Google insider exposes ‘immoral’ tax scam
thesundaytimes.co.uk
thesundaytimes.co.uk
Judge Learned Hand was the most important judge never to sit on the Supreme Court. Here's what he has to say:
"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... Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."
Essentially, they expected that no one would ever check whether a tax nexus was established in the UK. The fact that the UK didn't have any ability to check if this was true doesn't mean a law wasn't broken.
Saying that Google is avoiding tax is fine. Saying that Google is evading tax is not fine unless I can prove that they are.
Note that "tax avoidance" used to mean normal "tax planning" - using purely legal means to reduce your tax bill. Now it feels a bit different. Now it feels a bit sleazy, a bit of a grey area, a bit borderline. When people say "tax avoidance" it feels as if the steps taken are right on the borderline, or are loopholes that just haven't been closed yet.
Tax avoidance has evolved into a shell game of jurisdiction shopping and regulatory arbitrage.
In the USA, states got so fed up with companies assigning their trademark and copyrights to DE subsidiaries they could make tax-free royalty payments to that they started doing combined reporting to nullify the effect of those constructions. Even though companies had no offices, employees, or business in DE, they nonetheless were claiming that their very valuable IP was situated there.
The net effect is that it's easy to deduct royalty payments in a high tax state and have them appear in DE, a low-tax state.
Not to be undone by combined reporting, they've (companies) now expanded this approach to offshore destinations to keep the benefits of transfer pricing. GOOG does it. AAPL does it. MSFT does it.
http://www.nytimes.com/2012/04/29/business/apples-tax-strate...
The tactics of Google, Amazon, Vodafone, Starbucks, etc etc etc mean that "Tax avoidance" now means complex schemes which are probably legal, but that might not be. The schemes are complex, and require believing odd things to be true. For example, Starbucks makes no profit in the UK[1], something that people will find baffling if they've ever bought a £4 coffee.
Any one of the big four accountancy firms has more staff that the HMRC. There's big money to be made in avoiding tax. When firms are caught they negotiate deals to repay some, but not nearly all tax.[2]
But the final slap in the face is that underfunded, understaffed HMRC gets "help" from the big four accountancy firms. What's the catch? What could possibly go wrong with allowing the poacher to play at gamekeeper? They lend staff to HMRC to draft tax law; they then use their knowledge of those laws (that they helped to create) to exploit loopholes.[3]
People really don't mind if you plan your taxes to reduce the bill. But they do get angry when they see people "taking the piss", especially when the country is going through austerity measures and when the NHS is being crunched. All these companies make use of UK infrastructure (police; education; health; roads, etc etc) - they should pay their tax.
[1] (http://www.independent.co.uk/news/uk/home-news/starbucks-is-...)
[2] (http://www.guardian.co.uk/politics/2011/dec/20/inland-revenu...)
[3a] (http://www.ion.icaew.com/TaxFaculty/26745)
[3b] (http://www.guardian.co.uk/business/2013/apr/26/accountancy-f...)
Aside from this being false (not everyone arranges his affairs so that his taxes shall be as low as possible), Hand's observation is rather strikingly like another, more famous about equality before the law: "The law in its infinite majesty forbids the rich as well as the poor to sleep under bridges, to beg in the streets and to steal bread".
It's true that the law itself is pretty nuts, but things would be a lot better if people (natural as well as merely legal) didn't regard taxes as a punitive burden to be lessened by any means. Functioning and funded governments are good!
But the law doesn't say that. It says if you don't have any profits then you don't pay tax, so the company sets up another company in another place and charges the initial company all of its money for "branding services".
This was very clearly not the intent of the law, it's a dodge and the people doing it know it's a dodge.
"The Remissness of our People in Paying Taxes is highly blameable; the Unwillingness to pay them is still more so. I see, in some Resolutions of Town Meetings, a Remonstrance against giving Congress a Power to take, as they call it, the People's Money out of their Pockets, tho' only to pay the Interest and Principal of Debts duly contracted. They seem to mistake the Point. Money, justly due from the People, is their Creditors' Money, and no longer the Money of the People, who, if they withold it, should be compell'd to pay by some Law.
"All Property, indeed, except the Savage's temporary Cabin, his Bow, his Matchcoat, and other little Acquisitions, absolutely necessary for his Subsistence, seems to me to be the Creature of public Convention. Hence the Public has the Right of Regulating Descents, and all other Conveyances of Property, and even of limiting the Quantity and the Uses of it. All the Property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition. He that does not like civil Society on these Terms, let him retire and live among Savages. He can have no right to the benefits of Society, who will not pay his Club towards the Support of it.
That being said I think it's a problem that needs to be fixed in the culture and governance of a people, not in Google itself, since attempting to assign any civic duty to a multinational is probably laughable. Singling out Google probably doesn't do too much good, except maybe to make people think of "favorite company X"'s role in society.
Say that to workers who have to pay 40-50% of their tax & mandatory pension saving only to see it being swiped out by the government on the next recession.
Society functions by and large by public services which, whether you like it or not, need money; not magic. Every functional society has had tax collection in some form or another as a result.
