I love when someone wants to use the word "scam" and "immoral" when talking about "technically" avoiding taxes. It's either legal or it ain't - and there's nothing that shows it was illegal.
Moral philosophy doesn't really work that way. You may live in a lawless no-man's-land. Even though murder may not be "technically illegal," that doesn't somehow make it any less wrong.
So you solved the question of what’s right and wrong. All we need is some people, elected using a byzantine voting process, who, with weird rules and centuries of inertia, come up with the Truth. That’s it, everyone else can pack their things and go home.
Why do you elevate the law in such a way? It’s possible to have a perfectly productive discussion about whether and why something is immoral without even so much as mentioning the law. People define what’s moral and what’s not just how people define what’s legal and what’s not.
The discussion about whether something is immoral or not is one that is completely separate from whether something is illegal.
Yes, but morality cannot be adjudicated whereas legality can.
So, when it's important for a point to be settled definitively, talking about the legality is generally more fruitful than talking about the morality. I suspect that was camus's point.
It’s not important for this to be settled definitively. I suspect it never will be. Plus, I think many here probably agree that it’s likely that Google didn’t do anything illegal. So why discuss something most people agree on? That’s pointless.
Whistleblowers pointing fingers in the wrong direction. What they're doing is most certainly legal. What should be looked as is the legislation enabling it. Or rather if it's even a bad thing in the first place.
Anyways, 'immoral' is all relative to one's political philosophy. Some find taxes immoral - especially when they're used to bailout and/or protect competitors, bomb and maim 'enemies' and spy on it's own citizens.
Depriving poorly run corrupt governments of tax benefits everyone, including said government.
Tax in the UK makes me very sad. For businesses big and small, and for individuals like me, it's a huge burden.
A lot of business owners in my town have been forced out of business by local taxes. They lose business to charity shops, which sell donated, or sometimes new items, and pay profits to charity. They do not pay local tax, and often do not pay rent [1]. In some cases, after paying much of the money to the owner, that charity profit can be slim[4]. It is hard to compete with those who do not pay tax. It is not a level playing field.
I'm sure that those trying to compete with Google, Amazon, and similar large companies that pay very little tax feel the same way.
The times article says "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”. "[2]
At the same time, Google's CEO made a thinly veiled threat to withdraw work from the UK if the government here plays hard ball on tax. BP would claim that fines made against it in the US were politically motivated[3], and with some credibility. I think that whether Google is fined in this case will be very much a political decision. Which perhaps supports your point.
"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes a public duty to pay more than the law demands."
The power differential involved can make it very sinister, at least from my perspective.
If everyone could be equally resourceful in avoiding taxes then I would agree completely. If everyone is able to avoid paying taxes with equal ease (or difficulty) there is no problem. However, I don’t think that’s the case. Some can throw lawyers at the problem, others can’t. That makes it problematic.
Yes, it’s a systemic issue, too (and that is likely the place where it has to be fixed), but I don’t think there is anything wrong in thinking that using more esoteric tax avoidance schemes available only to the few is deeply immoral, if not illegal.
I suspect though that that US Supreme Court ruling has little impact and no jurisdiction on an HMRC (HMRC = Her Majesty's Revenue and Customers, the UK's equivalent to the IRS) investigation into the tax practices of Google's UK subsidiary.
Would you prefer Lord Clyde 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
Except that Judge Learned Hand is an American judge, dealing with American cultural norms and political ideals. British law may have rather different ideas as to what constitutes legal obligations.
As with many things, power defines the limits of society; the question being can google take on a thousand-year old theocracy and win?
There is however a duty not to lie to HMRC about where taxable activities are taking place. If Google has many employees in the UK booking sales, generating revenue paid into a UK bank account, but classified as going through Ireland purely as a tax dodge, as the whistleblower alleges, that's illegal evasion, not avoidance. It's morally wrong, but it's also illegal, and the complexity and long-term planning in this scheme shows that Google the corporation is not as innocent and naive about taxes as they'd like to appear. There's an interesting post hellbanned on this discussion from emmelie pointing out just how complicated the schemes are - does Google still use Google Ireland Holdings, Bermuda?
