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Google is "flying a banner of doing no evil, and then they're perpetrating evil under our noses," says Abraham J. Briloff, a professor emeritus of accounting at

by grellas 16y ago

Google is "flying a banner of doing no evil, and then they're perpetrating evil under our noses," says Abraham J. Briloff, a professor emeritus of accounting at Baruch College who has examined Google's tax disclosures. Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes? I understand that governments might want to consider these as loopholes and seek to end the right of U.S. taxpayers to avail themselves of these tax-minimization strategies. But, as long as it is legal, why should a company voluntarily seek to expose itself to higher tax rates when it has the choice not to? I guess when you as a company claim the high ground ("do no evil"), you will have people making their own judgments about what ethical standard ought to govern your conduct and this would explain this professor's remark. By that measure, though, one could argue that companies such as Google should seek to attribute all their revenues to California because that is where their main intellectual property development efforts have occurred and hence pay corporate tax rates at one of the highest rates around simply because they "owe" it to California. I get this question all the time from web-based startups: why run our revenues through a high-tax state when we have the option of running them through all sorts of lower-tax venues and saving on taxes? The universal answer for smaller companies is "set your company up in a way that let's you pay the least tax you can legally." Why should Google be held to a different standard on penalty of having its perfectly legal actions castigated as "evil"? Is it the view of some or many in the HN community, for example, that a private enterprise has a form of "social responsibility" to voluntarily subject itself to the tax rates of whatever domicile it happens to have its major operations in (in this case, California) when it legally has the option not to do so? That seems unwise by free enterprise standards and I am genuinely curious to know why refusing to do this would be called "evil."