There are communities that don't charge taxes for things, and they're heavily de-regulated as a result. They also heavily favor self-reliance and don't feature luxuries such as Police or Firefighters.
I had a more "radically libertarian" view before I "settled down" (bought real property, got married, made a child). I've increasingly bought into the idea that paying a fair fee for the services that society offers is a reasonable bargain. Paying the fee isn't the issue for me anymore. Rather, the uncivil political discourse and refusal to make reasonable compromises to deal with disagreements about how that money should be spent (and how government, defense, and social service programs can be sustainable) is what irks me. Living in the US makes me feel like a large part of my taxes are nothing but throwing good money after bad (even though I know it's really not as bad as I think it is).
I encourage people to donate to their local volunteer fire and ambulance services for this very reason. Also, if your local police are having a fundraiser, you should consider helping. You can side-step the inefficiencies of government distribution (and the bickering) if you take an active role in directly funding these essential services.
Most of these should also be tax-deductible so you're just basically side-stepping the middle-man (the bureaucracy) and making sure the money is going where it's needed directly.
I mean, honestly, considering how many people are clustered together these days, we're just not equipped to deal with the chaos that will come about if there was no social infrastructure. These things run on tax money.
There's nothing inherently wrong with being libertarian (after all, the root "liberty" is in there). I'm just very uncomfortable with the casual disregard for all authority, order and in many cases, common sense, that some folks who claim to be libertarian tend to espouse. Last I checked being libertarian required a great deal of common sense, a sense of fairness and above all else, order and self-control.
There are of course other sides to the contract. Where I'm from one of the other sides is inflation-adjusted pensions. I work just like everybody else did, future and past. Yet I do not have the right to inflation adjusted pensions anymore.
Now that contract, when I read it at age 20, really did not seem to leave any leeway to cancel them, but of course the state is sovereign. No matter how (legally) solid a promise or contract, the state is under no obligation to execute it (not even for people who are current pensioners, and have very little power in the current system. The ones that trusted the government to hold up it's end of the bargain got screwed. Some got screwed, aged 70 or so, and became homeless. I knew one of those).
That event has opened my eyes. What I'm paying taxes for, ~40% goes to paying pension, both of which are getting canceled. Another 50%+ goes to national health insurance and unemployment insurance (I'm in Europe), and in Brussels it is obvious that this part of the system is collapsing, but is also begin used as "bread and circuses" for most of the inner-city population, leading to fast growth. People blame immigration for this, and while that's a significant chunk, the root of the problem is that low-paying jobs are a lot worse than unemployment to any rational person. They're much more likely to demand overtime and extra work than high-paying ones, and the commute costs money, and the whole thing is just so much more stressful than actually doing something.
So there's 2 factors here that I find most offensive about taxes. First, I'm being held to tax law, but the government is not being held to it's promises (like my pension). Second, the government has created a feedback loop that uses my taxes and makes people dependent, brought the whole thing close to the breaking point, and expects me to pay for it.
Screw them. This is not rational on any level. Sorry. I do not volunteer my time on one-sided contracts, where the other side has zero intention to fulfill it's end of the bargain. Whatever I can do to lower my taxes, I do. And I don't consider it morally dubious even. Whatever one can do to make this bread-circus system collapse faster should be done, for the longer it takes the bigger the suffering will be.
Virtually none of the tax money goes to help the downtrodden or to build necessary infrastructure.
As a property owner you are getting big tax breaks and so your support has been bought.
That's not really true. A large part of your taxes goes to the military, but that's not co-extensive with the Iraq and Afghanistan war. That money goes towards maintaining the largest most powerful military in the world, enabling the U.S. to continue to be the supreme world power. If you don't think that primacy is directly relevant to your quality of life as an American (a people who as a category consume a disproportionate share of the world's resources relative even to other highly developed countries), I'm not sure what to tell you.
The quality of life of a lot of countries is influenced by the American military, both good and bad.
And actually, the US doesn't spend nearly what most people think it does, as a percentage of GDP.
...to
"No. Taxes are a service fee paid as agreed to in your social contract (which you signed by participating in said society). If you disagree with this contract, you're free to move elsewhere that is a. Devoid of taxes (good luck) or b. Devoid of society."
...but then proceed to say:
" Paying the fee isn't the issue for me anymore. Rather, the uncivil political discourse and refusal to make reasonable compromises to deal with disagreements about how that money should be spent (and how government, defense, and social service programs can be sustainable) is what irks me."
...which I actually agree very much with.
The "If you disagree with this contract, you're free to move elsewhere" argument offends me greatly, my interpretation of that is that the author believes they hold the ultimate final wisdom on the subject, and you either take it, or you leave.
I fully agree that there should be some taxes, and different people should pay different amounts (from each according to his ability) not so much because it is "right", but because it is "wise", it is (I think) the best way to structure a society to maximize happiness (not the right word really). I believe it is best that those who are more able are forced to pay more (in absolute numbers, if not necessarily percentage, but maybe that too), but I also believe the people who are on the other side of that deal should also be made (somehow) to know how good they actually have it, and it wouldn't hurt them to maybe say "thanks" now and then.