For governments like the UK or US, this has become an important issue, as if they don't tackle this now, revenue from corporations and rich individuals (who often structure their accounts to receive revenue through corporations) will eventually dry up completely as everyone could choose the lowest tax jurisdiction and simply pretend to conduct all business there with loss-making subsidiaries in every other market. This is not limited to Google as all major corporations have started doing this (even the leading left-wing newspaper, the Guardian), and HMRC has just started clamping down on it.
A world where corporations avoid tax completely is not a world I want to live in, and it's not one Google (if they truly believe their mantra 'Don't be evil') should aspire to either. They should simply shut down schemes to move their revenue to other countries solely for the benefits of tax evasion and instead book revenue in the country it is generated in.
Every time people say "What's the problem if they're obeying the law?"
These companies are using very complicated schemes, bought from well funded well staffed multinational accountancy companies (any single one of the big four has more staff in an off shore tax haven than the HMRC has in total). Don't forget that law consists both of statute and case law - a bunch of this stuff has never been before a judge so we don't know if it's legal or not.
These schemes are not normal tax planning. While they're not tax evasion (use of clearly illegal methods to not pay tax) they're borderline, and may not actually be legal. For these schemes to be legal requires a suspension of disbelief - for example, Starbucks doesn't make any profit in the UK[1]. (Baffling if you've ever bought a £4 coffee.)
Forensic accounts investigation is complex, time consuming, and expensive. It's not surprising that overworked under funded understaffed tax offices can't spare the resources to investigate companies who are trying to obfuscate their tax arrangements. When companies are caught they negotiate deals to repay some, but not all, of the tax. Not paying your tax and risking getting caught is just a cost of doing business.[2]
A company using English staff, in English offices, to sell English products to English staff working for other English companies, using English money through English banks should probably be paying tax in England, even if the company have arranged for someone in an Irish office to sign a bit of paper at the end of the chain.
And we've got ourselves into this weird situation. The big four firms lend staff to HMRC to help draft tax law. The big four firms then use their inside knowledge of these laws, that they helped to draft, to create schemes on the edge of legality[3ab].
What I'm gently worried about is an employee of Google (apparently from an accounts department but maybe I got that wrong) siphoning off 100,000 emails, and keeping them for years before coming forward. That feels like a significant fail, but I have no idea of the law around that kind of thing. I trust that Google has much tighter controls around user data.
I am angry that the law is so flawed, that the authorities are so slow to act, that the accountancy firms employed to write the laws were not impartial, and that companies negotiate special deals with HMRC.
I cannot blame Google (or any other company) though. In the same way I don't blame them for filing software patents to be used defensively. The system is broken - either through case law, reformation, or deterring windfall taxes - we must do something about it.
Without addressing the tax situation directly: the fact of the matter is that civilized society is not possible without good faith on the part of people charged with following the law. The threat of enforcement mostly exists to keep honest people honest. It's not really practically possible to police a citizenry determined not to follow the law in good faith.
Always blaming the system is not productive. If the system has to be air-tight to get a usable result, you've already lost the battle.
I disagree, but I may not have expressed myself clearly.
I have no doubt that an attempt to make the tax system air-tight would result in an even greater degree of loopholes and bureaucracy. But laws are not air-tight. Case law and "common-sense" should prevail.
Shutting down the most egregious tax-avoiders (i.e. those companies who rely on untested laws) would quickly clarify the situation for all other accountants. Loopholes would be exploited once - accountants would not sign off the audits of companies using them in the future.
In this vision of the future the exploiting companies need not be punished harshly - exploring and testing the tax system could be looked on in the same way as white-hat penetration testing. "Thank you for bringing the loophole to our attention. You may not use it. Return any profit you made from it. However, anyone caught using it in the future will be face a much greater punishment."
While you're general point is true, I don't think it's terribly relevant here. This is definitely a case of the system being broken.
Taxes are a necessary evil to begin with; they're a direct impingement on the freedom of citizens. Making the laws surrounding them so hideously complicated makes it much worse. No one's really asking for air-tightness, just low enough complexity that we don't have to have full-time professionals to make sense of it. Taxes should be easy.
What makes you think taxes should be easy? Defining income is hard. Defining income in an international context is exponentially harder.
The corporations in this case are not using obscure loopholes to avoid taxes. They're taking advantage of necessary complexities in the tax code: that it taxes net income rather than revenue, and that it taxes income reasonably related to the jurisdiction and not all income everywhere. What's complex is the situation: accounting for the income of huge multi national businesses that have customers and employees in dozens of countries, whose income involves transactions with pieces spread out all over the world.
Its like saying that the Windows kernel should be simple. Sure, as long as you give up decades of backwards compatibility and a multitude of hardware support you could make it simple. Analogously, the only way to simplify the tax code might be to give up on taxing corporations. But you can't jump to the conclusion that the complexity is unnecessary.
There are other means of taxing the citizenry and funding the government. Why should we tax the compensation for work, physical and/or mental, of the population? Better would be to narrow the compliance field to taxing consumption. And in the US we are generally voracious consumers (can speak for the UK).
>>Taxes are a necessary evil to begin with; they're a direct impingement on the freedom of citizens.
Wrong. They are the price citizens have to pay for those freedoms. Want to have the freedom to use public roads? Pay taxes to fund their building and maintenance. Simple as that.
The same applies to businesses as well. Heaven knows how much public infrastructure Google is using in England. So why aren't they paying for it? (Not to single out Google of course.)
You could argue that the money they introduce into the local economy via salaries and costs for rent/leases/purchases IS taxed and providing compensation for the governmental services being used.
I can imagine this could be quite a difficult problem to fix.
These big companies bending the law get away with it only because they a multi-nationals, which means they are governed by more than one set of tax laws.
Each country in which they operate has different tax rules and they use these differences to avoid and minimise their tax.
They are also help out by the fact that countries are notoriously bad at cooperation, so the problem always takes a longer to fix than it should.
I am angry that the law is so flawed, that the authorities are so slow to act, that the accountancy firms employed to write the laws were not impartial, and that companies negotiate special deals with HMRC.
You shouldn't be, because tax avoidance/evasion measures like the Double Irish With A Dutch Sandwich are not caused by the flaws in one country's laws, but by multi-national corporations exploiting differences between tax laws in different jurisdictions to avoid paying tax where they generate revenue and instead pay tax in the jurisdiction with the lowest tax rates. This is not something HMRC alone can easily fix, nor is it a flaw in just one set of laws, but a lack of international control governing corporate behaviour, which is unlikely to be resolved soon unless you want to see a world state. The reason for the special deals is that corporations have many ways of pressuring governments (jobs, investment, etc) and the big ones wield more power and influence than the state itself.
Instead perhaps you could try being angry at large corporations for evading their responsibilities as corporate citizens to pay tax, for dissembling about where revenue is generated and how in an attempt to avoid tax, for creating subsidiaries and licensing agreements solely to declare a nominal loss, and for creating complex chains of companies in many different countries in an attempt to evade tax. Despite the apparent clarity of terms like avoidance and evasion, or legal and illegal, which people use to describe these activities and make them appear simple, there is no clear line between avoidance and evasion, only a set of interpretations, and in this case Google have strayed too close to evasion in the opinion of this whistleblower and of HMRC. Given the evidence presented and the lack of convincing answers from Google, I'm inclined to agree.
Take a counterfactual: suppose Starbucks isn't in the UK yet, and an enterprising young lad wants to bring it there.
Starbucks might license their name, supply chain and coffee brewing methods to this young lad in exchange for a royalty on each cup sold.
Young lad becomes successful, Starbucks is more successful and now the taxman comes. Suppose YL is charging 4£ for each cup and paying a 3£ royalty. YL is English, selling in England, to English, using English money and English banks. Shall we charge him tax on the whole 4£, minus his in-country expenses? Or shall we charge him tax only on his profits, treating the 3£ royalty as a legitimate business expense, and in fact, the very cornerstone of his business?
Maybe you think YL should pay taxes on it all, but I don't. And I don't begrudge the companies who have structured their affairs wisely, optimally and legally.
"And I don't begrudge the companies who have structured their affairs wisely, optimally and legally."
This argument only works so well when hundreds of millions of dollars a year are paid by these companies to the people who make these laws...Seems a bit naive to overlook that and simply say "well as long as its legal I have no issues with it!"
The huge hole in your analogy is that the coffee is not sold by YL, but by a fully owned Starbucks subsidiary.
And it's Starbucks corporate that relentlessly games the system, adjusts the licencing fees and defines the licensor (all owned by the very same company) in order to minimize tax.
That makes the 3 quid licece fee not really a legitimate business expense, but a sham. Set up in order not to pay taxes.
Legal? Sure. Honest, fair and decent? Most certainly not.
With all the anger, the austerity and the countries waking up to such shenigans I wonder how much longer such dodgy schemes will work anyway and I have a hunch the clampdown will be very, very hard.
Over 14 years they've made £3bn in revenue, but paid £8.6m corporation tax. (And none for the last 3 years that records are available).
The combination of telling investors that the UK operation is the best performing of the European operations while telling the tax office that there is no profit made in the UK is a distortion of truth that's hard to reconcile.
Starbucks buys beans. They roast those beans. They then sell those beans back to themselves for much more than the market value of roasted beans. That's not because they use good beans, that's a tax dodge. Starbucks thinks it's legal. But investigative authorities don't have the time nor money to go through the accounts to check.
Perhaps the disparity is that the business reporting to UK authorities is the subsidiary subject to UK tax law and technically a licensee of the main Starbucks corporation which reports record profits from it's licensing operations to the UK licensee.
Google pays nothing in Ireland because the company is actually in Bermuda!!!
"So who does Google license its tech to? A fun little company called Google Ireland Holdings, headquartered in Bermuda. If that sounds shady, that’s because it is. It appears to not have any employees, and it does not exist beyond paperwork. Bermuda, of course, has zero corporate income tax. So as a Bermuda company, Google Ireland Holdings pays none.
Google Ireland Holdings, in turn, owns Google Ireland Limited, which employs 2,000 people in downtown Dublin. Google Ireland Limited reported a pretax income of less than one percent of sales in 2008 and paid $5.4 billion in royalties to Google Ireland Holdings. (French investigative news site OWNI.fr published Google Ireland Limited’s 2011 annual report and its Irish Registration Office documents earlier this year.)
This holding company based in Bermuda is owned by yet another Bermuda-based subsidiary, Google Bermuda Unlimited. It's managed by Conyers, Dill, and Pearman, a law firm specializing in such offshore transactions. That “unlimited” corporation means it is not required to disclose income statements, balance sheets, and other financial information."
Nope. I would recover the difference by raising personal income or sales taxes. After all, when you tax corporations their customers are the ones who ultimately pay the tax.
"...tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply."
Corporate income tax makes perfect sense. If you have a system that: 1) taxes income to persons; 2) treats corporations as distinct legal persons, as both the U.S.'s and U.K.'s does, a corporate income tax falls out naturally. That is to say, the fact that the corporation and the shareholders are taxed distinctly is a natural consequence of the fact that the "corporation's money" is distinct from the "shareholders' money." This fact is the basis for the advantages of corporate form: that a lawsuit against the corporation only endangers the "corporation's money" not the "shareholders' money."
The resulting state of affairs creates a common sense choice for businesses: if you want to treat the corporation as a separate entity when it comes to legal liability, you also have to treat the corporation as a separate entity when it comes to taxation.
But though a corporate income tax is theoretically justified, the challenges of enforcing one may make it desirable to get rid of it as a practical matter.
>But though a corporate income tax is theoretically justified, the challenges of enforcing one may make it desirable to get rid of it as a practical matter.
That was my point. Whether or not you can morally justify it, corporate income tax is easy for multinationals to avoid, putting smaller corporations at a disadvantage and forcing companies to operate more inefficiently.
Isn't this just the Double Irish scheme[1] that Google and other multi-nationals have been doing for a long time now? How is it "whistle blowing" if something is public knowledge?
If it goes beyond that, then the article hasn't really done a good job at pointing that out.
Go Google! Perhaps? An issue I always face when considering tax evasion is that I'm pleased when someone manages to avoid at least some compulsory taxation, but I'm disturbed that it's often very large and very wealthy organizations, which suggests a level of corruption (conscious or emergent) in our systems of Government.
I am in favor of replacing all income tax with a consumption tax- one that is really easy to calculate, like the Fair Tax. The Fair Tax may have some kinks that need to be ironed out, but the concept is really solid.
My understanding is that consumption taxes (we're talking about things like sales tax right?) disproportionately affect poorer people, who spend more of their income, as opposed to rich people who tend to invest more. I'm not 100% sure of the science, but it makes sense. I'd rather just see a simple income tax.
Yes, typically a sales (consumption tax) does effect to poor more than the rich, because the poor tend to consume 100% of their earnings to survive, whereas the rich only consume a very small portion of their overall earnings.
The Fair Tax attempts to address this via 2 mechanisms- first, it does not tax used goods. Poorer people are more likely to buy used goods than new ones.
Second, the Prebate. Under the Fair Tax, the a prebate is given, based on the Federal Poverty Line, and the amount of tax that would be paid if a family spent up to the federal poverty line. Families that are spending less than the Federal Poverty line actually would pay negative taxes, and those spending more, would progressively be taxed more.
As written, some analysts of the Fair Tax have criticized it for putting the squeeze on the middle class- because many spend everything/most of what they earn, but earn well over the poverty line. Whereas the wealthy still consume very little of their overall income, and the poorest of the poor pay negative taxes.
I would tweak the prebate a little from this model, requiring the legislature to specify the prebate level each year as a part of their budget. This means they can't hide behind tweaking the way the poverty line is calculated- they have to make the decision directly, and be held accountable for it. I would also require the legislature to set the actual tax rate annually or at some other regular interval.
Somebody is really trying hard to spread this negative press against Google.
The issue isn't even news, it's well known that Google and many other large multi-international companies do the Double-Irish to avoid taxes. Until Congress plugs the loophope, what should Google do, they hire companies to manage their taxes and the hired company does it to the best of their ability, who is to blame? Our representatives, IMO.
I would like to point out that this is about Google actually breaking the law and not just gaming the system. Seems most commenters assume that this is about gaming the system. Google is walking a fine line here and if they step over that line they can't expect folks to go easy on them.
When Google first came out with "don't be evil", this was exactly the kind of thing I thought they wanted to avoid, especially since the corporate bogeyman of the day was Microsoft and they were doing exactly this (Apple too). Turns out I don't really have any idea what Google thinks don't be evil means. It looks like they operate like any other corporation, where the only people they truly care about in a bottom-line sense are shareholders. May as well be up front about that. From what I've seen, a better motto is probably:
Don't be evil unless it makes money than being good,
but never admit to evil or talk about it in any way.
60 comments
[ 213 ms ] story [ 2536 ms ] threadactual story: http://www.thesundaytimes.co.uk/sto/news/uk_news/National/ar...
previous discussion: https://news.ycombinator.com/item?id=5730861
There is only the law , the rest is b.s.
https://en.wikipedia.org/wiki/Double_Irish_arrangement#Compa...
Why do you elevate the law in such a way? It’s possible to have a perfectly productive discussion about whether and why something is immoral without even so much as mentioning the law. People define what’s moral and what’s not just how people define what’s legal and what’s not.
The discussion about whether something is immoral or not is one that is completely separate from whether something is illegal.
So, when it's important for a point to be settled definitively, talking about the legality is generally more fruitful than talking about the morality. I suspect that was camus's point.
Anyways, 'immoral' is all relative to one's political philosophy. Some find taxes immoral - especially when they're used to bailout and/or protect competitors, bomb and maim 'enemies' and spy on it's own citizens.
Depriving poorly run corrupt governments of tax benefits everyone, including said government.
A lot of business owners in my town have been forced out of business by local taxes. They lose business to charity shops, which sell donated, or sometimes new items, and pay profits to charity. They do not pay local tax, and often do not pay rent [1]. In some cases, after paying much of the money to the owner, that charity profit can be slim[4]. It is hard to compete with those who do not pay tax. It is not a level playing field.
I'm sure that those trying to compete with Google, Amazon, and similar large companies that pay very little tax feel the same way.
The times article says "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”. "[2]
At the same time, Google's CEO made a thinly veiled threat to withdraw work from the UK if the government here plays hard ball on tax. BP would claim that fines made against it in the US were politically motivated[3], and with some credibility. I think that whether Google is fined in this case will be very much a political decision. Which perhaps supports your point.
[1]http://www.ft.com/cms/s/0/d8bee184-112c-11e1-a95c-00144feabd... [2]http://www.thesundaytimes.co.uk/sto/news/uk_news/National/ar... [3]http://www.bbc.co.uk/news/business-22549710 [4]http://www.independent.co.uk/money/money-charity-shops-and-t...
Judge Learned Hand in Helvering vs Gregory, 1934.
If everyone could be equally resourceful in avoiding taxes then I would agree completely. If everyone is able to avoid paying taxes with equal ease (or difficulty) there is no problem. However, I don’t think that’s the case. Some can throw lawyers at the problem, others can’t. That makes it problematic.
Yes, it’s a systemic issue, too (and that is likely the place where it has to be fixed), but I don’t think there is anything wrong in thinking that using more esoteric tax avoidance schemes available only to the few is deeply immoral, if not illegal.
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
Which generally precludes lying before Parliament.
As with many things, power defines the limits of society; the question being can google take on a thousand-year old theocracy and win?
For governments like the UK or US, this has become an important issue, as if they don't tackle this now, revenue from corporations and rich individuals (who often structure their accounts to receive revenue through corporations) will eventually dry up completely as everyone could choose the lowest tax jurisdiction and simply pretend to conduct all business there with loss-making subsidiaries in every other market. This is not limited to Google as all major corporations have started doing this (even the leading left-wing newspaper, the Guardian), and HMRC has just started clamping down on it.
A world where corporations avoid tax completely is not a world I want to live in, and it's not one Google (if they truly believe their mantra 'Don't be evil') should aspire to either. They should simply shut down schemes to move their revenue to other countries solely for the benefits of tax evasion and instead book revenue in the country it is generated in.
These companies are using very complicated schemes, bought from well funded well staffed multinational accountancy companies (any single one of the big four has more staff in an off shore tax haven than the HMRC has in total). Don't forget that law consists both of statute and case law - a bunch of this stuff has never been before a judge so we don't know if it's legal or not.
These schemes are not normal tax planning. While they're not tax evasion (use of clearly illegal methods to not pay tax) they're borderline, and may not actually be legal. For these schemes to be legal requires a suspension of disbelief - for example, Starbucks doesn't make any profit in the UK[1]. (Baffling if you've ever bought a £4 coffee.)
Forensic accounts investigation is complex, time consuming, and expensive. It's not surprising that overworked under funded understaffed tax offices can't spare the resources to investigate companies who are trying to obfuscate their tax arrangements. When companies are caught they negotiate deals to repay some, but not all, of the tax. Not paying your tax and risking getting caught is just a cost of doing business.[2]
A company using English staff, in English offices, to sell English products to English staff working for other English companies, using English money through English banks should probably be paying tax in England, even if the company have arranged for someone in an Irish office to sign a bit of paper at the end of the chain.
And we've got ourselves into this weird situation. The big four firms lend staff to HMRC to help draft tax law. The big four firms then use their inside knowledge of these laws, that they helped to draft, to create schemes on the edge of legality[3ab].
What I'm gently worried about is an employee of Google (apparently from an accounts department but maybe I got that wrong) siphoning off 100,000 emails, and keeping them for years before coming forward. That feels like a significant fail, but I have no idea of the law around that kind of thing. I trust that Google has much tighter controls around user data.
[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...)
I cannot blame Google (or any other company) though. In the same way I don't blame them for filing software patents to be used defensively. The system is broken - either through case law, reformation, or deterring windfall taxes - we must do something about it.
Always blaming the system is not productive. If the system has to be air-tight to get a usable result, you've already lost the battle.
I have no doubt that an attempt to make the tax system air-tight would result in an even greater degree of loopholes and bureaucracy. But laws are not air-tight. Case law and "common-sense" should prevail.
Shutting down the most egregious tax-avoiders (i.e. those companies who rely on untested laws) would quickly clarify the situation for all other accountants. Loopholes would be exploited once - accountants would not sign off the audits of companies using them in the future.
In this vision of the future the exploiting companies need not be punished harshly - exploring and testing the tax system could be looked on in the same way as white-hat penetration testing. "Thank you for bringing the loophole to our attention. You may not use it. Return any profit you made from it. However, anyone caught using it in the future will be face a much greater punishment."
Taxes are a necessary evil to begin with; they're a direct impingement on the freedom of citizens. Making the laws surrounding them so hideously complicated makes it much worse. No one's really asking for air-tightness, just low enough complexity that we don't have to have full-time professionals to make sense of it. Taxes should be easy.
The corporations in this case are not using obscure loopholes to avoid taxes. They're taking advantage of necessary complexities in the tax code: that it taxes net income rather than revenue, and that it taxes income reasonably related to the jurisdiction and not all income everywhere. What's complex is the situation: accounting for the income of huge multi national businesses that have customers and employees in dozens of countries, whose income involves transactions with pieces spread out all over the world.
Its like saying that the Windows kernel should be simple. Sure, as long as you give up decades of backwards compatibility and a multitude of hardware support you could make it simple. Analogously, the only way to simplify the tax code might be to give up on taxing corporations. But you can't jump to the conclusion that the complexity is unnecessary.
There are other means of taxing the citizenry and funding the government. Why should we tax the compensation for work, physical and/or mental, of the population? Better would be to narrow the compliance field to taxing consumption. And in the US we are generally voracious consumers (can speak for the UK).
Wrong. They are the price citizens have to pay for those freedoms. Want to have the freedom to use public roads? Pay taxes to fund their building and maintenance. Simple as that.
The same applies to businesses as well. Heaven knows how much public infrastructure Google is using in England. So why aren't they paying for it? (Not to single out Google of course.)
I can imagine this could be quite a difficult problem to fix.
These big companies bending the law get away with it only because they a multi-nationals, which means they are governed by more than one set of tax laws.
Each country in which they operate has different tax rules and they use these differences to avoid and minimise their tax.
They are also help out by the fact that countries are notoriously bad at cooperation, so the problem always takes a longer to fix than it should.
You shouldn't be, because tax avoidance/evasion measures like the Double Irish With A Dutch Sandwich are not caused by the flaws in one country's laws, but by multi-national corporations exploiting differences between tax laws in different jurisdictions to avoid paying tax where they generate revenue and instead pay tax in the jurisdiction with the lowest tax rates. This is not something HMRC alone can easily fix, nor is it a flaw in just one set of laws, but a lack of international control governing corporate behaviour, which is unlikely to be resolved soon unless you want to see a world state. The reason for the special deals is that corporations have many ways of pressuring governments (jobs, investment, etc) and the big ones wield more power and influence than the state itself.
Instead perhaps you could try being angry at large corporations for evading their responsibilities as corporate citizens to pay tax, for dissembling about where revenue is generated and how in an attempt to avoid tax, for creating subsidiaries and licensing agreements solely to declare a nominal loss, and for creating complex chains of companies in many different countries in an attempt to evade tax. Despite the apparent clarity of terms like avoidance and evasion, or legal and illegal, which people use to describe these activities and make them appear simple, there is no clear line between avoidance and evasion, only a set of interpretations, and in this case Google have strayed too close to evasion in the opinion of this whistleblower and of HMRC. Given the evidence presented and the lack of convincing answers from Google, I'm inclined to agree.
Starbucks might license their name, supply chain and coffee brewing methods to this young lad in exchange for a royalty on each cup sold.
Young lad becomes successful, Starbucks is more successful and now the taxman comes. Suppose YL is charging 4£ for each cup and paying a 3£ royalty. YL is English, selling in England, to English, using English money and English banks. Shall we charge him tax on the whole 4£, minus his in-country expenses? Or shall we charge him tax only on his profits, treating the 3£ royalty as a legitimate business expense, and in fact, the very cornerstone of his business?
Maybe you think YL should pay taxes on it all, but I don't. And I don't begrudge the companies who have structured their affairs wisely, optimally and legally.
This argument only works so well when hundreds of millions of dollars a year are paid by these companies to the people who make these laws...Seems a bit naive to overlook that and simply say "well as long as its legal I have no issues with it!"
And it's Starbucks corporate that relentlessly games the system, adjusts the licencing fees and defines the licensor (all owned by the very same company) in order to minimize tax.
