep jobs and money in the country. Putting this under the spotlight is the last thing they need. Our economy is in a pretty poor state.
Calling it "evil" to carry out their fiduciary duty by legally shifting tax burden to the less well-off might be a stretch, but it's equally a stretch to suggest that we're better off because Google pays less tax. It's not as if they'd be dirt poor if they paid a tax rate comparable to that of profitable startups...
In absolutely no way is it a stretch to say that and I'm terribly surprised you have any upvotes. Are you aware of how many services Google provides for free that make my life (and probably yours) better?
Google Search
Google Maps
Android
Google Navigation (on Android)
Google Patent Search
Google Book Search (Working with libraries to digitize old books)
Gmail
Google Translate
Google Code
Google Summer of Code
Thousands of tech talks made available online
Google Docs
Google Calendar
and a lot more...
One of the core tenets of capitalism is that the success an innovation of private companies benefits the public. This isn't true in all cases, but most certainly it is in the case of Google.
sometimes multimillion sums are better spent on schools and hospitals
Do I even need to cite a source that says throwing more money at the public school system won't stop them them being so shitty? That's a pretty common thing to hear now -- especially on HN, and I very much think it's true (from personal experience).
And with hospitals, what exactly do you want more money for? More beds? More nurses? More money for the uninsured? Are you sure that will fix our nation's healthcare problem? I'm not an expert by any means whatsoever on this topic, but as far as I know, the quality of America's healthcare system, bad or good, is largely a function of governmental policy.
There's an opportunity cost of private companies paying less tax too - either someone else pays more tax which marginally decreases their ability to be productive and enterprising or something purportedly socially beneficial doesn't get paid for. Even coupled with inspired management, the profit motive doesn't ensure that an acquisition of say, Dodgeball for the price of a hospital wing, is an optimal use of resources.
You're going to have to explain to me how this is relevant.
What Google is doing is legal which means that you're trying to make this an argument about ethics. My point is that Google provides real value to millions of people around the world and has the resources, both human and monetary, to make real progress in many areas of technology which then benefit you and me. It benefits me more to have the money stay at Google than go to a failed school system or failing healthcare system.
But really, the continuing argument that because you like Google Maps it's therefore better that Google gets to keep all of its tax euros out of the hands of underfunded public services is close to incoherent.
Unless you can show that those services are in the same sort of existential danger as high-end cancer treatment is in the UK, the argument is specious.
Unless you can show that those services are in the same sort of existential danger as high-end cancer treatment is in the UK, the argument is specious.
a. I did not say that Google shouldn't pay any taxes.
b. Whether you believe something to be 'underfunded' is a matter of perspective.
c. Not funding cancer research is not equivalent to not doing good or creating value.
I think you do have a point in that Google's slogan does make this about ethics. I still maintain that Google can do more good with more efficiency than any government.
That's fine, but there are plenty of other people who disagree with the assertion. If the money is in the hands of the government, at least those other voices get a say in how it is spent.
The opportunity cost for anything you spend $3bn on is very high. A government could choose to spend it on cancer research or space ships. Google can really only spend it on a very narrow range of products -- and can't combine it with other serious numbers required to do the really heavy lifting, like that required to fix the disastrous public plumbing in the US.
If Google paying its taxes would mean that it couldn't do all the stuff it currently is, that's one thing. But they've got $33bn sitting in the bank. They can more than afford to pay their taxes and continue creating Wave and AdWords.
There are many other investments in cancer research and space travel being made by individual Googlers.
However, it is perhaps more to the point that both Google Search and Google Academic are crucial research tools for medical research and for aerospace engineering, as for many other fields.
Both directly and through its employees, Google is also funding substantial applied research in crucial areas such as renewable energy production, genomics, public health, and ground transportation.
I don't know what you mean by "disastrous public plumbing in the US". My experience with US municipal water supplies and sewers during the 29 years that I lived there was that they were inexpensive, reliable, safe, and efficient. My experience with water supplies (and sometimes sewers) in other countries has been much worse.
A personal note: I haven't ever tried to work for Google because of, essentially, ethical concerns: I am in danger of having to live in a world where a large fraction of our communications are intermediated by a single company, and I think Google's cultish secrecy is corrosive to the values of Silicon Valley. However, I think Google should only be dinged for its real faults, not imagined ones.
Google can afford to pay taxes in the countries in which it operates. That it does not, while obviously legally defensible, reflects poorly on the other work it does.
Public plumbing: the US infrastructure is badly out of date, and unable to meet most projected demands for expansion. The US Geological survey projects that 1.7 trillion gallons of water are lost through leaks in the system each year -- about $2.6bn in value. http://www.epa.gov/awi/distributionsys.html
$2.6 billion per year is about US$9 per person. Another point of comparison, if you're worried about conservation of fresh water, is that the Mississippi River discharges 110 trillion gallons of fresh water per year into the Gulf of Mexico, where it turns brackish. So the plumbing doesn't sound like a disastrous problem to me, particularly compared with problems like 1% of the adult US population being imprisoned, companies being raided for selling chemistry kits to kids, a decaying passenger train system that commonly delivers passengers several hours late, and government bailouts to pay the bonuses of the bankers who wrecked the economy.
All the other stuff, maps, email, translate, etc... were incremental improvements of already available and competitive free services.
You also neglected to list the dozens of flops that Google undoubtly spent millions, perhaps billions on. Remember Wave, Answers, Jaiku, Dodgeball, etc...? And how much of those billions of unpaid taxes went to buying out the competition and thus reducing the capitalist drive for improvement?
Millions, even billions of dollars are siphoned off in people buying useless products like Acai Berry or junk bonds labled as AAA that do nothing for society or even themselves. Now imagine what other useless industries these people would invest given that a company like Google could make so many flops? That is essentially X times more waste where X is the percentage that these junk dealers reinvest.
As someone said more eloquently than I have: "Why do I need your government nanny state telling me how to build my cars? If people who drive my cars die, then they won't buy more cars. THE FREE MARKET WORKS PEOPLE."
