Google Boss: We Follow The Law On Tax
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Our supporters paid good money for those exclusive exemptions, dammit. This is just making us look bad...
Arguably one of the main reason we're not able to change (or at least, enforce) the rules easily is because of regulatory capture of tax agencies around the world, and multinationals are (directly or indirectly) funding this regulatory capture via their investment in complex tax avoidance schemes and the whole industry around them which is in constantly in and out of the "revolving door" between regulators and accountancy firms.
So, likely there's always going to be opportunities out there for aggressive tax avoidance, because of exactly these kind of agency problems. And so a multinational is always going to have a decision to make about exactly how aggressive they choose to be. And they are going to be judged morally by the taxpayer for the decisions they make, whether they like it or not.
If they are judged badly as a result of their choices, they should have the good grace to just admit that they're being selfish because they can get away with it and that's the way things are, and not come up with disingenuous self-serving rationalisations.
Expect the law to change.
I'm an individual with an interest in multinationals paying tax on their profits rather than spiriting them out of the country tax free. This is why I hope to see the law change.
You can take the most straightforward law and it still won't withstand a company putting all their IP in a tax haven and then attributing most of their revenues to their tax haven subsidiary. That's not taking advantage of a "loophole" that's taking advantage of the fact that: 1) accounting for revenue is inherently complicated, regardless of the tax laws, especially for service businesses and software services businesses at that; and 2) multi-national corporations must have some way to attribute income to the various countries in which they operate; it wouldn't be fair for every country to individually tax all the company's income separately.
It's instructive to try and figure out a tax law that would allow say the U.K. to reach some portion of Google's income. It's harder than it seems. For example, is it relevant that Google has customers in the U.K.? It shouldn't be--there is no sales tax on search services. If someone in the U.K. for example calls up their accountant in the U.S. for advice, as a general rule the accountant isn't liable for income taxes in the U.K. Is it relevant that Google has servers in the U.K.? Sure. But how relevant? How much of the value of Google's service derives from the servers in the U.K. versus the code and algorithms that were developed in California? I think most people would agree that the servers are just incidental--the real value of Google's services is the algorithms and data. So why should the mere existence of servers in the U.K. entitle the country to tax some substantial amount of Google's income?
Nobody is suggesting double taxation, but google does a substantial amount of (profitable) business in the UK, and (at least morally) that portion should be taxed in the UK.
See here: https://en.wikipedia.org/wiki/Double_Irish_arrangement
The "cheating" accusation comes because you have to be very large to be able to make use of this. If everyone could use this tax arrangement people wouldn't complain. (Well, they would complain that it exists, but not that people use it.)
This is a relatively recent change to the Irish tax code (based on the pace of tax law development)--and was introduced only after the development of transfer pricing rules (assignment of income to/between subsidiaries of multinational companies). In other words--the loophole was deliberately designed to get around U.S. and European transfer pricing rules and make Ireland "competitive" for multinational corporations.
I guess the biggest loophole, even more than the double Irish, is non-existing or very lenient transfer pricing rules...
This is wrong.
UK customers buy ads to be shown in the UK to UK viewers, from UK staff at Google's UK offices. They pay in UK pound sterling, from UK bank accounts. So far everything is in the UK. It is only at the very end of the process that someone in Google's Ireland office pushes a button to close the sale, thus taking the sale out of the UK (and our tax system) and into Ireland and their tax system.
This is a transparent dodge to avoid paying tax. It might be legal, but it's sleazy.
> but not any specifics about exactly what those loopholes are.
You don't know what you're talking about, which is fine, but why go to all that effort to create scenarios that aren't happening rather than just asking what is happening?
Except, arguably, the most important thing: the search algorithm and database that brings those UK customers to view those ads in the first place.
In any case, my point isn't that what Google is doing is the right answer. My point is that its quite debatable even from our armchairs how much tax revenue the UK is entitled to from Google's activities in the country. Google is just taking advantage of that complexity.
It's not that debatable - we'll see unified tax codes across the EU. Some companies (not just Google) pushed things too far and set up weird schemes that exist only to reduce tax to a minimum.
> Google is just taking advantage of that complexity.
"Taking advantage of" also has negative connotations. Exploiting.
I don't buy it. No, it's not Google's responsibility to find ways to pay tax, but they also shouldn't be constantly finding ways not to pay tax. A company is not a function relentlessly optimising for money, it's made up of real people making decisions. I expect those people to use some sense of what's morally right, not just what the law allows them to do.