lionhearted 16y ago
> That seems absurd by free enterprise standards and I am genuinely curious to know why refusing to do this would be called "evil." When taxes come up, it tends not to be a well-thought, cohesive, pros-and-cons thing. It tends to be an emotional/identity thing. Some people think and almost always argue it'd be a good thing if companies gave more money over to governments. Me, I think it's very good for the world on every level for Google to pay less taxes. They're hiring the best people, acquiring companies and giving liquidity to founders, run amazing free services (search, Gmail, Google Earth, Google Maps, Google Finance, Google News, Google Voice, Google Reader, Feedburner, many many others). Also, they're internally investing in energy and robotics like the auto-driven cars thing, and their high level personnel seem to invest really well too (like in genetics research). Anyone who thinks that England would do a better job with the money than Google hasn't been to England, or hasn't thought this through very much.
- rbranson 16y ago
  Obviously we should always look at large companies with skepticism, but Google is clearly building a long-term brand and trying to generate goodwill by investing in massive R&D efforts. This is rare among large companies. Most seem focused on the quarterly report. If they were IBM or Oracle, who undoubtedly have similar practices, perhaps I might feel a little more betrayed. I still believe Google, for the most part, is not evil. Thankfully though, we are a nation of laws. As much as I despise the practices of some businesses, I am perfectly happy that it's not any one person's single opinion that keeps these companies in business.
- dbingham 16y ago
  Well, it's up to England's citizens to change the efficiency of England's government. Google is doing great things. By but dodging its taxes, it is forcing ordinary citizens to pay more. Or make do with less. It doesn't matter whether it would do better with the money. I think I could do better with my tax money than the US government. But then, that's not my choice to make. My job is to work to make sure that the US government does better with my tax money. Not to deny the government the money. If I don't pay, someone else will have to. And that's not okay. It's like saying I need your sandwich more than you do. I'm hungrier, I could make better use of it, therefor I should get your sandwich. Even if I could legally take your sandwich. It's still not okay. It's your sandwich! If I take it, you go hungry.
  - lionhearted 16y ago
    > By but dodging its taxes, it is forcing ordinary citizens to pay more. Or make do with less. See, I'd disagree with you and say the opposite. I think England taking money from Google would mean less infrastructure and research out there in the world, meaning common citizens would be forced to pay more for services instead of Google's free services, or make do with less. > I think I could do better with my tax money than the US government. But then, that's not my choice to make. I believe it should be. Really, I mean that, I think taxes on productive labor are evil. Really, actually, unmitigated evil. I'm not against taxes, I'd actually be in favor for high property taxes divided split between federal, state, and local, which would encourage economy of space, reduce waste, and discourage real estate speculation while encouraging development. High taxes are okay. But taxing earned income, no way. Demanding a percent of honest labor to me seems no different than claiming ownership over a percent of a man. I think it's tyranny, and that in the future people will look horrified at income taxes the way we look at feudalism, serfdom, slavery, and other forced claims over a man's labor. But I understand I'm currently in the minority on that point of view.
dbingham 16y ago
It's not just Google who is evil. They're just getting called out on it, because they've pledged not to be evil. It's rather expected of other corporations because we expect them to operate with out morals in search of maximum profit. But any corporation that takes advantages of tax loop holes, legal or not, is doing evil. By doing that they are taking money out of the pockets of every day citizens in every country who's taxes they avoid paying. Because those citizens have to either make up the difference, or cut vital services such as education, infrastructure, health care and the social safety net. And those citizens can very ill afford to make up the difference. There are exposes like this done once every few years decrying how low the real tax rate is for some large corporation or other or group there in. Really Google ought not have been singled out by this round. All corporations that do this are being evil. But Google's promised not to be evil -- and for the most part has upheld that -- so they are being targeted. Really, the most moral course of action here would be to pay the taxes and lobby for the closing of the loopholes. And if they feel the tax rate is too high -- the lowering of the tax rate.
- retube 16y ago
  You could argue that the moral thing to do is maximise profit for shareholders (this is what they are legally required to do anyway). By deliberating paying more taxes than they need to shareholders will be penalised (smaller dividends etc).
  - wolfrom 16y ago
    That's true. Google would be cheating its shareholders by not returning the most value through legal means. Of course, in Google's case, they probably could choose to pay more tax and get away with it, but why would they?
  - dbingham 16y ago
    Returning the maximum profit for shareholders is moral only for the very narrowly focused or the short sighted. Am I being moral if I return maximum profit for my shareholders by working my workers to death? Or by polluting the land so that it cannot be used after I am done with it? How about by returning value to them with one hand (the value of their shares, dividends) and removing it with the other (the increases in individual taxes required to make up for the shortfall I created by not paying)?
roc 16y ago
Ethics aside, Google shouldn't seek to deprive nations of tax revenue because they benefit in no small part from that money. They hire employees educated with government money, buy research projects funded with government money, build data centers that depend upon public infrastructure, etc. Frankly, without government money, Google would not exist. By gaming the tax systems, they're not only flipping the bird to the ladder they stood upon to create Google, but they're strangling the future pipeline for the very government products they depend upon. And people only call Google out for crap like this because they insist on running around claiming they "Do No Evil". They set the bar higher for themselves. If they didn't want it there, they should shut up about it already.
- yummyfajitas 16y ago
  Most of their tax money would not be spent on the specific items you describe. For every $100 google spends in taxes, roughly $16 will be spent on education (mostly education for underachievers who would never work at google), $4.90 will be spent on transportation infrastructure, $0.30 will be spent on basic research and $0.1 will be spent on communications infrastructure. On the other hand, for every $100 google pays in taxes, $23.2 will be given to unproductive old people and $14.8 will be given to unproductive non-old people. It's a fallacy to focus solely on the desirable components of government spending. The lions share of taxes are simply transfers from productive people to unproductive people. If Google wants to avoid this, I see nothing wrong with that.
  - awakeasleep 16y ago
    What you say is true and I think you both make good points. When someone above asked "Why would Google want to pay a higher tax rate?" I thought, they would if it was in their best interest- I think we all agree on this. Now here is the crazy part of my post- A company like Google which could conceivably bring in billions of dollars by changing its tax setup, should have some bargaining power. I don't think anything like this exists anywhere, but wouldn't it be cool if Google could get lawmakers to state that x% of Google's tax dollars will set up schools that focused on teaching 'gifted' children technology? And y% pays for technology infrastructure? Wouldn't that be fukken sweet? It would give Google an incentive to keep money in the USA, give back to what gave birth to it, reduce its burden of finding and educating new hires, reduce it's burden of setting up infrastructure, and benefit society across the board without having to wait for a some Google Billionaire to have a ethical epiphany in his old age and attempt philanthropy.
ced 16y ago
why wouldn't any international business do whatever it could legally do to minimize its taxes? As a lawyer, what's your perspective on lobbying? If the laws are ultimately chosen by the companies and the wealthiest, then I don't agree that "anything legal is fair".
- ataggart 16y ago
  >If the laws are ultimately chosen by the companies and the wealthiest... At least with respect to the US, politicians are still needed to pass bills into law. The solution to your concern falls out of the simple realization that politicians can only sell the powers they have been delegated by the people. Grant them the power to make and break whole industries, and don't be shocked when those potentially affected come calling.
- oogoog 16y ago
