Although your hypothesis may even be right, it makes sense to deploy their first office in Europe in Ireland due to the low taxes there (in that sense, it makes sense to choose the least tax-loaded country to step in, I gather).
Not exactly the same as Starbucks/Google: they are starting right now to provide a service, they need to leverage everything.
Establishing an office (or even just a legal entity for the company) in Ireland to benefit from the various tax schemes can be done without needing to hire lots of devs there. This isn't all about tax.
I guess it depends on whether they're going to use the Irish Subsidiary in such a way that it allows other legal entities to reduce their corporation tax bill in higher rate locations.
It's not tax avoidance either. It would only be tax avoidance if they moved from one EU country to another one that had a lower corporate tax rate. This is their first European office - it makes perfect sense to choose the location that brings the greatest benefits to the company.
You don't have to move offices to start doing the road of tax avoidance. It's all about where you channel your money internally if you have two companies operating in different tax regimes.
It'll be interesting to see what they do with the profits from their companies (both the US and Ireland).
If they keep a chunk of income in Ireland and only transfer it to the US during tax amnesties then that's one standard form of avoidance.
If the US Dropbox entity starts paying a large sum of to Dropbox Ireland in order to license some part of the technology then we're in to the cunning world of tax avoidance proper.
> Tax avoidance is seeking to minimise a tax bill without deliberate deception (which would be tax evasion) but contrary to the spirit of the law. It therefore involves the exploitation of loopholes and gaps in tax and other legislation in ways not anticipated by the law. Those loopholes may be in domestic tax law alone, but they may also be between domestic tax law and company law or between domestic tax law and accounting regulations, for example. The process can also seek to exploit gaps that exist between domestic tax law and the law of other countries when undertaking international transactions.
(I'm a former tax accountant, at KPMG - these definitions are uncontroversial AFAIK)
Not sure how true this is. I'm based in dublin, and there's 40 people in final year engineering, plus about 100 in final year computer science, plus another 30 misc. final year students that will be looking for development positions from one university in Dublin. There's 4 major Irish universities in Dublin, and I'm in the smallest of them, so there's probably 900-1000 grads from CompSci/Software Engineering from just Dublin alone.
Add to that the pub standards meetups, where there's regularly 1-200 people there, and I know of plenty of other people that don't travel to the events. There's a large amount of talent in Dublin, and I would imagine all the other cities in Ireland too.
There are more people just in London than in all of Ireland. And London sucks in the ambitious and talented from the rest of the UK and to a lesser extent Ireland. It's also pretty accessible and attractive to the rest of the EU and not that hard to move to for most Commonwealth citizens.
And two of the world's top ten universities are in commuting distance. At a guess London's student population is larger than Ireland's too, and besides the aforementioned Oxford and Cambridge, London has two other top 100 universities, King's and Imperial.
The talent pool they'll be hiring from will probably be the EU anyway.
With the UK being the biggest userbase in the EU for Dropbox its a shame they've decided to open up in Dublin, as my accountant would say its a good "tax optimisation" strategy.
Sure, hate the game not the player, but they could have scored some major plus points on the day Public Accounts Committee in the UK have poured scorn on Google, Amazon and Starbucks:
> they could have scored some major plus points on the day Public Accounts Committee in the UK
There's nothing like politicians calling businesses who are obeying the law "insulting" in a play to stir up outrage to attract new businesses to a country. Come here, and be publicly harangued.
Instead Dropbox seems to have scored major plus points with IDA Ireland.
Maybe, however in these times of austerity there's also nothing like a large corporate playing smart to irritate the natives (speaking as a UK income and corporate tax payer).
I would love to see the impact the UK boycott of Starbuck has had on their bottom line. Sure, not everyone cares but clearly enough people have forgone their red cups over the past few weeks for Seattle to take notice based on todays headlines.
People practically never follow through on actual actions to back up their "principles" - to the point where the Starbucks next to the Occupy London was, well, occupied. If not even people who sleep in tents on the pavements for weeks are principled enough to forego Starbucks coffee, don't count on the average guy to be.
So I'd venture a guess that Starbucks UK haven't seen any real decrease in sales - rather, it's probably their PR people who figures it's better to be seen as "responsible", as you put it, to not irritate the natives.
I continue to have difficulty understanding the gnashing of teeth around various "tax minimization" strategies, e.g. being "immoral" and all that.