Now, imho money in society is largely ending up in the pockets of people who in no way actually earned it, so some of the above doesn't apply. I don't think someone making minimum wage should be saying thanks to a Wall Street banker for example. I think money "should" be flowing to people who genuinely innovate to raise the standard living of his fellow man, and citizens of the world. I'm thinking innovations in manufacturing, distribution, medical & health advancements, some forms of software, etc. Things that make a real difference.
I also happen to feel/guess that the real, righteous innovators who are really improving the world, probably would be very ok with getting just "very rich" despite how much they've given the world, whereas many of the recipients of the big money flows today (who in very many cases have really done nothing beneficial for the world, often the opposite even), want to keep all of their money, and will do almost anything to keep it, things that they very well know are morally wrong, by most any definition.
The problem is, who is wise enough to make these decisions, of what is the right amount of taxation, what is the right amount of privatization vs socialization, etc. I think we need some social enlightenment, and I don't see that happening any time soon. We've had great experiments of different models in different countries throughout the world, I think we have plenty data for wise open minded people to make a very accurate judgement in some cases. But then, it is also extremely culturally driven, and with current immigration and reproduction rates around the world, I think the makeup of societies are now changing so quickly, that the "best" solution that would have worked in a particular region 20 or even 10 years ago, might now be nowhere close to the best solution. For example: I grew up in a small, close knit community, where everyone knew everyone. There were always some layabout people and families who were always sucking on the public teat, but that's just the way it was, and no one really got overly upset. But if multiple families like this start moving into my neighborhood from other countries, and they don't seem particularly interested in the community or my culture, and choose to associate only amongst themselves, while still helping themselves to the rich social programs that are largely a product of lifetimes of extremely hard work and sacrifice of my ancestors, well, I'm not so ok with that.
I'm not sure what my point is really. I think on one hand, our technology and highly automated manufacturing allows us to get 75% of everything else wrong and still have a high and extremely widespread standard of living. On the other hand, I think if we could get that other 75% down to around 25%, perhaps the wealth could be spread around more fairly (one class who's getting royally screwed is the current generation of workers in Chinese factories) without everyone getting bent out of shape, and we could perhaps have some leftover to work on some of the really important problems in the world, that can almost only be solved by a socialized effort.
We can deal with Uncle Sam's cut and how it's spent with the ballot box.
I would caution, however, too many people vote candidates into office on only one or two of their pet issues. I understand no one will find a candidate they agree with 100%, but there's a lot more to a person than just taxes, just guns or just environment etc... This has to change.
People need to look at what they're really getting themselves into by voting for the right people after thinking very carefully and objectively. And of course on more than one or two issues.
This is what Plato has Socrates argue in Crito, but it is bullshit outside of perhaps a limited few scenarios (such as: if you are an older adult with the capacity to be politically aware, the means to remove yourself, and the emotional hardening or ideological emphasis necessary to abandon your friends and family.... in other words, if you are Socrates.) Those who actually have the ability to do as you implicitly suggest they should if they do not consent are a very small minority.
"If you don't like it, leave it" is the cry of those who are in privileged positions in society and think that those below them should suck it up and deal with it.
(Of course "leave" also becomes difficult for the extremely wealthy since, unlike in Athens at the time ("Any one who does not like us and the city, and who wants to emigrate to a colony or to any other city, may go where he likes, retaining his property."), we have "exit tax" for those people. These few people must be taxed in order to opt-out of being taxed.)
Your point is valid in an idealized world where taxation is fair and spending transparent. But in today's world progressive taxation is simply a tool to extort complacency from the masses and allow the powerful to start costly wars using terms like "evil" and "evildoers" rather than having to make a rational cost/benefit analysis.
> Spending must be transparent. No argument here.
> Wars of aggression (already illegal) must stop.
> War on drugs, and other likewise stupid expenditures must stop
(slow, but getting there)
It isn't all or nothing, we can have low, honest taxes and a decent society with a more vibrant private sphere.
"Stealing" is "stealing". "Taxes" are not "stealing". "Taxes" are what is used to pay for the services used by and benefit the people. Money collected under whatever other label you give that is not used for these purposes is "stealing".
You're saying that if legal money collection benefits society it is "tax", but if it does not benefit society it is "stealing"? Sure, if you split the words that denote legal money collection into these two forms, then tax is not theft. I simply define tax as legal money collection.
I'm not anti-tax, btw, but neither do I subscribe to the view that just because a government passes a particular money collection law that it's a just law.
But I don't think it's hair-splitting to call the collection of funds for the benefit of society (and actually used for societal projects) taxes and those collected to stuff the coffers of politicians and their cronies as stealing.
In other governments, where order is kept at the end of a barrel rather than with a vote, I imagine stealing takes place quite flagrantly, but then the rest of the wouldn't call that a "tax" at all (secretly, those citizens would also call that stealing).
There are practical reasons to tax more or less. But no moral ones. Without ordered civilization real wealth creation, beyond the savage subsistance level Franklin points out, is not possible and by virtue of that fact there are no moral limits on taxation.
But in a sense you're right. Under our system someone who might be a warlord is stuck bagging groceries. Whether he still benefits is a philosophical question. He may be better off in absolute terms in a society with modern medicine, even if he is a grocery bagger in that world. But psychological research shows that humans perceive prosperity in relative terms. Better to be a warlord in a primitive society than a peasant in a modern one.