  I agree. But practically, a government must have a way to mollify powerful interest groups or you end up with revolution and chaos. I think American democracy does a fantastic job of producing a stable and fair environment. But I'm not convinced it does the best possible job. As you say, it leads to complex system of laws that are not fair. As a westerner newly living in Asia, I can see Singapore delivers good, efficient government and they respond to citizens complaints like a good company responds to its clients. Taxes are low, simple, and are done on a post card. I think thats the advantage of not being a democracy. However, its not clear to me how they manage their powerful interest groups. I suppose brute force plays a role. But honestly, I doubt there is any more brute force used in Singapore than in the US. And I would trust Singapore to be more fair and even handed. My guess is that China models itself after Singapore. I think thats where China is trying go. If they can get there -- and its not clear to me that they can -- in my opinion, it will be a more successful form of government than the democracies of the West. But they have a long way to. Singapore is a small island in a unique political and economic situation and I think that makes a huge difference.
nhebb 16y ago
I can't speak for others, but my alarm wasn't with Google. Instead it was with a tax system that allows these kinds of loopholes. When people talk of expiring the Bush tax cuts for those making over $250k, my jaded response is that it will probably only affect those that are well to do but not really rich. I think the really rich can afford tax lawyers that let them avoid substantial taxes via other loopholes.
- elai 16y ago
  You're talking as if the US should receive the revenues for this foreign sourced income (notice this is out side of the USA income, not internal US income). As if google is only mountain view, CA. And as if these corporations don't contribute hugely to their headquarter country in employing tens of thousands of people who pay generously harvested income, payroll, property and other taxes and spend the majority of their money in the local economy not to mention made thousands of new local millionaires who develop their home economies even further.
  - nhebb 16y ago
    I see what you mean, but when I wrote the first sentence I was actually thinking of the the Drudge headline from yesterday that the UK planned to cut 500,000 jobs from the government payroll. Even though the Bush tax cut issue is US specific, it was meant as a general diatribe against the inequity of any tax system that favors the well-heeled who can afford tax expertise to skirt taxes. I'm not going to lie - it's personal. I worked for a company that was acquired by (Bermuda based) Tyco International, and the aftermath wasn't pretty. Ever since I've harbored a steep grudge against companies who use international tax havens.
charlief 16y ago
The characterization of "evil" is too strong. The focus should not be on Google, but on the world's corporate tax system because it doesn't accomplish what it was set out to do. In terms of the level of fairness and for the purposes of generating domestic revenue, it is broken. A specific tax revenue distribution was intended, and that is why the particular tax levels were set, but instead the levels change dramatically for the most sophisticated participants. Maybe the answer is to make these tax management/arbitrage services more accessible to everyone and every business to allow the democratic/political/capital system put pressure on the issue. I imagine the overhead is great, but there should be a way consolidate or ease it, I am sure some innovative minds out there will find a way.
metabrew 16y ago
Don't blame the player, blame the game. Tax loopholes should be closed in law, Google and other corporations have a responsibility to their shareholders - why shouldn't they act within the law to save money? I remember seeing a fun flow-chart of the IKEA tax avoidance scheme. Didn't have as amusing names as those used in this article though :)
- bl4k 16y ago
  tech guys have server naming schemes, lawyers have offshore tax-minimization entity naming schemes. (personally if I ever got that big, I would name them all after characters from The Wire - just so I could say thing like 'lets shift all that to prop joe corp'. Hearing it all told back to you in court would be even more amusing.)
xenophanes 16y ago
I think it'd be illegal for Google NOT to use tax shelters. They have to maximize shareholder value. They can't just give money away to whoever they feel like for no reason, including to the US Govt.
vegai 16y ago
The answer in HN's context should be obvious: It is 'evil' because these techniques have nothing to do with making a superior product, and it is 'evil' because it puts newcomers to a market into an inferior position: they don't have the resources to use the same techniques.
SriniK 16y ago
Right on grellas. Every other company does this and there is a corporate tax industry around these loop holes. Apple operates Braeburn Capital http://en.wikipedia.org/wiki/Braeburn_Capital http://en.wikipedia.org/wiki/Braeburn_Capital Microsoft is known for borrowing its own money from foreign countries to avoid repatriating tax. Because borrowing is cheaper than paying repatriation tax. Broadcom is known for using R&D tax credits(for spending money in US for R&D) and Singapore and other lower tax states when it comes to selling goods and realizing income. Even Oil/financial companies are known to set up shops in overseas just to avoid paying higher taxes. When someone's career is to find ways to reduce taxes, companies will find whatever way to achieve it.
robk 16y ago
"Don't be evil" != "do no evil" Many people confuse the latter for the original statement, when it was in fact the former.
rue 16y ago
> Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes? Evil is a moral judgment, not a legal one.
codexon 16y ago
> Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes? It all comes down to ruining competition which is crucial for capitalism to improve the quality and decrease the cost of services for society. Do many startups have the money to hire a bunch of lawyers to find out the latest tax loophole and the money to setup multiple shell corporations? I think not.
Confusion 16y ago
Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes? It's the lawyer in you and he's misleading you. It's not a question of doing what they can do. The economist in you should conclude that it is a question of doing what they must do in order to remain competitive. You can't choose to 'do no evil', when all your competitors are doing evil. That road leads only to bankruptcy, as they can undercut your prices, because they pay much lower taxes. This is one of the examples explaining why capitalism is fundamentally incapable of providing any moral guidelines. It doesn't care about what is right, only about what turns a profit.
kragen 16y ago
I guess when you as a company claim the high ground ("do no evil") The slogan wasn't "do no evil", which is impossible, but "don't be evil," which is much closer to being within reach; and its intended audience was Google employees, not people outside the company. Google probably should have aggressively refused to comment on rumors that this slogan was widespread, rather than publicly confirming it. A cynic might argue that the constant press attacks on Google resulting from this slogan are from people who have resigned themselves to being evil and are angry that someone else has the courage to attempt otherwise.
anigbrowl 16y ago
why wouldn't any international business do whatever it could legally do to minimize its taxes? The argument for not doing so (or at least, not going to such lengths to minimize the tax burden) is political rather than legal. I don't think it's 'evil,' incidentally, so please take the following as descriptive rather than proscriptive! What happens when a company expands overseas? Well, it's a coup for the receiving country. There's a ribbon-cutting ceremony, speeches are made about the number of jobs it will create, people feel good about the past taxes they paid that went towards educating the workforce, and and there's a general expectation that the country will pick up 'a bit of the action' in three ways: by collecting some taxes from a successful business (pure rent-seeking, but after all that's part of why investing in education and infrastructure seemed like a good idea to begin with); by attracting other businesses in the same sector and getting a 'hub effect,' which will build up a secondary market serving these firms' ancillary needs (eg payroll, new real estate etc.); and a long-term benefit as employees of the Big Foreign Corporation develop world-class skills and later some of them start companies of their own or guide university researchers etc., making the country's economy more competitive and modern. What happens is a little different. Usually the incoming firm has negotiated a favorable tax regime with the local government, and the long-term benefits of the secondary market and skill development are estimated to be greater than the foregone tax revenue. When I grew up (in Ireland) the usual approach was for the government to give a 10 year tax holiday in return for building a factory and training the employees, on the theory that the business would be OK with paying tax at the normal rate after a decade. But quite a few companies just shut down their factories when the 10 years ran out, because paying taxes was more expensive than setting up anew in some other developing economy and shipping the product. Of course, then the secondary market that had grown up servicing the industrial and consumer demand for local services would collapse. So gradually there was a shift towards less rent-seeking (by allowing this sort of accounting manipulation) in return for the hope of increased long-term stability in secondary markets and skill growth. Unfortunately IMO, what has happened with a lot of tech and financial companies that moved to Ireland in particular is that that little technology transfer takes place. For example, Microsoft used to be a fairly