Continuing to restate that Google provides a significant amount of value as acknowledged in my original post (and profiting directly from most of the value-adding-services to the extent that such services would continue to be invested in at a much higher tax rate) fails to defend the original bold assertion that "Anyone who thinks that England would do a better job with the money than Google hasn't been to England". As I'm a British citizen who has not only been to England but actually lives there and uses both Google and our government funded services, I feel I'm in a good place to dispute that claim.
Right now the principal problem with UK public services is a shortage of money; not a problem for Google and their profit-generating services. Google is not going to die if it takes them a little longer to generate shareholder return; people are going to die if they don't get hospital beds. Believing in the benefits to humanity from successful, innovative free enterprises != believing they and their investors should keep all the money.
Moreover even if one accepts the claim that Google and people smart enough to invest in Google are on average better at allocating resources equitably than the government I think it could be argued to be ethically dubious for them to pay lower tax rates than less profitable companies with equally ambitious and beneficial goals. Someone still has to foot the tax bill
Easy: how many of the above services are profitable? The more taxes Google is forced to pay, the less they can invest in experimental and long-term projects.
And Google should pay their F-ing taxes. I do.
The ability to access my email from anywhere, organize, and quickly search through thousands and thousands of emails in seconds has improved my quality of life. Maybe not as much as indoor plumbing, but it has.
http://www.quantcast.com/profile/trafficGraph?wunit=wd%3Acom...
http://tctechcrunch.files.wordpress.com/2009/01/gmailvs-hotm...
Of course, since you are only a college freshman, I don't blame you for not knowing that there were dozens of serviceable webmail clients long before the existence of gmail.
He thinks that Google invented or revolutionized webmail, maps, etc... when it is clear to anyone who's been on the internet for more than 8 years that they were only incremental updates.
Before Google sold gmail to colleges, my college and many others used squirrelmail and pine which was more than adequate. Any sizable college that had an IT department that could support email anyway.
And Google should pay their F-ing taxes. I do.
By all accounts, Google is paying the taxes they're legally obligated to. If you don't like the way those obligations play out, then you ought to be talking to your legislators, the ones who are architecting byzantine tax systems. Their efforts to control our behavior, pander to buy votes, etc., by giving preferential treatment to some, is what created the problem.
Are you aware of how many services the NHS provides for free which make my life better, despite being cripplingly underfunded?
I'm not saying that google are evil for avoiding taxes, bit neither am I convinced that I wouldn't be better off if the money made its way into my governments hands.
Why is this even a point under discussion?
Just in case you hadn't noticed, the post you are replying to is about the NHS, which is not affected by US government policy.
Not free. All of those things are paid for by Ads. Google is a for-profit company making billions of dollars.
There is nothing evil about doing legal things to pay less taxes (large public corporations are practically required to); but that doesn't mean that the government shouldn't fix the exploit. If i'm paying 30% taxes on my minimal salary, i think Google can cough up a bit more than 1% on its billions. (Billions which are made possible by government infrastructure, research, etc).
How much money goes into building and checking the legality of those tax avoidance schemes? a lot, I bet. I'm fairly certain, for example, that my company would not be able to afford something like that.
A simpler tax law not only makes things more fair (maybe it's just sour grapes, but I don't think it's fair that there is one tax rate for corps like mine, who have one part-time accountant, and another, much lower tax rate for giant corporations that can afford massive teams of tax lawyers.) but it makes the economy more efficient. The goal of closing those loopholes should be to make it in Google's best interest to spend their effort on, say, improving search rather than avoiding taxes.
But any corporation that takes advantages of tax loop holes, legal or not, is doing evil. By doing that they are taking money out of the pockets of every day citizens in every country who's taxes they avoid paying. Because those citizens have to either make up the difference, or cut vital services such as education, infrastructure, health care and the social safety net. And those citizens can very ill afford to make up the difference.
There are exposes like this done once every few years decrying how low the real tax rate is for some large corporation or other or group there in. Really Google ought not have been singled out by this round. All corporations that do this are being evil. But Google's promised not to be evil -- and for the most part has upheld that -- so they are being targeted.
Really, the most moral course of action here would be to pay the taxes and lobby for the closing of the loopholes. And if they feel the tax rate is too high -- the lowering of the tax rate.
By gaming the tax systems, they're not only flipping the bird to the ladder they stood upon to create Google, but they're strangling the future pipeline for the very government products they depend upon.
And people only call Google out for crap like this because they insist on running around claiming they "Do No Evil". They set the bar higher for themselves. If they didn't want it there, they should shut up about it already.
On the other hand, for every $100 google pays in taxes, $23.2 will be given to unproductive old people and $14.8 will be given to unproductive non-old people.
It's a fallacy to focus solely on the desirable components of government spending. The lions share of taxes are simply transfers from productive people to unproductive people. If Google wants to avoid this, I see nothing wrong with that.
When someone above asked "Why would Google want to pay a higher tax rate?" I thought, they would if it was in their best interest- I think we all agree on this.
Now here is the crazy part of my post- A company like Google which could conceivably bring in billions of dollars by changing its tax setup, should have some bargaining power. I don't think anything like this exists anywhere, but wouldn't it be cool if Google could get lawmakers to state that x% of Google's tax dollars will set up schools that focused on teaching 'gifted' children technology? And y% pays for technology infrastructure? Wouldn't that be fukken sweet? It would give Google an incentive to keep money in the USA, give back to what gave birth to it, reduce its burden of finding and educating new hires, reduce it's burden of setting up infrastructure, and benefit society across the board without having to wait for a some Google Billionaire to have a ethical epiphany in his old age and attempt philanthropy.
Without going into what proportion of spending might directly benefit Google, I do agree with you. Return on tax revenue is nowhere close to 1:1 nor is it being spent optimally.
But Google does not decide how that money is allotted. They can't say "I'm only paying 25% because I only approve of 25% of expenditures." When they limit their exposure to 25% of what it might be (paying 4% instead of 20%) they're still cutting the desirable spending to 25% of its budget.