Regardless of whatever fine tuning is needed for long term sustainability, the solutions that have already allowed so many humans, with a good portion of them even having an excellent quality of life, are not possible through the naive exercise of brute force.
Of course, that all goes to reinforce the idea that complete independence and self-sufficiency are unrealistic—the planet can handle far more humans living in communities and cities than it can handle humans as hunter gatherers or humans farming for themselves without trade—and that no one today is successful independent of the economic environment where they find themselves, but it doesn't mean that there is something "unnatural" about people other than warlords having the most influence and power.
I didn't say it was "unnatural." Indeed, given history, you can say that it's the natural tendency of humans to organize into collectives. The term "state of nature" usually refers not to whatever humans do naturally, but rather the condition that exists prior to the creation of society.
"Property is the fruit of labor...property is desirable...is a positive good in the world. That some should be rich shows that others may become rich, and hence is just encouragement to industry and enterprise. Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself, thus by example assuring that his own shall be safe from violence when built." -- Abraham Lincoln
I think guns and the 2nd Amendment help the "weak" much more than taxes.
Would sentiment among the public or pros have changed with the times?
In addition, the pilgrims from the Mayflower Pilgrims were not individuals fleeing religious persecution, they were given a "patent" or license by the King of England to settle Virginia, they were actually corporate recruits and given stock in the company in exchange for the risk they took to settle the New World with all assets (crops, livestock, ect...) to be owned by the company.
I am not sure if sentiment about taxation has ever changed over time, going to the Bible and Jesus was betrayed by Judas, a tax collector, the disciples vilified Judas before he became a disciple. Then again Jesus himself in relation to taxation may have said render unto Caesar what is Caesar's for ours is the Kingdom of heaven. Sure you have people like Warren Buffet publicly claiming they are willing to pay more, but the reality is nothing is currently stopping him from paying more, he does not need a law mandating him to pay more, he could take it upon himself to pay a flat tax of 35% across the board, but he does not, he still pays less than his secretary. Otherwise as of late the US has helped lower corporate taxation through the advent of the "election to be taxed as a small corporation" (S-election) and the more recent advent of the LLC, both of which which offer a single taxation structure down from the double taxation of your standard corporation.
Government activity was also a tiny part of the economy: "Another important difference is the scale of government taxation and expenditures relative to the entire economy. Government spending is currently a major portion of the total U.S. economy – in 2002 government expenditures and investment at all levels comprised about 20% of total economic output. In the late 1800s government expenditures were responsible for only about 2% of national output (earlier data on national output are not available). " (Source: http://www.eoearth.org/article/History_of_taxation_in_the_Un...)
Another source of similar info: "But lets start with what was levied initially: 1. Excise taxes: First levied July 4, 1789, they accounted for 80-95% of all federal government revenue. Tariffs were the main source of government revenue through the 1800s. 2. Property tax: One of the earliest taxes imposed. In 1634, property taxes were assessed by the colonies. In 1796, 14 of the 15 states collected property tax. Delaware levied tax on income from property, but not on the property itself." (Source: http://www.foxbusiness.com/personal-finance/2011/08/25/snaps...)
By looking at these taxes, seems like it would be a no-brainer to pay them. As a property owner, I will gladly pay to ensure I have security, safety and infrastructure around my property. Safe, clean areas with good schools tend to promote better property value growth. As a consumer, if I want something that is imported or otherwise taxed, I will probably still buy it. I may consume less of it due to the price. There has to be an exemption for essentials, but overall, if a Honda or BMW happens to cost 30% more because it's imported, whether I buy it or not will depend on whether it's 30% better than the alternative (if there is one).
What we have today is hardly what Ben Franklin was talking about. Today, those who consider themselves upper-middle to upper class are paying 10-22% (top 1% is around 28%). (Source: http://www.forbes.com/sites/timworstall/2012/07/15/the-real-...) For that, they don't get any type of real retirement guarantee, nor any health care guarantee, or even truly free education. Even the public schools cost money because the free services are bare minimum and do not include anything to do with sports or education outside of classrooms. In order to have any of those social safety nets kick in, those upper-middle class members have to hit financial ruin.
Also, funny math in the referenced Forbes article - 3 of the lowest quintile supposedly get money back that they did not earn... I haven't verified the math, but it's a bit disturbing that the tax system is being used as a means to directly redistribute wealth, and not actually provide services to all of society. Somehow in my mind, taking money from person A and directly giving it to person B strikes me as wrong. Taking money from person A and providing health care accessible to person A, B and C, does not result in the same emotional response for me, because person A actually gets to enjoy some of the benefit of this social good.
(Granted this is a mathematical problem for millionaires, but still...)
There's a lot distortion and unseemly outcomes that flow from having misaligned personal, capital gains and corporate tax rates.
It is not about getting what you put in, it is about a safety net for old poor people who have no income, whether or not you agree that we should do that, to me it is clear that is what the goal of SSI clearly is.
