The European Union has come together in outrage over Google’s tax evasion, which avoided $2b in income taxes world-wide, well ‘legally', according to the company. This has been done by Apple, Amazon and Starbucks as well, through Royalty payments made to a subsidiary company based in tax havens like Bermuda and the Caribbean.
After protests outside stores in Britain, recently Starbucks agreed to pay $16m more next year.
If like me you thought the Double Irish was a sparkly beverage and the Dutch Sandwich a delectable snack, well here’s a quick rundown about what these words really mean.
According to Investopedia:
“A tax avoidance technique is employed by certain large corporations, involving the use of a combination of Irish and Dutch subsidiary companies to shift profits to low or no tax jurisdictions. The double Irish with a Dutch sandwich technique involves sending profits first through one Irish company, then to a Dutch company and finally to a second Irish company headquartered in a tax haven.”
This pictorial presentation in The New York Times laid it down neatly for me
According to Chairman Eric Schmidt reacting to allegations on tax avoidance to Bloomberg,
“We are proudly capitalistic. I’m not confused about this. We pay lots of taxes; we pay them in the legally prescribed ways. I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate.”
What is your take on this? Does tax avoidance through legal means equal capitalism? Are companies’ responsibilities solely to their shareholders ? Are they justified in taking advantage of tax loopholes or do you think they have a moral responsibility regardless of the tax laws?
Thanks for sharing!
Companies fulfill their moral responsibilities by hiring people. I am a strong believer that a dollar which remains in a company's account is a better dollar (meaning that it creates more value in the long run) than a dollar that goes to the government. If you tax too high there is no growth, no room for expansion, and no one will be willing to take risk for a small profit. Would you rather see Starbucks opening another store or would you like to feed an overweight, incompetent and lazy politician?
Totally agree with the companies, immoral or not, its capitalism. If the citizens disagree its their job to put pressure on the government not the companies.
100% ok. Companies have a duty to their shareholders, not to the government. They would be remiss if they did not minimize their tax burden.
Agreed. Let the shareholders who benefit donate some of their earnings if they think they were earned immorally.
The more important issue is that the rule of law no longer applies in the UK with the replacement being mob rule. As a UK based investor it worries me. The Government could have changed the law but decided to whip the masses up into hysteria instead.
Morality is no relevant to business. The only thing that is relevant is whether laws are being followed. That said, the long term benefits of freer markets compared with unfree markets = the difference between hong kong and mainland china.
Exactly. Somebody was trash-talking investment banks about being amoral. This is exactly right. They are without morals - they deploy capital (human, financial, etc) where it will generate the highest returns, and act in response to economic incentives. They are neither moral nor immoral, like all corporations. I wouldn't have it any other way.
I agree that Google, Starbucks, Apple, etc, have not done anything wrong. They follow the law to minimize their taxes. I do so too. Now, I have to say that the tax law is unfair and has to be fixed. Republicans say corporations are people. If so, how come we the people can't do any of those tax tricks? They way I see it, if they want to be treated as people in some ways, they have to be treated as people in all ways. As such, all those loopholes need to be closed for corporations OR the same loopholes need to be available for individuals.
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