The law is a heavy, slow implement, especially when multiple countries are involved. Multinational corporations can rearrange their accounts much faster than we can pass legislation to control them. It's like playing whack-a-mole with a vote before each hammer swing.
If they're dodging taxes within the letter of the law, they can expect judgement in the court of public opinion. Which is how this debate started.
That's not my attitude at all. My attitude is just one tiny facet of that attitude, which is that no one should have to pay more taxes than they are legally required to. I don't, for instance, think that corporations should be free to maximize profit by toeing the EPA line.
With regards to taxes, what's unethical about using the law to one's advantage? This isn't a rich guy socking away millions in the Bahamas; as far as we know there's nothing shady going on at all. Furthermore, we know Google pays some amount of tax all around the world and that they employee a lot of people in the UK all of whom pay gobs of taxes. Google decision of where and how to open offices may well be shaped by these tax laws, so it's really not fair to attract a company to your country with a certain tax regime, and then berate them for not following the "social contract" or whatever. Google is not a UK company. It didn't start in the UK, and it doesn't have to operate here. If tax laws change Google has to deal with it, so do it, but you can't have your cake and eat it too by attracting them in with a certain tax regime and then painting them as some sort of greedy villains because their accounts don't interpret the intention of the law and voluntarily decline tax breaks.
I don't know what schemes Google has come up with, but Starbucks faced similar criticism recently, and I heard a bit about what they do. The Starbucks 'brand' is owned by a company somewhere with minimal taxes. Starbucks UK pays 'royalties' to that company which conveniently come to just about all of its profits. Then Starbucks UK tells the taxman that it's making almost no profit, and hence owes almost no tax. That's not just 'interpretation', that's an out-and-out loophole. They have found a way to disguise their profits (and they do call them profits to their investors). Given enough time, we can close that loophole, but not nearly as quickly as they find a new one. So I'll get angry with them, and hope that if enough people do, maybe they'll stop hunting for loopholes and pay their taxes.
Expect the law to change, creating an even more complicated tax structure and destroying even more economic value while providing zero benefit to common citizens.
We should be looking in the opposite direction. Do away with large swaths of the tax code and ask less of the companies that support the global economy. Especially now that apparently the organizations that extract those taxes (specifically the IRS) have become political tools to harass those people whose politics our "leaders" disagree with.
I'm in favor of the tax-code placing an equal burden on everyone. I am against only corporations getting a free-pass though.
If government didn't have the scale to take on such projects a lot of these corporations wouldn't exist and a lack of research like those often government funded would just reinforce the status quo.
The fact is, that if government hadn't been employing these engineers to create war technologies, our technology would probably be much more advanced and the world would have less war and be a much better place.
Whenever government employs people to do something, it necessarily keeps them from doing something else. This is well explained in chapter 4 of Henry Hazlitt's Economics in One Lesson (http://steshaw.org/economics-in-one-lesson/chap04p1.html) in taking the example of government spending for a bridge:
"The bridge exists. It is, let us suppose, a beautiful and not an ugly bridge. It has come into being through the magic of government spending. Where would it have been if the obstructionists and the reactionaries had had their way? There would have been no bridge. The country would have been just that much poorer. Here again the government spenders have the better of the argument with all those who cannot see beyond the immediate range of their physical eyes. They can see the bridge. But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. To see these uncreated things requires a kind of imagination that not many people have. We can think of these nonexistent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. What has happened is merely that one thing has been created instead of others.
The fact is that a businesses number one aim is to make a profit and that restricts most businesses to seeing no further than the end of their nose and limits their capacity for risky investments. When it comes to research, corporations should be looking for profitable applications of research before anything else because it's their number one aim. This means that a lot of research that doesn't have any clear practical application to a profitable model or doesn't meet a percieved profitable timescale is unlikely to be pursued.
I'm not denying that some companies do some groundbreaking research just that the inherint nature of corporations prevents them from taking risks that governments can take and which a lot of corporations capitalise on. Corporation and government funded research are two sides of the same coin. They both bring their respective benefits to society but one won't work without the other.
Most corporations would never have taken the big initial risks and government would likely never have practically applied the findings to a valuable product.
For example, a government should not build a road unless the people using the road will collectively save more in transportation costs than the costs to build the road.