What you "earn" (in the sense of deserve) in a modern integrated economy with extensive division of labor is mostly a fictional number. Apple makes $0 without people to assemble iPhones and iMacs, and it also makes $0 without the designers in Cupertino designing the products. Given that both groups' labor is necessary (in the causation sense) for Apple to earn any money at all, what allocation of the proceeds is appropriate between the groups? We create a particular distribution on the front end through our legal system, then adjust it on the back end also through our legal system. It's all equally arbitrary.
This is a disingenuous question. The money taken from the designers in Cupertino is not given to the (mostly Chinese) workers who assemble the phones.
Instead, it is given to people who did not contribute at all to the production of the iPhone (retirees, other non-working Americans, etc).
The problem with just having the employee and the employer come to a contract, is that the negotiation position is not on equal terms. And since the economy is here to serve us; not the other way around; we democratically elected this policy and have preferred it for almost half a century.
Your notion of rights, esspecially economic rights, as somehow inherent to reality as laws of nature, seems awfully short sighted. My neigbour is not free to have himself exploited, as it will affect my negotiation position as well.
And i honestly dont understand why so many Americans keep focusing on their rights to be exploited and abused in an economic sense. Of all inalienable rights i can think off, like autonomy of your own body (drugs? sex?) or freedom of speech (swearing?), that do not legally, socially or culturally apply to americans, the narrative limits itself to guns and slaves (exploitable workforce). The only two situations where it obviously does affect others, aand therefor the right can not be inherent.
I would not trade my rights for yours.
For example, take Sweden or Canada, there is a baseline health care system. Every citizen participates. Some pay more than others, but everyone is protected. Not so in US - you have to fall well below middle class in order to get any real help.
Read the relevant part again: "All Property, indeed, except the Savage's temporary Cabin, his Bow, his Matchcoat, and other little Acquisitions, absolutely necessary for his Subsistence, seems to me to be the Creature of public Convention. Hence the Public has the Right of Regulating Descents, and all other Conveyances of Property, and even of limiting the Quantity and the Uses of it. All the Property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition."
What Franklin is saying is that property in surplus of what a man could acquire in his savage state is the result of society and therefore society is entitled to direct its disposition as it sees fit. The only moral limit to the amount of taxation, according to him, is the point at which society takes away what the man would have had in his savage state (i.e. he is made worse off by the existence of society and its taxes). Taxing someone making hundreds of thousands of dollars at 28% is of course nowhere near that limit.
Indeed, the change in the economy since Franklin's time cuts in the opposite direction, under his reasoning. Today, people have far more property in surplus of the subsistence level than they did in Franklin's time. Taxing a middle-class farmer of Franklin's time 75% might have taken him below the subsistence level, and have been immoral according to Franklin, but that would not be the case today with a middle-class programmer.
Of course it's probably not, from a utilitarian standpoint, the best idea to tax everyone to the subsistence limit, in a world where people can vote with their feet and countries can compete on taxation levels, but under Franklin's reasoning there is nothing morally wrong with even very high levels of taxes, as long as no one is worse off by virtue of the existence of society than they would have been in the savage state.
The declaration of independence expresses a better view: we are endowed with liberty by our Creator and it is the role of government to protect that liberty. Under this view, government's actions can be judged.
Also: if you assume God exists, then there is a moral framework that's externally imposed which makes arguments like these moot. But whose God are we talking about that creates these endowed rights? And where in the Bible does it talk about taxes?
Not really relevant to the discussion, but since you asked, here's what comes to mind:
- "Render unto Caesar that which is Caesar's"
- Matthew (as in "The Gospel of") had been a tax collector
- Jesus was born in Bethlehem because Joseph and Mary had to go there for a tax census
The distinction is crucial because if deals were finalised by London-based staff, Google could be deemed to have made profits on the contracts which would be taxable in Britain, rather than low-tax Ireland. “It uses a concocted scheme to avoid tax. It’s a smoke-screen to distort where the substance of its economic activity is really taking place,” Jones told The Sunday Times.
He said he attended meetings where Google’s London sales staff closed deals, including winning contracts from eBay, the online auction site, Kelkoo, a price comparison website, and Lloyds TSB. He showed The Sunday Times contracts, invoices and correspondence between Google and its customers in Britain. One 2004 contract had the address of Google’s London headquarters next to the heading. Clients would be sold deals by Google staff in London, who were in charge of sending out contracts and receiving signed documents back from clients. In addition, British clients paid money into British bank accounts for Google services.
If Barney Jones wanted to report on what he viewed as illegal activity, why would he wait nearly a decade to come out about this? This is incredibly bizarre and stupid.
Lord Clyde said in Ayrshire Pullman Motor Services v Inland Revenue "No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue".
That is the law of the land to this day.
There is a moral obligation to obey the law, but not to pay a penny more in tax than the law demands. If there is a problem with the law then legislate to ameliorate the issue, but please spare me this talk of "morality".
Really, the major OECD players need to get together and figure out a way to stop the tax loophole arbitrage. Although the tax havens have no incentive to do so.