big employer in both the UK and Ireland (not sure about now), but the bulk of the work was technical support and localization, rather than software engineering. Similarly most of the financial business in Dublin was backoffice processing because it was cheaper to do it there than in London or Paris (plus it gave UK companies an easy in to the European market). Jobs like that are less sticky if the tax regime changes, and while they probably do make the country's economy more competitive the gains are smaller and over a longer term than people anticipate - hence the endless supply of stories about some new location attracting a few tech companies and declaring itself to be 'Silicon _______.' The secondary markets which provide ancillary services to the firm and its local employees thus do best out of such an arrangement, and a lenient tax regime keeps them going for longer - in practice, as long as wage differentials are sustainable for the parent company, and there isn't an equally capable workforce available to do the task for substantially less. Service jobs (at the foreign firm) are somewhat sticky because you can't move your call center from Dublin to Shanghai - but you might be able to find that in Bangalore. Meanwhile, if enough foreign firms set up shop in a country and a thriving secondary market grows up to service their ancillaries - plant, payroll and infrastructure for the firm itself, housing and consumer services for the happy employees. Of course, this tends to overheat the local economy: if you think the US property boom was out of control, you should have seen the Irish one. The price/earnings ratio for housing in Dublin shot up to 100:1. Predictably, the party stopped right around the time when the cost of living had inflated wages high enough to make Ireland a less attractive destination for multinationals. Irish people were feeling so prosperous and skilled at making money that nobody wanted to do boring things like farm work or child care, and so the country saw an influx of Polish farmhands and nannies who everyone agreed made great workers. Several multinational firms came to the same conclusion; Dell used to have a manufacturing plant near my hometown in Ireland which was the largest local employer, but decided to close it and open a new one in Poland instead, resulting in the loss of ~2000 jobs. Of course the former employees still have their skills, but assembling PCs on an assembly line turns out not to be all that special, and my understanding is that Dell had a policy of not recruiting for management from the local workforce, or even hiring skilled people who were likely to apply for internally-advertised management positions rather than stay on the assembly line. (Please bear in mind that I'm drastically oversimplifying here, so as not to make this comment even longer.)
anigbrowl 16y ago
(part 2/2...sorry about the length folks) OK, so what does all this have to do with Google? Well the problem is that such companies are welcomed when they set up overseas, and great expectations accompany them. And in the short term, there seems to be a distinct increase in prosperity - but people tend to extrapolate the growth trend endlessly into the future, and spend the money almost as fast as they make it. When the inevitable inflation ensues, they tend to feel they got a bad deal and go protectionist or sometimes enact draconian new tax policies. Oh, and the Irish government is also in bad odor with other European countries, who have felt for a while that the country took advantage of its small size to get away with significantly undercutting its neighbors on corporate taxes during the good times, leaving a correspondingly deep fiscal hole now. Back in California, people look at the overseas investment made by the multinational and conclude that if the expansion actually cost the firm a lot less than imagined, then the favorable domestic tax treatment of the overseas operations (an indirect export subsidy, in effect) essentially amounted to the US taxpayer bankrolling their overseas expansion without any of the benefits coming back to the US Treasury later. But isn't that good for overall US competitiveness? Maybe, but who was Google (or Yahoo, or...) competing with internationally when it set up shop in Europe - Baidu? I can't even name a UK or Euro search competitor of any significance off the top of my head. So it's not obvious what US taxpayers gained by letting Google out of paying US taxes on Euro/Eastern Hemisphere operations. Sure, Google expanded its operations and brand, and indirectly the economic reach of the USA, but as they were also getting a sweet legal/taxation regime at the other end - much lower than the headline 12.5% corporate tax rate in Ireland - then it seems as if the vast bulk of the benefits went to Google. OK, they have to pay tax somewhere, but Bermuda, like most tax havens, is such a small country that even a tiny slice in 'fees' is a huge feast. Again, like most tax havens, Bermuda's actual contribution to the global economy is almost nil; about the only argument you can make in their favor is that they contribute to increased liquidity. There's a worthy philosophical debate here about the ultimate economic value of exporting low tax rates. But in the short term, the pragmatic result is that governments of more developed countries feel scammed, because they obeyed the popular wish of investing in things like infrastructure and education in hope of a long-term payoff, and now that they find themselves distinctly short of cash it's hard to explain why the payoff has failed to materialize (or why they didn't manage it very well, when it did). Of course, there's a little bit of hypocrisy going on here - well, actually a lot. Governments are often getting sweetheart deals on the back end; this arguably represents a transfer of wealth from the US to the populations of other countries, even if only in terms of lost wages for jobs that are not location-specific. As neither the US nor the Irish or Dutch treasuries saw a great direct benefit, routing all the money through Bermuda has the political (not legal) appearance of a money-laundering operation. Particularly in Ireland, where people paying 20-40% in personal income taxes and almost 20% in VAT (sales taxes) are wondering what is the point of having one of the world's lowest rates of corporate tax (12.5%) if the government doesn't even collect most of it from large foreign firms. This is exactly the sort of thing that tends to give people the idea that it might be better to just have their treasury own shares in the company instead, a strategy employed with varying degrees of success in places like Venezuela and France. I want to make it clear that I personally don't subscribe to the idea of state-owned industry or the idea that you can tax your way to economic success. There are reasons Europe doesn't produce the kind of industrial giants the US does, and why the European software industry is much less competitive than that in the US - they're not all to do with heavy-handed industrial/tax policy or regulation, mind, but those things do play a big part. But when there is a good deal on offer (such as Ireland's low corporate tax rates, much cited in the US during recent years), the short-term tax savings of trying to further minimize tax liability have to be weighed against the long-term skepticism that manifests at the bottom of a business/economic cycle. Google is a smart company and may decide it has an interest in writing a $500m check or so to the Irish government now, rather than risk being frozen out of the European market in the future by penal regulation or hit with fines from the EU's muscular competition commission. Possibly the US government too, rather than being subjected to excruciating Congressional hearings. At the very least, they are probably going to have to give up using the 'double Irish' method of moving their money around. Bermuda will have to sit through some chilly diplomatic meetings and make some concessions about the transparency of its financial reporting or the accounting standards it uses, as have other tax havens of yore such as Jersey, Monaco and so on. To sum up, I agree with George that from a legal (and short-term economic) point of view, running profits through Dublin and then putting them through some quirky Dutch-Bermudan slimming diet before running them back through Dublin is an entirely rational course of action. And it may well be a superior moral course of action, if you consider that Google contributes significantly towards the common good by making a wide variety of high-quality services available to the public for nothing - services on which large chunks of the US economy have come to depend, and I include myself in that. I honestly can't think of another company that makes such a generous value proposition, and don't find the price of personally-targeted advertising very onerous. But from a political point of view, the practice is unsustainable and deeply unwise. Entrepreneurs and fiscal/transactional engineers are a small minority of the population. Some chunk of the population leans left and thinks corporations should be taxed much, much more severely, because the infrastructural foundation of their business model was heavily subsidized by the public. Another chunk leans right and while not being in favor of taxes much, sees no reason why the US taxpayer should be indirectly subsidizing people in other countries like Bermuda or Ireland. Then you have centrist voters who may not understand or care much about the details but are worried about US jobs going abroad, a rising deficit, and can grasp the basic idea that Google is using a legal fiction to reduce tax liability. Go there's a good chance that Google is going to find itself being the national punching bag for the next week or three.

by grellas 16y ago

lionhearted 16y ago

> That seems absurd by free enterprise standards and I am genuinely curious to know why refusing to do this would be called "evil." When taxes come up, it tends not to be a well-thought, cohesive, pros-and-cons thing. It tends to be an emotional/identity thing. Some people think and almost always argue it'd be a good thing if companies gave more money over to governments. Me, I think it's very good for the world on every level for Google to pay less taxes. They're hiring the best people, acquiring companies and giving liquidity to founders, run amazing free services (search, Gmail, Google Earth, Google Maps, Google Finance, Google News, Google Voice, Google Reader, Feedburner, many many others). Also, they're internally investing in energy and robotics like the auto-driven cars thing, and their high level personnel seem to invest really well too (like in genetics research). Anyone who thinks that England would do a better job with the money than Google hasn't been to England, or hasn't thought this through very much.

rbranson 16y ago
Obviously we should always look at large companies with skepticism, but Google is clearly building a long-term brand and trying to generate goodwill by investing in massive R&D efforts. This is rare among large companies. Most seem focused on the quarterly report. If they were IBM or Oracle, who undoubtedly have similar practices, perhaps I might feel a little more betrayed. I still believe Google, for the most part, is not evil. Thankfully though, we are a nation of laws. As much as I despise the practices of some businesses, I am perfectly happy that it's not any one person's single opinion that keeps these companies in business.
dbingham 16y ago
Well, it's up to England's citizens to change the efficiency of England's government. Google is doing great things. By but dodging its taxes, it is forcing ordinary citizens to pay more. Or make do with less. It doesn't matter whether it would do better with the money. I think I could do better with my tax money than the US government. But then, that's not my choice to make. My job is to work to make sure that the US government does better with my tax money. Not to deny the government the money. If I don't pay, someone else will have to. And that's not okay. It's like saying I need your sandwich more than you do. I'm hungrier, I could make better use of it, therefor I should get your sandwich. Even if I could legally take your sandwich. It's still not okay. It's your sandwich! If I take it, you go hungry.
- lionhearted 16y ago
  > By but dodging its taxes, it is forcing ordinary citizens to pay more. Or make do with less. See, I'd disagree with you and say the opposite. I think England taking money from Google would mean less infrastructure and research out there in the world, meaning common citizens would be forced to pay more for services instead of Google's free services, or make do with less. > I think I could do better with my tax money than the US government. But then, that's not my choice to make. I believe it should be. Really, I mean that, I think taxes on productive labor are evil. Really, actually, unmitigated evil. I'm not against taxes, I'd actually be in favor for high property taxes divided split between federal, state, and local, which would encourage economy of space, reduce waste, and discourage real estate speculation while encouraging development. High taxes are okay. But taxing earned income, no way. Demanding a percent of honest labor to me seems no different than claiming ownership over a percent of a man. I think it's tyranny, and that in the future people will look horrified at income taxes the way we look at feudalism, serfdom, slavery, and other forced claims over a man's labor. But I understand I'm currently in the minority on that point of view.

dbingham 16y ago

It's not just Google who is evil. They're just getting called out on it, because they've pledged not to be evil. It's rather expected of other corporations because we expect them to operate with out morals in search of maximum profit. But any corporation that takes advantages of tax loop holes, legal or not, is doing evil. By doing that they are taking money out of the pockets of every day citizens in every country who's taxes they avoid paying. Because those citizens have to either make up the difference, or cut vital services such as education, infrastructure, health care and the social safety net. And those citizens can very ill afford to make up the difference. There are exposes like this done once every few years decrying how low the real tax rate is for some large corporation or other or group there in. Really Google ought not have been singled out by this round. All corporations that do this are being evil. But Google's promised not to be evil -- and for the most part has upheld that -- so they are being targeted. Really, the most moral course of action here would be to pay the taxes and lobby for the closing of the loopholes. And if they feel the tax rate is too high -- the lowering of the tax rate.

retube 16y ago
You could argue that the moral thing to do is maximise profit for shareholders (this is what they are legally required to do anyway). By deliberating paying more taxes than they need to shareholders will be penalised (smaller dividends etc).
- wolfrom 16y ago
  That's true. Google would be cheating its shareholders by not returning the most value through legal means. Of course, in Google's case, they probably could choose to pay more tax and get away with it, but why would they?
- dbingham 16y ago
  Returning the maximum profit for shareholders is moral only for the very narrowly focused or the short sighted. Am I being moral if I return maximum profit for my shareholders by working my workers to death? Or by polluting the land so that it cannot be used after I am done with it? How about by returning value to them with one hand (the value of their shares, dividends) and removing it with the other (the increases in individual taxes required to make up for the shortfall I created by not paying)?

roc 16y ago

Ethics aside, Google shouldn't seek to deprive nations of tax revenue because they benefit in no small part from that money. They hire employees educated with government money, buy research projects funded with government money, build data centers that depend upon public infrastructure, etc. Frankly, without government money, Google would not exist. By gaming the tax systems, they're not only flipping the bird to the ladder they stood upon to create Google, but they're strangling the future pipeline for the very government products they depend upon. And people only call Google out for crap like this because they insist on running around claiming they "Do No Evil". They set the bar higher for themselves. If they didn't want it there, they should shut up about it already.