So they're still strangling those things they benefit from.
And if the giants generations before Google had done the same, one wonders whether the component technologies and projects and research that Google built from would have been part of the lucky 25% of spending that survived inevitable cuts?
I'm just pointing out that if google limits their exposure to 25% of what it might be, they are still paying for all the services they use and far more. They pay not be paying for all the services you want them to pay for, but that isn't the same thing.
I'm also pointing out that it's not quite honest to list only the useful government services, when they are dwarfed by wealth transfers. That's a tactic worthy of congress, similar to naming a law "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes" (where "other purposes" == bank bailouts).
You just need to be consistent. Google has gotten a lot of benefits out of their "Do No Evil" motto; in my mind, they are held to a higher standard than GE or IBM.
I think the issue that people are disagreeing on here is who would make the better use of money: Google or a government? If Google paid $1 million more in taxes, would that be a net benefit or detriment to society? Google can do good things with that money, and so can a government. But which one can give higher marginal utility?
And those employees pay more taxes because they draw high salaries paid to them by Google, which they could not have gotten without their education.
As a lawyer, what's your perspective on lobbying?
If the laws are ultimately chosen by the companies and the wealthiest, then I don't agree that "anything legal is fair".
At least with respect to the US, politicians are still needed to pass bills into law. The solution to your concern falls out of the simple realization that politicians can only sell the powers they have been delegated by the people. Grant them the power to make and break whole industries, and don't be shocked when those potentially affected come calling.
As a westerner newly living in Asia, I can see Singapore delivers good, efficient government and they respond to citizens complaints like a good company responds to its clients. Taxes are low, simple, and are done on a post card. I think thats the advantage of not being a democracy.
However, its not clear to me how they manage their powerful interest groups. I suppose brute force plays a role. But honestly, I doubt there is any more brute force used in Singapore than in the US. And I would trust Singapore to be more fair and even handed.
My guess is that China models itself after Singapore. I think thats where China is trying go. If they can get there -- and its not clear to me that they can -- in my opinion, it will be a more successful form of government than the democracies of the West. But they have a long way to. Singapore is a small island in a unique political and economic situation and I think that makes a huge difference.
Maybe the answer is to make these tax management/arbitrage services more accessible to everyone and every business to allow the democratic/political/capital system put pressure on the issue. I imagine the overhead is great, but there should be a way consolidate or ease it, I am sure some innovative minds out there will find a way.
Tax loopholes should be closed in law, Google and other corporations have a responsibility to their shareholders - why shouldn't they act within the law to save money?
I remember seeing a fun flow-chart of the IKEA tax avoidance scheme. Didn't have as amusing names as those used in this article though :)
(personally if I ever got that big, I would name them all after characters from The Wire - just so I could say thing like 'lets shift all that to prop joe corp'. Hearing it all told back to you in court would be even more amusing.)
Apple operates Braeburn Capital http://en.wikipedia.org/wiki/Braeburn_Capital Microsoft is known for borrowing its own money from foreign countries to avoid repatriating tax. Because borrowing is cheaper than paying repatriation tax. Broadcom is known for using R&D tax credits(for spending money in US for R&D) and Singapore and other lower tax states when it comes to selling goods and realizing income. Even Oil/financial companies are known to set up shops in overseas just to avoid paying higher taxes.
When someone's career is to find ways to reduce taxes, companies will find whatever way to achieve it.
Many people confuse the latter for the original statement, when it was in fact the former.
Evil is a moral judgment, not a legal one.
It all comes down to ruining competition which is crucial for capitalism to improve the quality and decrease the cost of services for society. Do many startups have the money to hire a bunch of lawyers to find out the latest tax loophole and the money to setup multiple shell corporations?
I think not.
Maybe it is the lawyer in me, but why wouldn't any
international business do whatever it could legally do to
minimize its taxes?
This is one of the examples explaining why capitalism is fundamentally incapable of providing any moral guidelines. It doesn't care about what is right, only about what turns a profit.
The slogan wasn't "do no evil", which is impossible, but "don't be evil," which is much closer to being within reach; and its intended audience was Google employees, not people outside the company. Google probably should have aggressively refused to comment on rumors that this slogan was widespread, rather than publicly confirming it.
A cynic might argue that the constant press attacks on Google resulting from this slogan are from people who have resigned themselves to being evil and are angry that someone else has the courage to attempt otherwise.
The argument for not doing so (or at least, not going to such lengths to minimize the tax burden) is political rather than legal. I don't think it's 'evil,' incidentally, so please take the following as descriptive rather than proscriptive!
What happens when a company expands overseas? Well, it's a coup for the receiving country. There's a ribbon-cutting ceremony, speeches are made about the number of jobs it will create, people feel good about the past taxes they paid that went towards educating the workforce, and and there's a general expectation that the country will pick up 'a bit of the action' in three ways: by collecting some taxes from a successful business (pure rent-seeking, but after all that's part of why investing in education and infrastructure seemed like a good idea to begin with); by attracting other businesses in the same sector and getting a 'hub effect,' which will build up a secondary market serving these firms' ancillary needs (eg payroll, new real estate etc.); and a long-term benefit as employees of the Big Foreign Corporation develop world-class skills and later some of them start companies of their own or guide university researchers etc., making the country's economy more competitive and modern.
What happens is a little different. Usually the incoming firm has negotiated a favorable tax regime with the local government, and the long-term benefits of the secondary market and skill development are estimated to be greater than the foregone tax revenue. When I grew up (in Ireland) the usual approach was for the government to give a 10 year tax holiday in return for building a factory and training the employees, on the theory that the business would be OK with paying tax at the normal rate after a decade. But quite a few companies just shut down their factories when the 10 years ran out, because paying taxes was more expensive than setting up anew in some other developing economy and shipping the product. Of course, then the secondary market that had grown up servicing the industrial and consumer demand for local services would collapse.