It's really a domestic political problem. The source of the problem is that you're attempting to tax something called "profit" in the context of an international corporation. Profit means revenues minus costs. The problem then becomes obvious: The corporation's executives will strive to report more of the international operation's costs in the subsidiary in the higher tax jurisdiction, and to report more of its revenues in the lower tax jurisdiction.
So, you say, make them report things accurately. But what does that even mean? If a company produces a product for internal use in one country and exports it to another, what is the "accurate" price to be reported as revenue to one subsidiary and cost to another? Is it the price that the item would cost at retail, or the price that it would cost if purchased in volume, or the cost of the raw materials used to produce it, or what?
No matter which you choose, companies will arrange their affairs so that it benefits them. If the price is set at the actual cost of production then subsidiaries in high tax jurisdictions will be found selling everything they produce through subsidiaries in lower tax jurisdictions and eliminating all of their profits that way (minimize taxable revenues). If the transfer price is allowed to include a nontrivial amount of profit then subsidiaries in high tax jurisdictions will be found buying everything they use at a premium through their foreign sister companies in lower tax jurisdictions and eliminating all their profits that way (maximize deductions).
The problem is that the entire concept of allocating profits by jurisdiction in an international supply chain owned entirely by a single entity is just totally unworkable. The profit belongs to the entire supply chain; in arms length negotiations the allocation of profit to each component would be determined by negotiating skill. And no matter what value you place on a transaction, corporations can rearrange their affairs to take advantage of that valuation, and it will be profitable for them to do so even if it costs $95,000,000 to save $100,000,000 in taxes.
The solution is to stop trying to allocate profits and just tax something else. Which is why it's a domestic political problem: People don't want to hear that. They want to imagine that corporations can pay their taxes for them and, as if by magic, this will get everyone else out of having to pay for the government services they want provided.
It's totally possible to tax international corporations, but you can't do it by trying to tax corporate profits. If you want to tax a corporation that makes use of government services and your jurisdiction's people when it produces value, tax real property or labor. If you want to tax them when they make money selling to your population, tax sales. If you want to tax investors, tax investment income.
Corporations aren't humans. If you ever did manage to extract tax revenue based on corporate profits, it would inevitably come out of the pockets of one of those groups in any event. Taxes have to be paid by somebody.
Taxes of profits are particularly weak when a company operates in multiple countries.
So instead you pick taxes which can't easily be avoided. The classics are property taxes, sales taxes, payroll taxes, tariffs (ugh) -- anything where there is an unavoidable, physically local transaction.
I'm not convinced that allocating profits by jurisdiction is unworkable. You ask, "If a company produces a product for internal use in one country and exports it to another, what is the 'accurate' price to be reported as revenue to one subsidiary and cost to another?". My answer is, "The price an independent supplier would have charged for the same quantity". Now I agree there is some wiggle room here, but only up to a point. If the average profit margin in the widget industry is 10%, your widget subsidiary might be able to book a transfer profit of say 20%, but not 200%.
What makes you think that? Here's one example: California has some of the highest taxes in the U.S, but everyone in Silicon Valley and Hollywood making big money still lives there. Why don't all of those people leave and move to Texas or Nevada to take advantage of lower personal income and sales taxes?
It's far easier for the corporation to "move" because the corporation only exists on paper. It can incorporate and hold its trademarks and copyrights in Delaware or an offshore subsidiary even though its headquarters is in California, etc.
> If the average profit margin in the widget industry is 10%, your widget subsidiary might be able to book a transfer profit of say 20%, but not 200%.
But they don't need 200%. They only need 20%, which when applied systematically is enough to erase the 10% profit margin they might have made in the high tax jurisdiction.
There is also the matter of what an "independent supplier" would actually be charging. Suppose the international operation decided that it would like to close all of its offices in the UK and stop doing business there, but continue selling software licenses in bulk to third party UK distributors who come to do business with it at its headquarters in Ireland. In that relationship the international operation is an independent supplier, but they have all the power. The third party distributors have no other source for licenses, but the international corporation has a large variety of willing distributors, so it can force them to sell at razor-thin margins in the UK and claim all the profits for itself in Ireland. What you see them doing is largely what you would see if they were independent entities.
A corporation may exist only on paper but the value that it creates comes from a mixture of social, human and physical capital - and that occurs at a particular place. Facebook could move its place of incorporation to Delaware overnight, but the place where it 'adds value' is rooted in California.
Regarding the widget manufacturer: Yes, in some cases a transfer profit of 20% will be sufficient to wipe out all reported profit in the high-tax jurisdiction. But how common would that be? If Apple were to able to inflate the cost of manufacturing an iPhone by 10% there would still be plenty of US profit left to tax. If Ford could inflate the cost of all the components it imports from low-tax jurisdictions (not high-tax ones like Japan) by 10% would it have a significant effect on reported profit?
You are right about the software licences - I made a similar point here: https://news.ycombinator.com/item?id=5731680 If the software was developed in Ireland then the UK shouldn't be able to tax the profit.
That's where the jobs are because that's where the employees are and vice versa. There is a reason you don't see many software companies setting up shop in Des Monies and trying to attract engineers with the low cost of living.
>Facebook could move its place of incorporation to Delaware overnight, but the place where it 'adds value' is rooted in California.