yummyfajitas 16y ago
Most of their tax money would not be spent on the specific items you describe. For every $100 google spends in taxes, roughly $16 will be spent on education (mostly education for underachievers who would never work at google), $4.90 will be spent on transportation infrastructure, $0.30 will be spent on basic research and $0.1 will be spent on communications infrastructure. On the other hand, for every $100 google pays in taxes, $23.2 will be given to unproductive old people and $14.8 will be given to unproductive non-old people. It's a fallacy to focus solely on the desirable components of government spending. The lions share of taxes are simply transfers from productive people to unproductive people. If Google wants to avoid this, I see nothing wrong with that.
- awakeasleep 16y ago
  What you say is true and I think you both make good points. When someone above asked "Why would Google want to pay a higher tax rate?" I thought, they would if it was in their best interest- I think we all agree on this. Now here is the crazy part of my post- A company like Google which could conceivably bring in billions of dollars by changing its tax setup, should have some bargaining power. I don't think anything like this exists anywhere, but wouldn't it be cool if Google could get lawmakers to state that x% of Google's tax dollars will set up schools that focused on teaching 'gifted' children technology? And y% pays for technology infrastructure? Wouldn't that be fukken sweet? It would give Google an incentive to keep money in the USA, give back to what gave birth to it, reduce its burden of finding and educating new hires, reduce it's burden of setting up infrastructure, and benefit society across the board without having to wait for a some Google Billionaire to have a ethical epiphany in his old age and attempt philanthropy.

ced 16y ago

why wouldn't any international business do whatever it could legally do to minimize its taxes? As a lawyer, what's your perspective on lobbying? If the laws are ultimately chosen by the companies and the wealthiest, then I don't agree that "anything legal is fair".

ataggart 16y ago
>If the laws are ultimately chosen by the companies and the wealthiest... At least with respect to the US, politicians are still needed to pass bills into law. The solution to your concern falls out of the simple realization that politicians can only sell the powers they have been delegated by the people. Grant them the power to make and break whole industries, and don't be shocked when those potentially affected come calling.
oogoog 16y ago
I agree. But practically, a government must have a way to mollify powerful interest groups or you end up with revolution and chaos. I think American democracy does a fantastic job of producing a stable and fair environment. But I'm not convinced it does the best possible job. As you say, it leads to complex system of laws that are not fair. As a westerner newly living in Asia, I can see Singapore delivers good, efficient government and they respond to citizens complaints like a good company responds to its clients. Taxes are low, simple, and are done on a post card. I think thats the advantage of not being a democracy. However, its not clear to me how they manage their powerful interest groups. I suppose brute force plays a role. But honestly, I doubt there is any more brute force used in Singapore than in the US. And I would trust Singapore to be more fair and even handed. My guess is that China models itself after Singapore. I think thats where China is trying go. If they can get there -- and its not clear to me that they can -- in my opinion, it will be a more successful form of government than the democracies of the West. But they have a long way to. Singapore is a small island in a unique political and economic situation and I think that makes a huge difference.

nhebb 16y ago

I can't speak for others, but my alarm wasn't with Google. Instead it was with a tax system that allows these kinds of loopholes. When people talk of expiring the Bush tax cuts for those making over $250k, my jaded response is that it will probably only affect those that are well to do but not really rich. I think the really rich can afford tax lawyers that let them avoid substantial taxes via other loopholes.

elai 16y ago
You're talking as if the US should receive the revenues for this foreign sourced income (notice this is out side of the USA income, not internal US income). As if google is only mountain view, CA. And as if these corporations don't contribute hugely to their headquarter country in employing tens of thousands of people who pay generously harvested income, payroll, property and other taxes and spend the majority of their money in the local economy not to mention made thousands of new local millionaires who develop their home economies even further.
- nhebb 16y ago
  I see what you mean, but when I wrote the first sentence I was actually thinking of the the Drudge headline from yesterday that the UK planned to cut 500,000 jobs from the government payroll. Even though the Bush tax cut issue is US specific, it was meant as a general diatribe against the inequity of any tax system that favors the well-heeled who can afford tax expertise to skirt taxes. I'm not going to lie - it's personal. I worked for a company that was acquired by (Bermuda based) Tyco International, and the aftermath wasn't pretty. Ever since I've harbored a steep grudge against companies who use international tax havens.

charlief 16y ago

The characterization of "evil" is too strong. The focus should not be on Google, but on the world's corporate tax system because it doesn't accomplish what it was set out to do. In terms of the level of fairness and for the purposes of generating domestic revenue, it is broken. A specific tax revenue distribution was intended, and that is why the particular tax levels were set, but instead the levels change dramatically for the most sophisticated participants. Maybe the answer is to make these tax management/arbitrage services more accessible to everyone and every business to allow the democratic/political/capital system put pressure on the issue. I imagine the overhead is great, but there should be a way consolidate or ease it, I am sure some innovative minds out there will find a way.

metabrew 16y ago

Don't blame the player, blame the game. Tax loopholes should be closed in law, Google and other corporations have a responsibility to their shareholders - why shouldn't they act within the law to save money? I remember seeing a fun flow-chart of the IKEA tax avoidance scheme. Didn't have as amusing names as those used in this article though :)

bl4k 16y ago
tech guys have server naming schemes, lawyers have offshore tax-minimization entity naming schemes. (personally if I ever got that big, I would name them all after characters from The Wire - just so I could say thing like 'lets shift all that to prop joe corp'. Hearing it all told back to you in court would be even more amusing.)

xenophanes 16y ago

I think it'd be illegal for Google NOT to use tax shelters. They have to maximize shareholder value. They can't just give money away to whoever they feel like for no reason, including to the US Govt.

vegai 16y ago

The answer in HN's context should be obvious: It is 'evil' because these techniques have nothing to do with making a superior product, and it is 'evil' because it puts newcomers to a market into an inferior position: they don't have the resources to use the same techniques.