The problem is that for many projects, the net benefit is unknown at the start. In the road example, before a road is built, it may not be clear how much it will cost to build a road nor how much people will save from using the road. The best we can do is try to estimate.
But just because we have to estimate doesn't mean that we ignore profit. Before a project is undertaken, we should still try to figure out if its worth doing. We just can't be sure.
When we say that government funds "risky" projects, this can mean that the projects have a high probability of failure but are still worth funding because the probabilistic expected payout is positive, or that the projects are really not worth funding because we really expect that there will be no net benefit. If we're talking about the first, then the private sector will fund it without government. For example, YCombinator routinely funds companies that have a high probability of failure. But overall it expects a positive payout. So startups get funded.
But if we're talking talking about the second type of risky, as in no expected return, then really no one should be funding these projects. Why should the taxpayers take risks collectively that no one is willing to take individually?
It doesn't make sense for an individual to try to fund retirement by buying lottery tickets, no matter how much money they spend. Therefore, government should not be trying to fund government pensions by buying lottery tickets.
In practice, governments seldom openly advocate investing in projects with negative returns like a lottery. They propose funding projects that the private sector won't fund. But even if a project is expected to be profitable, it still should not be funded at the expense of projects with higher expected profit. And because we have limited resources, the funding of low-expected-profit projects means that other higher-profit projects can't be funded.
Again, I refer you to Henry Hazlitt's Economics in One Lesson, chapter 6 this time: http://steshaw.org/economics-in-one-lesson/chap06p1.html.
I agree with paying the minimum amount of tax but what does that actually mean? Eric Schmidt said he believes taxes should be at the base of economic activity (ie Ireland) but this is bullshit because it puts all the power in the hands of the corporations and incentivies countries to lower taxes to encourage corporations to move there.
Taxes should be based on where products are consumed so that each country taxes the exact percentage of profits generated from sales in that country. If in the UK Google sales amounted to £1b profit then £230m should be corporation taxes.
Secondly, it's disingenuous of them to ask the taxpayer to "just change the rules" if we don't like their avoidance, when they're funding the very regulatory capture which makes it hard for us to do that, via their investment in these schemes.
don't be evil is not the same as do no evil
Tax cases are expensive and complex to investigate. Google probably has more money that the entire UK tax authorities. HMRC has to concentrate their efforts somewhere, and they concentrate on the people who are clearly breaking the law, or where they have whistle-blower evidence that laws are being broken.
That puts companies like Google at an advantage. They can operate at the edge of the law, exploiting loopholes, and then pay more if the laws are changed. And then, if we find out that they are not obeying the law but breaking it they make a deal with HMRC. See the deal Vodafone made where a huge tax bill was waived, if Vodafone paid a small part of the tax they had evaded. (http://www.guardian.co.uk/money/2011/dec/06/hmrc-tax-deal-vo...)
Dodging tax is only beneficial to these companies.
As to why they should pay: Apart from the fact that UK customers of Google buy UK ads for their UK potential customers using UK bank accounts and UK pounds and buy them from UK staff at Google's UK office (with a final 'close the sale' bit of paperwork done in Ireland for the sole purpose of avoiding tax in UK) - apart from that, Google makes use of UK schools and roads and police and fire departments and etc.
No one minds that Google pays less tax than they should. People only mind when Google goes to extraordinary lengths to avoid tax.
Sounds about right. You would think that they would instead focus on making a system even they could understand.
It's disgusting.
Which would you prefer - successful companies that lawfully avoid paying too much in taxes while supporting western economies, advancing technology, and providing countless jobs? Or a top-heavy, zero-liabilty, exploitive government that, even as it grows unsustainably larger, still demands more and more, always chasing that unreachable pie-in-the-sky ideal of the "fair share."
One is investing resources to minimize failure ("I want to make sure we don't pay more than we need to pay"), which I completely agree with - if your accountant fails to do that, it's not a good accountant. But the other is a proactive investment of even more money to pay even less taxes ("I want to pay even less than what would be normal by the intent of the tax law").
"Oh that wouldn't be fair to the people that couldn't do that."
"You're fired."
So unless you are setting up multiple subsidiaries in tax havens and funnel the money around in a way that lets you narrowly avoid the laws that otherwise quite clearly determine what your fair share to society is, there is no way to have a proper business and in the end, the children get hurt and poor little Rebecca can't afford to pay for lunch at school and everybody points fingers at her. Boo, boo, haa, haa, money, money. Understood.