That makes the 3 quid licece fee not really a legitimate business expense, but a sham. Set up in order not to pay taxes.
Legal? Sure. Honest, fair and decent? Most certainly not.
With all the anger, the austerity and the countries waking up to such shenigans I wonder how much longer such dodgy schemes will work anyway and I have a hunch the clampdown will be very, very hard.
At least I hope so.
(http://www.reuters.com/article/2012/10/15/us-britain-starbuc...)
Over 14 years they've made £3bn in revenue, but paid £8.6m corporation tax. (And none for the last 3 years that records are available).
The combination of telling investors that the UK operation is the best performing of the European operations while telling the tax office that there is no profit made in the UK is a distortion of truth that's hard to reconcile.
Starbucks buys beans. They roast those beans. They then sell those beans back to themselves for much more than the market value of roasted beans. That's not because they use good beans, that's a tax dodge. Starbucks thinks it's legal. But investigative authorities don't have the time nor money to go through the accounts to check.
(http://www.reuters.com/article/2012/10/15/us-britain-starbuc...)
(http://www.huffingtonpost.com/2012/12/02/starbucks-tax-uk_n_...)
I find that only slightly less annoying than the people who think that the solution is loophole-ridden "flat" taxes.
Google pays nothing in Ireland because the company is actually in Bermuda!!!
"So who does Google license its tech to? A fun little company called Google Ireland Holdings, headquartered in Bermuda. If that sounds shady, that’s because it is. It appears to not have any employees, and it does not exist beyond paperwork. Bermuda, of course, has zero corporate income tax. So as a Bermuda company, Google Ireland Holdings pays none.
Google Ireland Holdings, in turn, owns Google Ireland Limited, which employs 2,000 people in downtown Dublin. Google Ireland Limited reported a pretax income of less than one percent of sales in 2008 and paid $5.4 billion in royalties to Google Ireland Holdings. (French investigative news site OWNI.fr published Google Ireland Limited’s 2011 annual report and its Irish Registration Office documents earlier this year.)
This holding company based in Bermuda is owned by yet another Bermuda-based subsidiary, Google Bermuda Unlimited. It's managed by Conyers, Dill, and Pearman, a law firm specializing in such offshore transactions. That “unlimited” corporation means it is not required to disclose income statements, balance sheets, and other financial information."
http://arstechnica.com/business/2012/11/dutch-sandwich-with-...
"...tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply."
http://en.wikipedia.org/wiki/Tax_incidence
The resulting state of affairs creates a common sense choice for businesses: if you want to treat the corporation as a separate entity when it comes to legal liability, you also have to treat the corporation as a separate entity when it comes to taxation.
But though a corporate income tax is theoretically justified, the challenges of enforcing one may make it desirable to get rid of it as a practical matter.
That was my point. Whether or not you can morally justify it, corporate income tax is easy for multinationals to avoid, putting smaller corporations at a disadvantage and forcing companies to operate more inefficiently.
[1] https://en.wikipedia.org/wiki/Double_Irish_arrangement
The Fair Tax attempts to address this via 2 mechanisms- first, it does not tax used goods. Poorer people are more likely to buy used goods than new ones.
Second, the Prebate. Under the Fair Tax, the a prebate is given, based on the Federal Poverty Line, and the amount of tax that would be paid if a family spent up to the federal poverty line. Families that are spending less than the Federal Poverty line actually would pay negative taxes, and those spending more, would progressively be taxed more.
As written, some analysts of the Fair Tax have criticized it for putting the squeeze on the middle class- because many spend everything/most of what they earn, but earn well over the poverty line. Whereas the wealthy still consume very little of their overall income, and the poorest of the poor pay negative taxes.
I would tweak the prebate a little from this model, requiring the legislature to specify the prebate level each year as a part of their budget. This means they can't hide behind tweaking the way the poverty line is calculated- they have to make the decision directly, and be held accountable for it. I would also require the legislature to set the actual tax rate annually or at some other regular interval.
The issue isn't even news, it's well known that Google and many other large multi-international companies do the Double-Irish to avoid taxes. Until Congress plugs the loophope, what should Google do, they hire companies to manage their taxes and the hired company does it to the best of their ability, who is to blame? Our representatives, IMO.