Setting aside those companies that deal in 'hard goods' (e.g. Amazon-the-store, Starbucks, etc), could someone explain the rationale of taxation w.r.t. corporate domicile?
Say I offer a software-based service in the U.S. (i.e. all the servers, billing, admin, dev, etc are done there), and by dint of luck/happenstance, a majority of the userbase ends up being in the EU. I (or my ISP) or my customers (or their ISP) are paying for the pipe between us (which is presumably taxed however the relevant localities have chosen); beyond that, I am not benefiting from any government services in the EU.
Should I nevertheless pay taxes in the EU (perhaps proportionately to each member nation based on the mix of nationalities of my userbase)? When I set up a European office, shall I be shamed into setting up HQ in whatever country houses the majority of my customers that year? What happens when that mix changes such that the majority of my customers are in a different nation?
All of this sounds absurd, but it sounds like the standard (or something similar to it) being applied to Dropbox in this case.
I think the argument is that if you're making a profit off a country's citizens, you should also be paying taxes to that country's government, otherwise there'll be a large net flux of money out of that country (e.g. with Amazon, Starbucks in the UK).
Let me put it another way, you say that:
>beyond that, I am not benefiting from any government services in the EU.
but you are benefiting from the government. Without a stable and moderately successful government, your customers wouldn't be in a position to be able to pay for your services. And that's exactly why most of your customers could, conceivably, come from the EU, but are unlikely to come from a developing country.
I'm not saying I agree with this; I don't know enough about how this sort of taxation affects the system as a whole, but I believe that's the logic.
The problem with corporate tax is that it's not a tax on a specific, quantifiable activity, like "income", "capital gain" or "sale". These are pretty difficult to fudge.
Rather, corporate tax is a tax on making a profit. Consider the battle between development and sales - who's making the profit? To the very untrained eye, sales, because they're the ones bring the cheques home, and, indeed, salaries and bonuses in that department seems to confirm that. But without a good product to sell, there would be no sales, so it's obvious that devs deserve a cut as well - but how much?
That's essentially the same discussion Mrs Hodge is trying to have with Starbucks. Are the profits generated by sales (the stores in the UK) or by devs and backoffice (marketing, branding, sourcing, supply chain, finance etc etc etc), conveniently, but legitimately, placed outside the UK?
I had honestly never considered such a notion. Considering hard goods for a moment: when I order something from a foreign merchant, I sometimes need to pay import duty. I suppose this line of thinking would have the U.S. collecting the same duty from me as well as levying a tax on the merchant for the privilege of having me delivered as an educated, well-heeled-enough customer?
There aren't (generally!) duties on "imports" of intangible products and services worldwide, but the hard good example makes the notion sound even more absurd. This all reminds me of the crazy "Amazon" rules U.S. states have been setting so as to define affiliates as nexuses for sales tax purposes.
The rule generally applied, which I think is a sensible one, is that you pay tax in a country on profits derived from it IF you have a permanent place of establishment there (branch office, sales office, retail outlets etc).
This means a company that has no physical presence in a country but sells products digitally there has no taxes due (except sales tax/VAT in the EU in some cases if over a certain threshold).
The issue in the case of Amazon, Starbucks et all in the UK right now is that these companies DO have a local permanent establishment, but manage to minimize their corporate tax through a mechanism called "transfer pricing", whereby they pay their sister branches in lower tax jurisdictions license fees etc for using brand, IP, software systems etc, thus increasing their tax deductible expenses in the high tax jurisdiction (UK).
What's useful to note is that none of this would be possible without double taxation agreements and the EU, both which successive UK govts and tax authorities have painstakingly and explicitly negotiated and agreed to.
If there are no double taxation treaties, taxes for cross-border payments would in fact be quite punitive (withholding taxes etc).
It seems to me the UK govt thought they would benefit from these agreements when they where originally negotiated, but it has not turned out to be the case. The whole "moral outrage" is just the government passing the buck on a ball they themselves dropped.
As a side note, I don't believe moral outrage is conducive to the rule of law. These multinationals follow the letter of the law and have no further obligations.
If the government thinks otherwise, they should renegotiate their positions and stop pointing fingers at others for a ball they dropped.
Anyone dismissing[1] this as purely a tax-play[2] doesn't do service to the thriving, vibrant and diversive tech community that Dublin has. Anyone based here for even a few weeks would know that.
Dublin's #1 strength over places like London and Berlin is it's geographic size, which makes meetups accessible, leaders and role models available, and creates a friendly and familiar feel, where we all fee like we are part of something bigger than the startups that are here.
Side note: To anyone here on HN visiting Dublin in the future, feel free to connect with us, you'd be very welcome -- @ me on Twitter... @EamonLeonard
I guess they mean a language spoken on Ibearian Peninsula – Spanish and Portugese as major ones and Catalan, Basque, Galician as regional ones in Spain. No idea about Portugal's local languages.
They are saying 'Spanish' before that, so it is unlikely.... They are also saying French.
I am Spaniard, and I have NEVER heard addressing the different languages spoken in the Iberian peninsula as "Iberian". The languages with official recognition are Spanish, Portuguese, Mirandese, Catalan, Valencian, Aranese, Galego and Euskera (Basque), plus English in Gibraltar, add a few more for unofficially recognised ones I think I am not missing any ;-). French is not an official language in Andorra (only Catalan is), although is quite used
31 comments
[ 3.2 ms ] story [ 81.0 ms ] threadNot exactly the same as Starbucks/Google: they are starting right now to provide a service, they need to leverage everything.
The popular one at the moment being The Double Irish (http://en.wikipedia.org/wiki/Double_Irish_arrangement) which Google, Amazon and Starbucks have been using very successfully recently.
Not suggesting this is necessarily what Dropbox are going to do but it might enable something like this, should they wish to.
Not forgetting:-
Facebook, Apple, Microsoft, Oracle, Pfizer, Adobe
(amongst others).
"Tax evasion" is not paying tax that you must pay. "Tax avoidance" is finding ways to not be liable for the tax in the first place.
It'll be interesting to see what they do with the profits from their companies (both the US and Ireland).
If they keep a chunk of income in Ireland and only transfer it to the US during tax amnesties then that's one standard form of avoidance.
If the US Dropbox entity starts paying a large sum of to Dropbox Ireland in order to license some part of the technology then we're in to the cunning world of tax avoidance proper.
> Tax avoidance is seeking to minimise a tax bill without deliberate deception (which would be tax evasion) but contrary to the spirit of the law. It therefore involves the exploitation of loopholes and gaps in tax and other legislation in ways not anticipated by the law. Those loopholes may be in domestic tax law alone, but they may also be between domestic tax law and company law or between domestic tax law and accounting regulations, for example. The process can also seek to exploit gaps that exist between domestic tax law and the law of other countries when undertaking international transactions.
(I'm a former tax accountant, at KPMG - these definitions are uncontroversial AFAIK)
Add to that the pub standards meetups, where there's regularly 1-200 people there, and I know of plenty of other people that don't travel to the events. There's a large amount of talent in Dublin, and I would imagine all the other cities in Ireland too.
And two of the world's top ten universities are in commuting distance. At a guess London's student population is larger than Ireland's too, and besides the aforementioned Oxford and Cambridge, London has two other top 100 universities, King's and Imperial.
The talent pool they'll be hiring from will probably be the EU anyway.
Sure, hate the game not the player, but they could have scored some major plus points on the day Public Accounts Committee in the UK have poured scorn on Google, Amazon and Starbucks:
http://www.bbc.co.uk/news/business-20559791
There's nothing like politicians calling businesses who are obeying the law "insulting" in a play to stir up outrage to attract new businesses to a country. Come here, and be publicly harangued.
Instead Dropbox seems to have scored major plus points with IDA Ireland.
I would love to see the impact the UK boycott of Starbuck has had on their bottom line. Sure, not everyone cares but clearly enough people have forgone their red cups over the past few weeks for Seattle to take notice based on todays headlines.
So I'd venture a guess that Starbucks UK haven't seen any real decrease in sales - rather, it's probably their PR people who figures it's better to be seen as "responsible", as you put it, to not irritate the natives.
Setting aside those companies that deal in 'hard goods' (e.g. Amazon-the-store, Starbucks, etc), could someone explain the rationale of taxation w.r.t. corporate domicile?
Say I offer a software-based service in the U.S. (i.e. all the servers, billing, admin, dev, etc are done there), and by dint of luck/happenstance, a majority of the userbase ends up being in the EU. I (or my ISP) or my customers (or their ISP) are paying for the pipe between us (which is presumably taxed however the relevant localities have chosen); beyond that, I am not benefiting from any government services in the EU.
Should I nevertheless pay taxes in the EU (perhaps proportionately to each member nation based on the mix of nationalities of my userbase)? When I set up a European office, shall I be shamed into setting up HQ in whatever country houses the majority of my customers that year? What happens when that mix changes such that the majority of my customers are in a different nation?
All of this sounds absurd, but it sounds like the standard (or something similar to it) being applied to Dropbox in this case.
Let me put it another way, you say that:
>beyond that, I am not benefiting from any government services in the EU.
but you are benefiting from the government. Without a stable and moderately successful government, your customers wouldn't be in a position to be able to pay for your services. And that's exactly why most of your customers could, conceivably, come from the EU, but are unlikely to come from a developing country.
I'm not saying I agree with this; I don't know enough about how this sort of taxation affects the system as a whole, but I believe that's the logic.
Rather, corporate tax is a tax on making a profit. Consider the battle between development and sales - who's making the profit? To the very untrained eye, sales, because they're the ones bring the cheques home, and, indeed, salaries and bonuses in that department seems to confirm that. But without a good product to sell, there would be no sales, so it's obvious that devs deserve a cut as well - but how much?
That's essentially the same discussion Mrs Hodge is trying to have with Starbucks. Are the profits generated by sales (the stores in the UK) or by devs and backoffice (marketing, branding, sourcing, supply chain, finance etc etc etc), conveniently, but legitimately, placed outside the UK?
There aren't (generally!) duties on "imports" of intangible products and services worldwide, but the hard good example makes the notion sound even more absurd. This all reminds me of the crazy "Amazon" rules U.S. states have been setting so as to define affiliates as nexuses for sales tax purposes.
The issue in the case of Amazon, Starbucks et all in the UK right now is that these companies DO have a local permanent establishment, but manage to minimize their corporate tax through a mechanism called "transfer pricing", whereby they pay their sister branches in lower tax jurisdictions license fees etc for using brand, IP, software systems etc, thus increasing their tax deductible expenses in the high tax jurisdiction (UK).
What's useful to note is that none of this would be possible without double taxation agreements and the EU, both which successive UK govts and tax authorities have painstakingly and explicitly negotiated and agreed to. If there are no double taxation treaties, taxes for cross-border payments would in fact be quite punitive (withholding taxes etc).
It seems to me the UK govt thought they would benefit from these agreements when they where originally negotiated, but it has not turned out to be the case. The whole "moral outrage" is just the government passing the buck on a ball they themselves dropped.
As a side note, I don't believe moral outrage is conducive to the rule of law. These multinationals follow the letter of the law and have no further obligations. If the government thinks otherwise, they should renegotiate their positions and stop pointing fingers at others for a ball they dropped.
Dublin's #1 strength over places like London and Berlin is it's geographic size, which makes meetups accessible, leaders and role models available, and creates a friendly and familiar feel, where we all fee like we are part of something bigger than the startups that are here.
Side note: To anyone here on HN visiting Dublin in the future, feel free to connect with us, you'd be very welcome -- @ me on Twitter... @EamonLeonard
[1] http://thenextweb.com/insider/2012/12/03/dropbox-announces-f...
[2] https://news.ycombinator.com/item?id=4864190
Talent pool. Higher unemployment at the current time.
It's also part of the Euro so a good base (rather than the UK) for collecting payments from the Eurozone countries.
Native English speakers.
Easy for other European citizens to go work there (no visa issues).
Irish passport holders can enter the Green Card Lottery (you can't with just a UK passport) so it could make relocation to the US easier for some.
I mean, as they are referring before to Spanish, I guess it is Portuguese, maybe?
Because if they refer to Old Iberian (http://en.wikipedia.org/wiki/Iberian_language), it is going to be difficult to find anyone :-D
They could include Catalan and French (because of Andorra) but unlikely.
I am Spaniard, and I have NEVER heard addressing the different languages spoken in the Iberian peninsula as "Iberian". The languages with official recognition are Spanish, Portuguese, Mirandese, Catalan, Valencian, Aranese, Galego and Euskera (Basque), plus English in Gibraltar, add a few more for unofficially recognised ones I think I am not missing any ;-). French is not an official language in Andorra (only Catalan is), although is quite used