This kind of strawman argument really used to make me sick, but these days, I'm mostly bummed out about how I've become so used to seeing it.
1. Your "fair share to society" is determined by the law.
2. These companies are following the law to the "t"
3. If you don't like it then change the law.
It's that simple. Case closed.
Imagine a town at a lake. There is a law that all citizens can only take so much water out of the lake. Now there is a guy taking a lot of water out of the lake - to the point where he steps over the law. But wait! He is actually registered as the citizen of a different town! Phew. Law abiding citizen after all.
What happens is that some corporations extract more value from society than is healthy for that society. That they have so much money that they can bend the tax code to their will without breaking it is completely besides the point. The result is the same: They have a net negative effect on society. That's not fair.
The lake of the town is being sucked dry. Just look at how much money those Double Irish corporations have in their accounts while a lot of of countries struggle to pay their public employees and have to make drastic cuts that directly affect pretty much only the middle and lower classes. That's not fair at all.
Well, at least they can keep buying those iPads on credit that will ruin the rest of their lives.
Moving to or setting up a subsidiary in a different jurisdiction: Completely fine.
Doing the same thing for the sole purpose of avoiding taxes: Not fine.
I really don't get what's so hard to understand about that. How many employees do Google or Apple have in Ireland, the Cayman Islands or the Netherlands? And how many in the US? Quite simple, I think.
>Doing the same thing for the sole purpose of avoiding taxes: Not fine.
And how exactly do you propose to distinguish the two?
"Number of employees" is a completely worthless metric. Apple (and/or Foxconn) employs many times more employees in China than in the U.S., does that mean they should be reporting most of their profits in China?
Apple has 73k employees, 50k of which are in the US. Pretty sure most of them have benefited from US society (education, roads, police stations etc.) or benefit from it now that they have moved to the US.
Would you seriously have done differently in Google's shoes if it meant the difference between millions of dollars? Billions of dollars? Your answer to that question is probably why you're not making those kinds of decisions.
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He also noted that he has also been sad with how the industry has been unable to advance the Web as quickly as it could have because of a focus on negativity and zero sum gains. He also noted other companies like Oracle and his difficulty in working with them, “Money is more important to them than collaboration.”
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As for your feeble attempt at diverting on the law issue: Look, Apple has more cash reserves than the US government. To act as though all that is needed is lawmakers "finally doing their job right" is ludicrous. The reason why I cannot go bug the lawmakers is because they have dozens of lobbyist per capita throwing money into their faces all day long.
At the end of the day, I believe in human progress. Human progress happens when we are fair and kind to one another. Apple doesn't need all of that money, just as Google doesn't need all of theirs. Asking them to give a tiny bit more back to the society that they are a powerful member of so that everybody is better of is far from being as silly as you try to paint it.
Apple US is a separate corporation from Apple China too, that's how all of this works. Apple Ireland ends up with all the profits and is a distinct corporate entity from Apple US.
You keep talking about use of government services or where employees are. Those things are not corporate profit. If you want to tax companies that employ your workforce then you can tax payroll. If you want to tax companies that use local government services then you can tax commercial real estate. What you can't do is try to tax corporate profit at one of the highest nominal rates in the world and then be surprised when international corporations arrange to stop reporting any profits within your jurisdiction. Profit is a highly mobile asset. It's like trying to levy a local property tax on gold bullion -- the people who own large amounts of bullion are just going to move it out of your tax jurisdiction. If you then say "but they still live here and use government services" they're just going to shrug and look at you like you're a crazy person for expecting anything different to have happened, because you're trying to tax the wrong thing.
Foxconn wasn't build as a subsidiary of Apple. Not sure what you're getting at with that. Yes, I understand the technicalities, but if it didn't happen that way and the intent of how it happens is the way it is, arguing the permutations is a strawman.
> You keep talking about use of government services or where employees are. Those things are not corporate profit.
Yes and no. Those government services are not corporate profit, sure. But they are what makes the Apple corporation possible in the first place. Apple wasn't founded in Ireland, the Netherlands and certainly not on the Cayman Islands. The "thank you" payment for that is called taxes.