So gradually there was a shift towards less rent-seeking (by allowing this sort of accounting manipulation) in return for the hope of increased long-term stability in secondary markets and skill growth. Unfortunately IMO, what has happened with a lot of tech and financial companies that moved to Ireland in particular is that that little technology transfer takes place. For example, Microsoft used to be a fairly big employer in both the UK and Ireland (not sure about now), but the bulk of the work was technical support and localization, rather than software engineering. Similarly most of the financial business in Dublin was backoffice processing because it was cheaper to do it there than in London or Paris (plus it gave UK companies an easy in to the European market). Jobs like that are less sticky if the tax regime changes, and while they probably do make the country's economy more competitive the gains are smaller and over a longer term than people anticipate - hence the endless supply of stories about some new location attracting a few tech companies and declaring itself to be 'Silicon _______.'
The secondary markets which provide ancillary services to the firm and its local employees thus do best out of such an arrangement, and a lenient tax regime keeps them going for longer - in practice, as long as wage differentials are sustainable for the parent company, and there isn't an equally capable workforce available to do the task for substantially less. Service jobs (at the foreign firm) are somewhat sticky because you can't move your call center from Dublin to Shanghai - but you might be able to find that in Bangalore. Meanwhile, if enough foreign firms set up shop in a country and a thriving secondary market grows up to service their ancillaries - plant, payroll and infrastructure for the firm itself, housing and consumer services for the happy employees. Of course, this tends to overheat the local economy: if you think the US property boom was out of control, you should have seen the Irish one. The price/earnings ratio for housing in Dublin shot up to 100:1.
Predictably, the party stopped right around the time when the cost of living had inflated wages high enough to make Ireland a less attractive destination for multinationals. Irish people were feeling so prosperous and skilled at making money that nobody wanted to do boring things like farm work or child care, and so the country saw an influx of Polish farmhands and nannies who everyone agreed made great workers. Several multinational firms came to the same conclusion; Dell used to have a manufacturing plant near my hometown in Ireland which was the largest local employer, but decided to close it and open a new one in Poland instead, resulting in the loss of ~2000 jobs. Of course the former employees still have their skills, but assembling PCs on an assembly line turns out not to be all that special, and my understanding is that Dell had a policy of not recruiting for management from the local workforce, or even hiring skilled people who were likely to apply for internally-advertised management positions rather than stay on the assembly line.
(Please bear in mind that I'm drastically oversimplifying here, so as not to make this comment even longer.)
OK, so what does all this have to do with Google? Well the problem is that such companies are welcomed when they set up overseas, and great expectations accompany them. And in the short term, there seems to be a distinct increase in prosperity - but people tend to extrapolate the growth trend endlessly into the future, and spend the money almost as fast as they make it. When the inevitable inflation ensues, they tend to feel they got a bad deal and go protectionist or sometimes enact draconian new tax policies. Oh, and the Irish government is also in bad odor with other European countries, who have felt for a while that the country took advantage of its small size to get away with significantly undercutting its neighbors on corporate taxes during the good times, leaving a correspondingly deep fiscal hole now.
Back in California, people look at the overseas investment made by the multinational and conclude that if the expansion actually cost the firm a lot less than imagined, then the favorable domestic tax treatment of the overseas operations (an indirect export subsidy, in effect) essentially amounted to the US taxpayer bankrolling their overseas expansion without any of the benefits coming back to the US Treasury later. But isn't that good for overall US competitiveness? Maybe, but who was Google (or Yahoo, or...) competing with internationally when it set up shop in Europe - Baidu? I can't even name a UK or Euro search competitor of any significance off the top of my head.
So it's not obvious what US taxpayers gained by letting Google out of paying US taxes on Euro/Eastern Hemisphere operations. Sure, Google expanded its operations and brand, and indirectly the economic reach of the USA, but as they were also getting a sweet legal/taxation regime at the other end - much lower than the headline 12.5% corporate tax rate in Ireland - then it seems as if the vast bulk of the benefits went to Google. OK, they have to pay tax somewhere, but Bermuda, like most tax havens, is such a small country that even a tiny slice in 'fees' is a huge feast. Again, like most tax havens, Bermuda's actual contribution to the global economy is almost nil; about the only argument you can make in their favor is that they contribute to increased liquidity.
There's a worthy philosophical debate here about the ultimate economic value of exporting low tax rates. But in the short term, the pragmatic result is that governments of more developed countries feel scammed, because they obeyed the popular wish of investing in things like infrastructure and education in hope of a long-term payoff, and now that they find themselves distinctly short of cash it's hard to explain why the payoff has failed to materialize (or why they didn't manage it very well, when it did). Of course, there's a little bit of hypocrisy going on here - well, actually a lot. Governments are often getting sweetheart deals on the back end; this arguably represents a transfer of wealth from the US to the populations of other countries, even if only in terms of lost wages for jobs that are not location-specific.
As neither the US nor the Irish or Dutch treasuries saw a great direct benefit, routing all the money through Bermuda has the political (not legal) appearance of a money-laundering operation. Particularly in Ireland, where people paying 20-40% in personal income taxes and almost 20% in VAT (sales taxes) are wondering what is the point of having one of the world's lowest rates of corporate tax (12.5%) if the government doesn't even collect most of it from large foreign firms. This is exactly the sort of thing that tends to give people the idea that it might be better to just have their treasury own shares in the company instead, a strategy employed with varying degrees of success in places like Venezuela and France.
I want to make it clear that I personally don't subscribe to the idea of state-owned industry or the idea that you can tax your way to economic success. There are reasons Europe doesn't produce the kind of industrial giants the US does, and why the European software industry is much less competitive than that in the US - they're not all to do with heavy-handed industrial/tax policy or regulation, mind, but those things do play a big part.
But when there is a good deal on offer (such as Ireland's low corporate tax rates, much cited in the US during recent years), the short-term tax savings of trying to further minimize tax liability have to be weighed against the long-term skepticism that manifests at the bottom of a business/economic cycle. Google is a smart company and may decide it has an interest in writing a $500m check or so to the Irish government now, rather than risk being frozen out of the European market in the future by penal regulation or hit with fines from the EU's muscular competition commission. Possibly the US government too, rather than being subjected to excruciating Congressional hearings. At the very least, they are probably going to have to give up using the 'double Irish' method of moving their money around. Bermuda will have to sit through some chilly diplomatic meetings and make some concessions about the transparency of its financial reporting or the accounting standards it uses, as have other tax havens of yore such as Jersey, Monaco and so on.
To sum up, I agree with George that from a legal (and short-term economic) point of view, running profits through Dublin and then putting them through some quirky Dutch-Bermudan slimming diet before running them back through Dublin is an entirely rational course of action. And it may well be a superior moral course of action, if you consider that Google contributes significantly towards the common good by making a wide variety of high-quality services available to the public for nothing - services on which large chunks of the US economy have come to depend, and I include myself in that. I honestly can't think of another company that makes such a generous value proposition, and don't find the price of personally-targeted advertising very onerous.
But from a political point of view, the practice is unsustainable and deeply unwise. Entrepreneurs and fiscal/transactional engineers are a small minority of the population. Some chunk of the population leans left and thinks corporations should be taxed much, much more severely, because the infrastructural foundation of their business model was heavily subsidized by the public. Another chunk leans right and while not being in favor of taxes much, sees no reason why the US taxpayer should be indirectly subsidizing people in other countries like Bermuda or Ireland. Then you have centrist voters who may not understand or care much about the details but are worried about US jobs going abroad, a rising deficit, and can grasp the basic idea that Google is using a legal fiction to reduce tax liability. Go there's a good chance that Google is going to find itself being the national punching bag for the next week or three.
Ireland has very little industry, very little traditional ways to grow the economy. We all know if it wasn't for the tax breaks these companies wouldn't be here, and that there'd be loads of people out of work.
In the short-term, it's great because it gives your company some money to survive. In the long-term, when your actual balance sheet is red but because of SR&ED it becomes green, most companies are lying to themselves.
There are many companies in BC that rely on SR&ED and as a result, they're not dead nor living. They can't pay top money for top talent. Their product/software take the hit. There are many CEOs that only want to ship the product ASAP or else they're going down ASAP as well.
In general, it's a vicious cycle.
The reality is however, that taxes will have to be raised and the corporations will leave for yet another island paradise, and that will result in social catastrophe either way.
[1] http://en.wikipedia.org/wiki/List_of_countries_by_external_d...
High corporate tax rates didn't prevent a property bubble in the US or Spain, why would they have prevented one in Ireland?
Before making your argument, keep in mind that 12.5% of something > 33% of nothing.
low tax rate->more multinationals->higher debt for local business and government->higher tax rate->less multinationals->social catastrophe
into your line of thought:
low tax rate->more multinationals->property bubble->"current problems"
what are "current problems" you identify in Ireland anyway?
all I was saying is that low tax rate is not sustainable with level of public and private debts in Ireland. Do you agree or disagree?
of course property bubble is connected to presence of many multinationals in a way, but I wouldn't nor did I identify it with this primarily.
Property bubble was global as you might know. So why does Ireland have such large problems when compared to other countries?
rmc: "In Ireland, these kinds of tax breaks are one of the foundations of our economy."
You: "And that's the reason Ireland has something like 1000% external debt to GDP"
I pointed out that a property bubble was the primary cause, and that low tax rates are unrelated to this. Lets put aside your original argument, and focus on the new one. You assert "more multinationals->higher debt for local business and government". Could you explain this step?
As for why Ireland was hurt more than others, their bubble was bigger:
http://en.wikipedia.org/wiki/File:Ireland_house_prices.png
http://upload.wikimedia.org/wikipedia/en/c/c1/Median_and_Ave...
Anyway, we keep going and going in circles. Let's stop. The whole story (including why more debt) is very well described here: http://en.wikipedia.org/wiki/Celtic_Tiger
More on that later I guess.
Let me just add that it would be very simplistic to attribute "current problems" just to the property bubble, or high debts to just low tax rate for multinationals. So to make it clear, that's not how I think.
i.e. the collapse of the property market increased government spending/debt and decreased government income.
http://en.wikipedia.org/wiki/Anglo_Irish_Bank
Anglo had an arrogant and corrupt board also, which didn't help. (Incidentally, their former CEO, David Drumm, is hiding out in Massachusetts, and has filed for bankruptcy there, due to the far harsher bankruptcy laws in Ireland compared to Massachusetts.)
Irish banks could raise money in Europe (German money for example) and lend it at a higher rate here in Ireland. Because Ireland has such a tiny economy relative to mainland Europe, they could raise, and lend on huge amounts of money relative to the size of the Irish economy. At the peak of the bubble, something like one-in-seven people were employed by the construction industry, either directly or indirectly, which gives you an idea of how important it was to the economy. Now the government is talking nonsense about building a 'knowledge economy' - which makes me shudder as they will try to turn former bricklayers into C++ programmers or something equally daft. The property bubble was Ireland's first taste of real wealth in our recent history and we pretty much blew it on big houses and Range Rovers, like a newly-minted lottery millionaire.
Actually according to the CSO (http://www.cso.ie/releasespublications/documents/constructio...) in 2007 13.5% of the working population were employed in the construction sector. That's almost 1 in 7 people directly employed in construction.
(all the downvotes would be appreciated if they can provide alternative solutions)
Leave aside the moral outrage and any sentence that has "should" in it. You're not being rigorous in your analysis.
Next, think of the tax code as a giant bucket of Lego pieces. Google - and many other multinationals (including very small startup tech companies of the type that spring from the loins of YC) - simply assemble the Lego pieces as they choose.
Looked at as a strictly engineering exercise? No big deal. Hire better engineers (people like me) and get better results (cooler tax-Lego structures).
OK, put on your moral outrage hats again. We are finished with the tax engineering. Let's move on to the social engineering. Because that is what we are talking about when we say "X _should_ pay more to support government functions.". Except for a few people we will have general consensus that a government is good and services need to be paid for. It's just a giant "Not out of my wallet!" game now. Sometimes logic, sometimes "Think of the children," sometimes whatever argument you can muster. All of these devices are used to deflect the tax collector's attention to someone else's wallet.
That is how I look at this topic. And from this perspective I derive two conclusions:
- if you don't like the way multinationals create their Lego structures, change what is in the bucket of Lego pieces. That is the job of Congress, not Google.
- if you plan to change the laws, expect the argument to devolve quickly to uninformed "think of the children" arguments because politics is purely that. No A/B testing is done. Statistical analysis is bent to prove a point, not looked at dispassionately to optimize decisions.
Two last points.
- Every dollar Google makes will eventually go out to employees, vendors, and the government. (At the moment they don't pay a dividend, so the shareholders do not get anything directly). A corporation is not some giant Jabba the Hutt that grows bigger to infinity. It is ultimately just a money collector and distributor.
- the particular game they are playing in fact acts as a net revenue transfer mechanism from the US Treasury to the Irish government. I will have to find the article that describes this so clearly. I'm on my phone right now in downtown LA about to give a speech in a few minutes. I'll be back. (Heh. What a disappointment he turned out to be for California).
"Google's practices are very similar to those at countless other global companies operating across a wide range of industries,"
So, why's the article about Google? Shouldn't the article be about "countless global companies" bilking us for billions? I'm astonished at the lack of outrage on this issue every time it comes up.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a...
In 2008, GS's effective tax rate was 1%!
I'm not going to spend more time looking through the 2008 quarterlies, but I would guess they lost money in some of those quarters, creating a tax benefit. If you find that shocking, well I can also give you amazing advice to lower your tax rate to 0% but you may not enjoy it.
In 2009, Goldman's pretax earnings returned to its historical range and the company again paid ~30% income taxes. These financials are all public, you can look at them on the internet.
Anyone Google hires in the UK (up 'til now anyway) has been educated at the expense of the taxpayer, for example. If someone breaks into their offce, the police will show up to investigate. Why shouldn't they pay their fair share?
Besides, if you look at the things the government is doing with the money recently vs. what Google is, there is no contest!
Fortunately we have a government now that ain't gonna stand for no jibba jabba.
Google is not obligated in any way shape or form to pay more for taxes if there are rules and regulations that state they can operate their business in a certain way that allows them to not be taxed for that amount of money.
As a socialist I don't agree with that (I am from Europe), and I wish they did pay more taxes as it would certainly help the various governments there provide social services, at the same time I can definitely see that Google who is accountable to its shareholders and has to make as much money as possible is going to use the loopholes to keep as much money and not have it taxed.
Is it ethical to avoid paying tax as an individual? Many would say no. But when a company does it, they lay their blame on the shareholders and the market. So the more outrage about this subject, the better. Our governments can either raise taxes or lower taxes. But they shouldn't let individuals and business get away with pretending to pay taxes when they're not.
Do you mean avoid (by legal means) or evade (by illegal means)? Any government that uses tax incentives to affect citizens' behavior is saying it's ok to avoid taxes. If they promise your taxes will be lower if you do x rather than y, they're counting on your desire to avoid taxes to motivate you to do x.
One of the healthiest features of the American experiment is a federal system where you have a broad spectrum of options in terms of tax rates versus social services. People (and companies) can, and do, pick legal regimes which optimize for the outcomes they find important. You may have heard people sort of like living in California, especially if they work for political subdivisions of it: that comes at a price -- you'll pay a gobsmacking amount of money in taxes relative to a similarly situated individual in Texas. (I managed to pay California several hundred dollars in taxes last year and I don't even live there. Yay, hotel tax.)
Competition among governments internationally is also healthy, for much the same reason. The market in tax and legal protection encourages governments to not just expropriate all the surplus from their wealth-creating constituents.
But if a corporation has a significant presence here and is consuming an american-educated work force, american highway spending, american police spending, american state dept actions to ensure supply of various things (the oil industry would grind to a halt without the cloak and dagger stuff)..
then they pull an accounting hack and we're supposed to believe 98% of their operation is in the Cayman Islands? We're getting ripped off. You don't like taxes, I get it. How do you like the idea that you're paying higher taxes (or taking on more gov't debt) because other people are bilking the system?
you never hear Singapore, Dubai or Hong Kong being called 'tax havens' (they are), the word is usually associated with 'Dutch Antillies, Bermuda, Jersey, Guernsey' (ie. evil nations who are taking our money)
The question is, why do the loopholes still exist? Why aren't more people angry about them?
EDIT: Downmodded? Seriously, guys, noncontroversial statement. Go talk to an economist. Or a lawyer. Corporations are legally obligated to be sociopathic and maximize profit above all else. It's a feature, not a bug, invisible hand and all that.
We all try to avoid paying too much tax, but that's not tax avoidance. Sending your profits to the Bahamas via Holland and Ireland is tax avoidance. I'd be happy to tell everybody and anybody about how I legally reduce my tax bill. Google's PR people would probably rather keep their methods on the down-low, out of the public eye, in spite of their utter legality. So why is that?
They might say that, but their actions -- buying from duty-free stores, contributing to tax-deferred retirement accounts, filing jointly with a spouse, and claiming every possible deduction -- suggest quite the opposite.
There's a world of difference between illegal tax evasion and legal tax avoidance, and all indications point to what Google is doing as being tax avoidance. How many individuals went to the IRS and said "here's how I'm planning on reducing my income taxes; can you see any problem with this"?
The fact is that they pay 2% tax while most US based persons pay at least 10x that rate.
22.2% - overall effective tax rate in US in 2009 (compared to 27.8% in 2008)
2.4% - average overseas tax rate 2007-2009 (that's what they pay to the Rest of the World, where they earn 88% of profit)
And this is Google's fault? If you don't like the outcomes that result from players playing by the rules, perhaps you should direct your ire toward the rulemakers rather than the players.