That's what I'm saying. You should tax the things that "add value" (employees, real estate that implies use of local infrastructure, etc.) rather than trying to tax profit, because profit doesn't have a country.
The problem with the alternative is that just because your country contains something that "adds value" doesn't mean a corporate entity in your country can make any profit from it. Suppose your country has great engineers. If the engineers are the valuable commodity and the market is efficient then they'll get paid close to the value they provide to the company and leave little as profit for the corporation. You can have a company which is providing huge value to the economy but is having to pay its employees the lion's share of that revenue in order to retain them. That company won't have very high profit margins because if it kept more of the profits for itself its engineers would quit and join a competitor that pays better.
The only way that doesn't happen is if the company has something its competitors don't (strong trademarks, trade secrets, some unusually valuable copyrights or patents, etc.) But then the value of that non-geographically-dependent asset (which is all that keeps the company from having razor thin margins) can be whisked off to an entity in a low tax jurisdiction, leaving the entity within the higher tax jurisdiction in the position of having extremely small margins again while the profits accumulate in the entity associated with the movable asset.
>Regarding the widget manufacturer: Yes, in some cases a transfer profit of 20% will be sufficient to wipe out all reported profit in the high-tax jurisdiction. But how common would that be?
You're asking how common it is for a company to have a less than 10% profit margin? I would say that covers most companies. The primary exceptions (which Apples clearly falls into) are the companies that sell products covered by high value copyrights, patents, trademarks, etc. Which leads to what we've been discussing with software licenses.
The problem simply is that you can't have significantly higher taxes than the next country on anything that can be easily removed from your jurisdiction, or that is exactly what will happen. And the profits of international corporations fall into that category.
Ok we have a misunderstanding about the term, 'add value'. I was using it to mean profit but you are using it to mean costs. My gut feeling is that taxing costs instead of profit will lead to warped incentives, but I admit I cannot think of a good example just now.
> You're asking how common it is for a company to have a less than 10% profit margin?
No - I wasn't clear, sorry. I was thinking a company might typically have the following costs as a percentage of revenue: (a) domestic costs 40%; (b) imports from high-tax countries 25%; (c) imports from low-tax countries 25%. Increasing this last figure to 27.5% would not wipe out the company's profit margin.
> the value of that non-geographically-dependent asset ... can be whisked off to an entity in a low tax jurisdiction
A company's advantage over its rivals often geographically dependent. Toyota's famed culture of lean, just-in-time manufacturing allowed it to become the biggest carmaker in the world. That culture was a company asset rooted in Japan that could not be whisked to any tax haven.
As for intellectual property, is there absolutely no way to structure the tax code so that growth in the value of these assets can be taxed? What about a simple rule that says IP cannot be transferred across borders within the same company? That is, the value of a patent is tied to the country in which the R&D was done. The value of a book's copyright is tied to the country in which it was written. The value of a software licence is tied to the country in which the software was developed. Etc.
> The problem simply is that you can't have significantly higher taxes than the next country on anything that can be easily removed from your jurisdiction, or that is exactly what will happen. And the profits of international corporations fall into that category.
If that was the case then the corporation tax for most of the Fortune 500 would be zero. The current system, although imperfect, is still somewhat functional.
He's obviously doing it with his own intentions, whatever they may be. He worked there that long and now that he's no longer with them, just wants to be get PR.
Given my background in regards to Google (it's not positive), I'm not a fanboy of this "good," employee and am NOT AT ALL in favor of Google.
Corporate taxes are ridiculous to begin with, because the cost is paid by either employees or shareholders. Only people can pay taxes.
See [1], search news for 'google tax', etc.
Edit: The Irish take is interesting [2]. The Cypriot crisis and Apple's decision to take out a huge loan rather than on-shore some offshore cash both provide further spice to the present arrangement.
[1] http://www.guardian.co.uk/technology/2013/may/18/eric-schmid...
[2] http://www.independent.ie/opinion/analysis/no-wonder-the-nei...
* Taxodus, http://taxodus.net (tax avoidance game)
* Tax Free Tour, http://youtu.be/d4o13isDdfY (tax avoidance documentary by VPRO, a Dutch public broadcasting organisation)
The double Irish is legal for sales taking place in Ireland. The news article is alleging that the UK Google salespeople are making sales in the UK, in which case UK tax is due.
If the business was initiated in the UK, but executed in France, guess who'd get the tax money -> France. This doesn't seem particularly swarthy, and frankly doesn't really warrant an article or any sort of hubbub unless you're interested in being a Google hater. I'm fine with being a Google hater, I don't use Google search/ads/gmail/etc because I don't like their privacy practices/etc...
Anyways, what sort of services are we talking about here? If we're talking about Google ad network deals, you buy ads and they get displayed all over the world, you do not pay taxes everywhere the ads were shown.
Google is welcome to move their office to Ireland if Google wants to use the Irish tax scheme.
If almost all of the work was done in England then it's an English sale. The fact that Google contrives a bizarre situation where their English sales (between English staff and English customers delivered in England, not Ireland) have a tiny bit of work done in Ireland should be irrelevant.