SriniK 16y ago

Right on grellas. Every other company does this and there is a corporate tax industry around these loop holes. Apple operates Braeburn Capital http://en.wikipedia.org/wiki/Braeburn_Capital http://en.wikipedia.org/wiki/Braeburn_Capital Microsoft is known for borrowing its own money from foreign countries to avoid repatriating tax. Because borrowing is cheaper than paying repatriation tax. Broadcom is known for using R&D tax credits(for spending money in US for R&D) and Singapore and other lower tax states when it comes to selling goods and realizing income. Even Oil/financial companies are known to set up shops in overseas just to avoid paying higher taxes. When someone's career is to find ways to reduce taxes, companies will find whatever way to achieve it.

robk 16y ago

"Don't be evil" != "do no evil" Many people confuse the latter for the original statement, when it was in fact the former.

rue 16y ago

> Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes? Evil is a moral judgment, not a legal one.

codexon 16y ago

> Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes? It all comes down to ruining competition which is crucial for capitalism to improve the quality and decrease the cost of services for society. Do many startups have the money to hire a bunch of lawyers to find out the latest tax loophole and the money to setup multiple shell corporations? I think not.

Confusion 16y ago

Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes? It's the lawyer in you and he's misleading you. It's not a question of doing what they can do. The economist in you should conclude that it is a question of doing what they must do in order to remain competitive. You can't choose to 'do no evil', when all your competitors are doing evil. That road leads only to bankruptcy, as they can undercut your prices, because they pay much lower taxes. This is one of the examples explaining why capitalism is fundamentally incapable of providing any moral guidelines. It doesn't care about what is right, only about what turns a profit.

kragen 16y ago

I guess when you as a company claim the high ground ("do no evil") The slogan wasn't "do no evil", which is impossible, but "don't be evil," which is much closer to being within reach; and its intended audience was Google employees, not people outside the company. Google probably should have aggressively refused to comment on rumors that this slogan was widespread, rather than publicly confirming it. A cynic might argue that the constant press attacks on Google resulting from this slogan are from people who have resigned themselves to being evil and are angry that someone else has the courage to attempt otherwise.

anigbrowl 16y ago

why wouldn't any international business do whatever it could legally do to minimize its taxes? The argument for not doing so (or at least, not going to such lengths to minimize the tax burden) is political rather than legal. I don't think it's 'evil,' incidentally, so please take the following as descriptive rather than proscriptive! What happens when a company expands overseas? Well, it's a coup for the receiving country. There's a ribbon-cutting ceremony, speeches are made about the number of jobs it will create, people feel good about the past taxes they paid that went towards educating the workforce, and and there's a general expectation that the country will pick up 'a bit of the action' in three ways: by collecting some taxes from a successful business (pure rent-seeking, but after all that's part of why investing in education and infrastructure seemed like a good idea to begin with); by attracting other businesses in the same sector and getting a 'hub effect,' which will build up a secondary market serving these firms' ancillary needs (eg payroll, new real estate etc.); and a long-term benefit as employees of the Big Foreign Corporation develop world-class skills and later some of them start companies of their own or guide university researchers etc., making the country's economy more competitive and modern. What happens is a little different. Usually the incoming firm has negotiated a favorable tax regime with the local government, and the long-term benefits of the secondary market and skill development are estimated to be greater than the foregone tax revenue. When I grew up (in Ireland) the usual approach was for the government to give a 10 year tax holiday in return for building a factory and training the employees, on the theory that the business would be OK with paying tax at the normal rate after a decade. But quite a few companies just shut down their factories when the 10 years ran out, because paying taxes was more expensive than setting up anew in some other developing economy and shipping the product. Of course, then the secondary market that had grown up servicing the industrial and consumer demand for local services would collapse. So gradually there was a shift towards less rent-seeking (by allowing this sort of accounting manipulation) in return for the hope of increased long-term stability in secondary markets and skill growth. Unfortunately IMO, what has happened with a lot of tech and financial companies that moved to Ireland in particular is that that little technology transfer takes place. For example, Microsoft used to be a fairly big employer in both the UK and Ireland (not sure about now), but the bulk of the work was technical support and localization, rather than software engineering. Similarly most of the financial business in Dublin was backoffice processing because it was cheaper to do it there than in London or Paris (plus it gave UK companies an easy in to the European market). Jobs like that are less sticky if the tax regime changes, and while they probably do make the country's economy more competitive the gains are smaller and over a longer term than people anticipate - hence the endless supply of stories about some new location attracting a few tech companies and declaring itself to be 'Silicon _______.' The secondary markets which provide ancillary services to the firm and its local employees thus do best out of such an arrangement, and a lenient tax regime keeps them going for longer - in practice, as long as wage differentials are sustainable for the parent company, and there isn't an equally capable workforce available to do the task for substantially less. Service jobs (at the foreign firm) are somewhat sticky because you can't move your call center from Dublin to Shanghai - but you might be able to find that in Bangalore. Meanwhile, if enough foreign firms set up shop in a country and a thriving secondary market grows up to service their ancillaries - plant, payroll and infrastructure for the firm itself, housing and consumer services for the happy employees. Of course, this tends to overheat the local economy: if you think the US property boom was out of control, you should have seen the Irish one. The price/earnings ratio for housing in Dublin shot up to 100:1. Predictably, the party stopped right around the time when the cost of living had inflated wages high enough to make Ireland a less attractive destination for multinationals. Irish people were feeling so prosperous and skilled at making money that nobody wanted to do boring things like farm work or child care, and so the country saw an influx of Polish farmhands and nannies who everyone agreed made great workers. Several multinational firms came to the same conclusion; Dell used to have a manufacturing plant near my hometown in Ireland which was the largest local employer, but decided to close it and open a new one in Poland instead, resulting in the loss of ~2000 jobs. Of course the former employees still have their skills, but assembling PCs on an assembly line turns out not to be all that special, and my understanding is that Dell had a policy of not recruiting for management from the local workforce, or even hiring skilled people who were likely to apply for internally-advertised management positions rather than stay on the assembly line. (Please bear in mind that I'm drastically oversimplifying here, so as not to make this comment even longer.)