Pointing out the "unfairness" of their reported tax rate does not directly refute cperciva's comment, but it seemed to stand in opposition to it nonetheless. I inferred that you think Google is at fault, here.
"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands" — Judge Learned Hand
It is not evil to minimize your tax liability within the rules. If Google were spending millions lobbying to decrease their tax liability, then that might be evil. Minimizing your tax liability is perfectly reasonable. Not doing so would be doing a disservice to shareholders, and is arguable more evil.
I hate that crap. It's possibly the worst thing about our media.
Mountain-top removal by coal mining company devastates 100 SQ mile ecosystem in West Virginia? Doesn't even make the paper.
Al Gore's electricity bill is high? PAGE ONE BABY. Al Gore's electricity bill is approximately 1 / 100,000,000 or so of the problem. But it makes us feel good to give do-gooders their comeuppance. Serves them right, for trying to improve things and making us feel bad that we don't do more ourselves.
Al Gore has rallied to get the government to start forcing corporations to use carbon credits and buy them from companies that he is invested in. It's not that he is a "do-gooder", it's that he is an unethical hypocrite. These kinds of people need to be pointed out.
You could focus on shaming Al Gore into buying solar panels, or you could focus on some $100 billion energy company where you could actually make a measurable difference. It's about priorities.
The media likes personalities because individuals are a lot more salient than statistics, and offending an individual never alienated an advertising customer.
It's my understanding that the way we've defined fiduciary duty (roughly speaking) requires public corporations to do this if it's legal. Can anyone comment on that?
So we should redefine tax law so that it's not legal, and have everyone pay their fair share. Only ourselves to blame, I'm certainly not blaming corps for chasing dollars.
It's a ridiculous notion that any single corporation's tax contribution will put even the slightest dent in the budget deficit. Government spending is like gas in a vacuum, it will expand to fill whatever space you give it.
I would imagine that whatever profits are passed along to shareholders are taxed as capital gains. So, while it is a great headline to say Google pays 2.4% corporate tax, might it also be fair to say "Google shareholders pay 2.4% additional tax on top of the regular tax they pay on their income from capital ownership."?
Now, I'm not at all aware of how capital gains taxes and wage-style income taxes compare, and my inner liberal slant / desire for social justice inclines me to believe that those with the means should pay MORE than their "fair" share.
But I can't help but think that, at least at a theoretical level, there is someone, somewhere, who makes their living investing in corporations - lubricating the gears of capital society - but isn't phenomenally wealthy, and actually pays a total higher % of their "income" than a wage slave making a comparable amount of money. VCs? Angels? Wouldn't we as a society want to reward this behavior?
I can just as easily see the other side; maybe in theory this is right, but the reality is that capital gains are the domain of the ultra-wealthy, and corporations are frequently used as tax havens, pushing money around from holding company to holding company. If the corporation buys something and the owner uses it, that's an effective way to minimize your total "income" without losing the benefits of your wealthy lifestyle.
I would love to hear thoughts on this, particularly from anyone more familiar with tax law.
I will say that this seems like a company that should be started by lawyers and not programmers though.
For small companies with a single office etc., that is all that an offshore tax structure is.
The point is that when you structure these things, you don't want anybody to notice and you want to be a small target. Being a client of a startup whose intended purpose is to minimize your tax bill is the opposite of remaining unnoticed.
I make a truly decent wage. Not an earth-shattering one but a wage that beat the hell out of anything my mom made while I was growing up. I am a very fortunate man.
Heinlein wrote a thing about freedom:
"In terms of morals there is no such thing as a ‘state.’ Just men. Individuals. Each responsible for his own acts. I am free, no matter what rules surround me. If I find them tolerable, I tolerate them; if I find them too obnoxious, I break them. I am free, because I know that I alone am morally responsible for everything that I do."
In my case, I find taxation to be tolerable. It finances things like education for people with fewer advantages than I have right now. Ideally, a much bigger proportion of my taxes would go there. It also finances stupid things, like the TSA and DHS, and that's unfortunate. It financed military adventure in Iraq, which I find repugnant.
But I want to live in a society where you're not screwed based on the number you draw in the ovarian lottery. Where you can be taught useful skills to make the most of the opportunities you find. Where you don't have to pay for this privilege – until later, when you pay taxes. I'm not aware of any scalable solution to this that doesn't involve taxation of my earnings.
So I tolerate the imperfect because it's what I've got. Until there's a better way to ensure that the next generation isn't screwed by bad luck, I can't avoid that taxes are how I can do my part for the moment.
Meanwhile, Google is free to break or bend the rules, too. If they share my values on this subject, I'd hope they'd do their part in some other way. But that's up to them.
Think with your head, not your heart.
However, what it will actually cause lawmakers to do is increase regulations to make income transfers like this illegal, and leave the corporate tax rate as is.
http://www.qbalance.com/Corporate_Tax_Rates_United_States.ht...
But Bermuda still beats out us at ZERO corporate tax rate.
Examples of corporate tax rates for a few English-speaking countries include:
Australia: 30%, however some specialized entities are taxed at lower rates.
Canada: Federal 11% or 18% plus provincial 1% to 16%. Note: the rates are additive.
Hong Kong: 16.5%
Ireland: 12.5% on trading (business) income, and 25% on nontrading income.
New Zealand: 30%
Singapore: 17% from 2010, however a partial exemption scheme may apply to new companies.
United Kingdom: 21% to 28% for 2008–2010.
United States: Federal 15% to 35%.[18] States: 0% to 10%, deductible in computing Federal taxable income. Some cities: up to 9%, deductible in computing Federal taxable income. The Federal Alternative Minimum Tax of 20% is imposed on regular taxable income with adjustments.
When profits flow onto shareholders, the shareholders receive tax credits for tax that the company has paid on its profits. The result is often that, by the time corporate profits end up in the shareholder's pocket, there is 0% effective corporate tax over and above personal income tax paid on the dividend.