> they're just going to shrug and look at you like you're a crazy person for expecting anything different to have happened
Yup, that's what I would call destructive attitude. A society works because a sufficient number of people think it's a good idea to make it work. Large corporations are simply lucky to get away with behaving differently, for profit. If a majority of people were behaving like that - cutting around the system at every chance they get while obscuring their tracks with money, for their own benefit - you end up with no society at all very quickly.
Put differently: large corporations should count themselves lucky that there are enough reasonable people (the lower and middle class suckers who are constantly being degraded to a purer form of worker drone consumers) to offset the damage that they do.
All laws have to assume to a varying extent that people are interested in the society they live in. Because if they aren't, no law whatsoever is going to make them a good member of society. Kind of like how the DSM-IV has no definition of psychopathy because it describes the absence of a mind capable of having a disorder in the first place. The way those large corporations behave is truly antisocial behavior, lacking regard for the deeper and finer points of how society works.
> because you're trying to tax the wrong thing
Funny, because to me it seems that no matter what you tax, people who don't want to pay taxes will either seek and find or invest and create a way around that.
This isn't a law problem, it's a culture problem. But I suppose you're right, no sense in arguing culture and civil responsibility with people who lack both.
It isn't a strawman because if you change the rules to make it matter whether one company is a subsidiary of another, they'll just rearrange things so that they aren't. Nothing says Apple Ireland can't be the sole entity the Apple shareholders own, which licenses and sells its products to independent distributors in the United States which Apple Ireland controls under contract, and contracts with other independent U.S. companies to design its products. These companies would then be independent at least to the extent Foxconn is but would have no power (and thus tiny margins) because Apple is the one with the copyrights, the brand and the pile of cash, and they could easily replace those components of their supply chain with competing independent corporations and still hire from the same employee pool and sell to the same customers. Because you're trying to tax profit, which is mobile, instead of the actual things your jurisdiction offers, like a skilled labor force or a large customer base.
>Yes and no. Those government services are not corporate profit, sure. But they are what makes the Apple corporation possible in the first place. Apple wasn't founded in Ireland, the Netherlands and certainly not on the Cayman Islands. The "thank you" payment for that is called taxes.
You keep talking about morality. What law do you propose to cause this to happen? Or are you expecting it to just happen voluntarily if you ask nicely enough?
>All laws have to assume to a varying extent that people are interested in the society they live in. Because if they aren't, no law whatsoever is going to make them a good member of society.
If they aren't then the right law will either change their behavior or put them in prison.
>Funny, because to me it seems that no matter what you tax, people who don't want to pay taxes will either seek and find or invest and create a way around that.
Nonsense. Unless a company is willing to stop owning property or employing workers or selling to customers in your jurisdiction, they can't avoid property tax, payroll tax or sales tax. The problem with taxing "profit" is that they can keep doing everything they were doing before and just shuffle some papers around so that the subsidiary in a low tax jurisdiction is the one making all the money. That's just the nature of profit -- it isn't like a building or an employee or a customer that actually physically exists somewhere.
You're talking about culture and civil responsibility in the context of corporations that compete with one another. A corporation that pays a significant portion of its profits in taxes that it isn't legally obligated to and that its competitors are not doing is going to be at a serious disadvantage.
Simple math. Two competitors each make 20% of their market cap in profit every year and reinvest it. One of them pays no tax, the other pays 40%, so that it grows at 12% instead of 20%. In two decades the company paying no tax is ~38 times bigger, the company paying tax is ~10 times bigger. If they each started out the same size, the company paying no tax will now have ~4 times the cash reserves, which means the company paying taxes is likely to go out of business as soon as the company not paying taxes realizes it will be the sole survivor in a price war. So unless all corporations are good citizens, the ones that are will be destroyed in the market by the ones that aren't.
Which means that the solution has to be to force them to all be good citizens, i.e. to adopt taxes they can't avoid, not to appeal to the corporations to voluntarily commit suicide by doing the right thing unilaterally when no one else is doing it.
Anyway, I don't believe it's a binary choice at all (change the tax code or shut up). I think the situation allows much more variation.
People, including politicians have the right to discuss things publicly in a democracy.
Making public statements and using their pulpit is a valid tactic politicians can use. Likewise, the press and private citizens. Google may not like it, but public debate and sometimes condemnation is a valid feature of all open societies. It may also be a necessary prior step to actually changing the law.
However, I don't think that's the issue here. The issue is that there are corporations making massive investments to actively prevent the law from catch up.