anigbrowl 16y ago

(part 2/2...sorry about the length folks) OK, so what does all this have to do with Google? Well the problem is that such companies are welcomed when they set up overseas, and great expectations accompany them. And in the short term, there seems to be a distinct increase in prosperity - but people tend to extrapolate the growth trend endlessly into the future, and spend the money almost as fast as they make it. When the inevitable inflation ensues, they tend to feel they got a bad deal and go protectionist or sometimes enact draconian new tax policies. Oh, and the Irish government is also in bad odor with other European countries, who have felt for a while that the country took advantage of its small size to get away with significantly undercutting its neighbors on corporate taxes during the good times, leaving a correspondingly deep fiscal hole now. Back in California, people look at the overseas investment made by the multinational and conclude that if the expansion actually cost the firm a lot less than imagined, then the favorable domestic tax treatment of the overseas operations (an indirect export subsidy, in effect) essentially amounted to the US taxpayer bankrolling their overseas expansion without any of the benefits coming back to the US Treasury later. But isn't that good for overall US competitiveness? Maybe, but who was Google (or Yahoo, or...) competing with internationally when it set up shop in Europe - Baidu? I can't even name a UK or Euro search competitor of any significance off the top of my head. So it's not obvious what US taxpayers gained by letting Google out of paying US taxes on Euro/Eastern Hemisphere operations. Sure, Google expanded its operations and brand, and indirectly the economic reach of the USA, but as they were also getting a sweet legal/taxation regime at the other end - much lower than the headline 12.5% corporate tax rate in Ireland - then it seems as if the vast bulk of the benefits went to Google. OK, they have to pay tax somewhere, but Bermuda, like most tax havens, is such a small country that even a tiny slice in 'fees' is a huge feast. Again, like most tax havens, Bermuda's actual contribution to the global economy is almost nil; about the only argument you can make in their favor is that they contribute to increased liquidity. There's a worthy philosophical debate here about the ultimate economic value of exporting low tax rates. But in the short term, the pragmatic result is that governments of more developed countries feel scammed, because they obeyed the popular wish of investing in things like infrastructure and education in hope of a long-term payoff, and now that they find themselves distinctly short of cash it's hard to explain why the payoff has failed to materialize (or why they didn't manage it very well, when it did). Of course, there's a little bit of hypocrisy going on here - well, actually a lot. Governments are often getting sweetheart deals on the back end; this arguably represents a transfer of wealth from the US to the populations of other countries, even if only in terms of lost wages for jobs that are not location-specific. As neither the US nor the Irish or Dutch treasuries saw a great direct benefit, routing all the money through Bermuda has the political (not legal) appearance of a money-laundering operation. Particularly in Ireland, where people paying 20-40% in personal income taxes and almost 20% in VAT (sales taxes) are wondering what is the point of having one of the world's lowest rates of corporate tax (12.5%) if the government doesn't even collect most of it from large foreign firms. This is exactly the sort of thing that tends to give people the idea that it might be better to just have their treasury own shares in the company instead, a strategy employed with varying degrees of success in places like Venezuela and France. I want to make it clear that I personally don't subscribe to the idea of state-owned industry or the idea that you can tax your way to economic success. There are reasons Europe doesn't produce the kind of industrial giants the US does, and why the European software industry is much less competitive than that in the US - they're not all to do with heavy-handed industrial/tax policy or regulation, mind, but those things do play a big part. But when there is a good deal on offer (such as Ireland's low corporate tax rates, much cited in the US during recent years), the short-term tax savings of trying to further minimize tax liability have to be weighed against the long-term skepticism that manifests at the bottom of a business/economic cycle. Google is a smart company and may decide it has an interest in writing a $500m check or so to the Irish government now, rather than risk being frozen out of the European market in the future by penal regulation or hit with fines from the EU's muscular competition commission. Possibly the US government too, rather than being subjected to excruciating Congressional hearings. At the very least, they are probably going to have to give up using the 'double Irish' method of moving their money around. Bermuda will have to sit through some chilly diplomatic meetings and make some concessions about the transparency of its financial reporting or the accounting standards it uses, as have other tax havens of yore such as Jersey, Monaco and so on. To sum up, I agree with George that from a legal (and short-term economic) point of view, running profits through Dublin and then putting them through some quirky Dutch-Bermudan slimming diet before running them back through Dublin is an entirely rational course of action. And it may well be a superior moral course of action, if you consider that Google contributes significantly towards the common good by making a wide variety of high-quality services available to the public for nothing - services on which large chunks of the US economy have come to depend, and I include myself in that. I honestly can't think of another company that makes such a generous value proposition, and don't find the price of personally-targeted advertising very onerous. But from a political point of view, the practice is unsustainable and deeply unwise. Entrepreneurs and fiscal/transactional engineers are a small minority of the population. Some chunk of the population leans left and thinks corporations should be taxed much, much more severely, because the infrastructural foundation of their business model was heavily subsidized by the public. Another chunk leans right and while not being in favor of taxes much, sees no reason why the US taxpayer should be indirectly subsidizing people in other countries like Bermuda or Ireland. Then you have centrist voters who may not understand or care much about the details but are worried about US jobs going abroad, a rising deficit, and can grasp the basic idea that Google is using a legal fiction to reduce tax liability. Go there's a good chance that Google is going to find itself being the national punching bag for the next week or three.