EDIT: That's for profits. Companies still have to deal with state payroll tax, collection of sales taxes, etc.
http://www.google.com/intl/zh-CN/corporate/responsibility_en...
"Look at how great we are" type giving: http://www.prnewswire.com/news-releases/the-brin-wojcicki-fo...
We hear corporate leaders (Gates, Brin, et al) lecture on social responsibility, yet they undercut the very structure of society by skirting tax laws.
How will we build universities, roads, public infrastructure without tax revenue?
Now the hacker in me says, knowing how corporations behave, how do we fix this? Do we have tax laws that encourage corps to pass along more earnings to share holders? Implement 0% corporate tax rate and then capture tax revenue out of individual capital gains and taxes on dividends?
It's one thing to rage about this, it's another to come up with a solution.
If you're an entrepreneur and are against this, I hope you voluntarily don't take the tax breaks afforded to you, or else you're a hypocrite. Lunch with business partners? Better not write that off. Your internet or cell-phone? Don't write that off either. Part of your apartment where you code for 5 hours a day? Don't write that off either.
There would be a real value in streamlining this legal process of creating shell companies or whatever is needed in some sort of mass market approach.
It seems like the only people this is available to are big companies or high net worth individuals who can afford expensive one-on-one consultation with accountants/lawyers.
A start up could possibly hire such lawyers to do what they do for national for the general public, but possibly each individual has his own requirement and tax lawyers are quite expensive.
If I steal a couch from a furniture store, I don't get to defend myself in court by saying I bought a table from them.
"Sure, I cheated on you with your sister, but at least I didn't cheat on you with your mum!"
Google is dodging taxes by shuffling their profits around the world. Everyone knows the numbers are a legal fiction, and while legal, there are valid questions about how ethical a practice it is. That they pay other taxes is by no means a defense.
http://www.freshfields.com/publications/pdfs/2007/boyle.pdf
http://faculty.chicagobooth.edu/austan.goolsbee/research/mun...
http://ideas.repec.org/a/eee/pubeco/v93y2009i1-2p142-159.htm...
On the other hand, the people who work for Google are ... people. And I'm sure the great majority of them pay plenty of taxes (income, payroll, etc.) in whatever jurisdictions they live in.
One of the primary functions of Google-the-entity, is to get that money to the people. In doing so, Google-the-entity pays very little tax, but the people pay lots. So the money is taxed, government programs are supported, and all is well.
To put it a different way, Google's tax strategy can be considered as a way to minimize the effect of governments taxing their people twice.
The same goes for Goldman, et al., unless congress passes another "repatriation holiday" in the name of stimulus.
To me, it's insane that the US government feels that this is reasonable.
> The government has made halting steps to change the rules that let multinationals shift income overseas. In 2009 the Treasury Dept. proposed levying taxes on certain payments between U.S. companies' foreign subsidiaries, potentially including Google's transfers from Ireland to Bermuda. The idea was dropped after Congress and Treasury officials were lobbied by companies including General Electric (GE), Hewlett-Packard (HPQ), and Starbucks (SBUX), according to federal disclosures compiled by the nonprofit Center for Responsive Politics.
The issue is that the US (like many countries) has the best tax code money can buy. The US has the additional problem of dual sovereignty such that the states are competing with themselves to offer tax breaks to lure in companies and thus jobs.
Companies are like water: they seek the lowest level. They're not immoral, they're amoral.
A hideously complicated tax code is going to have holes in it so simplify, simplify, simplify.
In the UK our government has sunk billions into the Royal Mail, but we still have to pay thousands a year for just a fraction of the functionality of google's geocoding.
Those companies all sell hardware. Apple can't say 'lets book those Palo Alto store sales in Bermuda'. Ads served are a total volatile good (their value is the time they spend rendered on a screen infront of a user). Google has a huge advantage because of this (and it also makes the ad trade ideal for money laundering).
To relate this to startups :
If you are a startup and you are accepting foreign money and you are bringing it straight into the US and paying tax on it, then you are doing it wrong. A merchant account in Bermuda is easy to setup and is completely legal. If you are not doing all you can to minimize your tax obligation then you are not doing your job properly.
This is a pet peeve of mine: company directors are not obligated to minimize costs or maximize profits.
http://crookedtimber.org/2008/07/25/what-obligation-maximise... http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1013744
On the other hand, they are a bit "disingenuous" (Jobs' favorite word to describe Google) about their mantra, as ultimately this profit is made at the expense of American citizens (lower tax revenue). Why does it matter? Well it matters because they (tangibly and intangibly) benefited greatly then and now from the "Do No Evil" mantra, and they should accept that it comes at the price of people holding them to a higher standard. It is "Do No Evil", not "Do Less Evil" or "Do No Evil When Convenient".
Why not move that part of the company, that collects all international ad revenue and whatnot, to the Netherlands or Bermuda, and just skip the tricky step of getting the money out of Ireland?
It's amusing to see how effective industry lobbyists have been in shutting down any reform that would close these loopholes. Lets talk about slashing entitlements but completely stonewall any attempts to get corporations paying more tax...
If these big companies want to have the rights and privileges that citizens do (treated as legal entities, freedom of speech through political contributions, etc) then they should have to play by the same rules and with the same encumbrances.
I'm speaking for the US, by the way.
And, to put that simple, we are not talking about a couple of thousands dollar a software engineer is not paying: we are talking about millions (billions?). Greed is bad, is fucking bad. And all this talking about disruptive innovation is usually a bunch of stupid Internet Services to play with. I think the hacking community is overestimating its value.
No cancer cure. No cheap energy. No cleaner air. Just some web app, iPhone app, something app.
Google taxes would fix a lot of problems, just letting millionaires a bit more poor. I can live with that, why you can't?
The second reason though (going off topic) is because they don't have anyone to talk to in turkey for censoring stuff, which is very evil of them.