I'm not sure how you can call it an Irish sale when the money changing hands is Sterling not Euro, between banks in England not Ireland, and arranged by staff and customers in England not Ireland.
Not true at all. If my company (an american one) goes to the UK for a sales/marketing push, and we make sales, the sale is booked as a US sale. The currency and banks used to pay for the deal have no standing whatsoever. My company can even hold a UK bank account, we can accept payment in UKP, it still doesn't change the fact that the income is booked as a US transaction. The deciding factor is under what jurisdiction the contract is signed, in this case its Ireland because thats where Google chose to close the deal (its clearly stated in the article). It may be vexsome, but this is a direct result of bad tax policy.
It's bias journalism. Let me portray the evil company and the saint of a christian, sounds like a scorned employee.
http://www.guardian.co.uk/technology/2013/may/16/google-deni...
I obviously have no knowledge of the specific matter, but in general it is a bad thing if MPs start accusing you of having lied to them, and it is not unusual for whistleblowers to come forward when stuff like that starts to hit the news.
"Treasure Islands, Tax Havens and the men who stole the world" by Nicholas Shaxson
Really, an eye opening fascinating read.
I there is a $500 deductions for drycleaning without receipts, people are going to claim all $500. It's the same concept at a large organisation.
This is illegal if you didn't have any drycleaning. You can go to prison(In theory) if caught.
I wish I could read the article myself.
(without reading the article)
One could say that Google is doing its part to avoid financing the war machine.
Barney Jones, 34, who worked for the internet search giant between 2002 and 2006, has lifted the lid on an elaborate structure which diverts British profits through Ireland to the Bermuda tax haven.
Although Google’s London sales staff would negotiate and sign contracts with British customers, and cash was paid into a UK bank account, deals were technically booked through its Dublin office to minimise its liabilities here. Jones, a devout Christian and father of four, is ready to hand over a cache of more than 100,000 emails and documents to HM Revenue & Customs (HMRC), detailing the “concocted scheme”.
He has already provided testimony to the Commons public accounts committee (PAC) which led to the combative questioning.. [paywall]
Looks like I was way off the mark with my preceding comment.
Google on the other hand provides a great services for free and acessible to everyone. I would prefer my taxes to go to google; and if they would become government they would be much more efficient than any government out there.
By the way google if you want a toy country to try stuff, try Portugal. This goverment could use some help and they are some nice people who support the private initiative.
1) in a democracy, people are ultimately responsible for laws and therefore for such loopholes. It is their responsibility to close them if they consider them wrong, not to avoid them out of sheer goodwill - they only put themselves at a disadvantage and reward those who benefit from loopholes (because these crooks will be richer in relation).
2) If only a handful of multinations exploit these loopholes, they will not be fixed. Those corporations can afford to invest millions in lobbying and bribery to keep their tax privileges. So there is only one appropriate reaction: everyone must try to benefit from these tax loopholes until it hurts governments so much that they are forced to act.
However as companies are made of people, not people themselves, corporate personhood is very, very dodgy law. Hope that clears it up for you.
The whistle blower claims to have many thousands of emails to hand over.
What the heck Google? How did he get to keep these emails?
> Barney Jones, 34, who worked for the internet search giant between 2002 and 2006, [...]
> [...] is ready to hand over a cache of more than 100,000 emails and documents to HM Revenue & Customs (HMRC), detailing the “concocted scheme”.
Another way to look at it would be to imagine that Google headquarters auctioned off the rights to run Google UK to the highest bidder. Google headquarters would have such a strong bargaining position that the successful UK bidder would end up with very low profit margins.
But what annoys me are the loopholes that allow Google to transfer profit from the place where the value was created (the United States) to some other low-tax country.
Also why did he wait 7 years if he was so moral? It would kill me by then.
If morality is subjective, how can we demand/expect others to live by our rules?
"Don't hate the player, hate the game."
Technically, I can lie to you. I just did, and it's legal, as I did not cause you harm in any tangible way.
It's legal but not moral. Many things are like that, and most are far less black and white or obvious. This is a difference you need to be very conscious and careful of if you intend to work... anywhere, ever.
Most of the companies you're likely to deal with -- whether it's in an employment situation or in a consumer transaction -- are so large that your interaction with them will be governed by policies, not by morality, and policies are set based on what's legal, practical, and profitable.
edit: http://imgur.com/wvB8lgH
1) Automated flame detection drops the submission down the page
2) Political discussion gets flagged. Quite a lot of this thread is about US taxes.
3) Lack of upvotes. It only got about 70 upvotes.
#2 I don't see why you would flag the topic and not the political comments. Moreover we see plenty of topics where comments go political that don't get egregiously flagged down.
#1, I'll plead ignorance on any automated flame detection but I'm very skeptical that's what we're seeing. I'll stick with Occam's razor: time and again the articles this happens to are either critical of google, or favorable to MS or Apple.
#2 I don't see why you would flag the topic and not the political comments. Moreover we see plenty of topics where comments go political that don't get egregiously flagged down.
#1, I'll plead ignorance on any automated flame detection but I'm very skeptical that's what we're seeing. I'll stick with Occam's razor: time and again the articles this happens to are either critical of google, or favorable to MS or Apple.
Examples: