Representation without taxation: Tech giants and their loopy business of innovative tax avoidance

Representation without taxation: Tech giants and their loopy business of innovative tax avoidance

Summary: Google, Facebook, Apple, and Amazon use complex accounting methods to greatly reduce their tax bills, while greatly increasing spending on lobbying US and European governments.

TOPICS: Tech Industry

Headlines ,such as this one from a Reuters story: "Google paid $55m in UK taxes on $5.5bn sales in 2012" anger many regular tax payers in the US, UK, France, and frankly, everywhere.  These companies use legal loopholes and international transactions to weave a complex web of tax avoidance.

Google Chairman Eric Schmidt flippantly told a UK radio audience earlier this year that their government should change the tax laws to get more taxes from Google, otherwise it will continue with its Irish, Dutch, and Bermuda based shell companies. 

Facebook uses the same arrangements to avoid taxes, and Apple, Amazon, too. They use every loophole available to limit their US taxes, such as keeping billions in profits in offshore accounts.

As they lower their tax payments, they are dramatically increasing how much they spend on lobbying:

Google Now Spends More on Lobbying Than Lockheed Martin - The Wire

Google spent $25 million lobbying Washington during the course of the FTC probe, and it worked - The Next Web

Bobbie Johnson has written a great overview of lobbying in Europe: 

…Google has one of the most complex European lobbying operations among Internet companies. It operates a significant team in Brussels, but also has staff in most other major European capitals — including Berlin, where it opened a new office housing seven lobbyists. Their job? To try and influence the German government over issues like privacy and copyright, where it is far stricter than most other nations.

…Amazon is one of a number of American technology companies that is lobbying Brussels in order to weaken restrictions on data collection. It is not listed in the joint transparency register. And yet it does have a Brussels presence to help try and secure itself a good deal across the single market.

What’s sweeter than representation without taxation?!Those were once revolutionary words when lined up in a different order. “No taxation without representation” ignited the first American Revolution and changed the world. 

Corporations that triple-up on lobbying, as they weasel out of taxes, is adding fuel to a lot of discontent and anger.  Pay taxes — not lobbyists.

Google, Facebook Continue To Flood Washington With Cash For Lobbying Efforts; Consumer Watchdog Calls Record Spending Cynical Bid To Buy Influence - MarketWatch

No one likes paying taxes but there is a grudging agreement that it’s a societal necessity. It's for a common good. Yet corporations hide behind a fiduciary duty to avoid paying for this common good, while at the same time seeking greater influence on government and legislation. They haven’t realized that, “taxation” and “representation” are inexorably linked in the revolutionary psyche of America. More of one without more of the other makes no sense.

Google, Facebook, Apple, Amazon, are massive consumer brands. Yet their unapologetic, loopholed tax strategies, risk extensive brand damage from being on the wrong side of two of peoples' big discontents: low corporate tax payments and rampant corporate lobbying. Free speech is worthless when it's un-taxed money that gets to be heard. 

“No representation without taxation” is a reasonable demand — it could help flush the lobbyists and result in a more equitable world. 

Topic: Tech Industry

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  • Bravo!

    I say bravo to the companies. Why should apathetic, incompetent and corrupt governments get your wealth? If you want your pathological liar tyrant, you can keep your pathological liar tyrant.
  • Understand the whole picture

    If you are going to criticize Apple, it is helpful to get some basics right. First, Apple ( or any taxpayer ) do not pay taxes on gross revenues. They pay taxes on profits (ie gross revenues MINUS allowable expenses and deductions). With the proper numbers on the table, you can now have a worthwhile discussion.

    When looking at this whole issue, its worth understanding some history and background. The current system of tax treaties and international structuring arose from a desire by many national governments to try and maximize the tax revenue they collect. They did this by recognizing that there are constantly situations where an international corporation may be obligated to pay tax to several jurisdictions on the same revenue (aka double taxation). Of course, this would result in no net revenue and the corporation going bankrupt.

    Therefore in order to attract the good or service to their jurisdiction; try to get as much tax revenue as possible; and try to encourage the corporation to set up some of its physical structure and work force in their jurisdictions, countries like the US, UK and Ireland set up tax treaties between themselves and other countries. It is key to understanding this underlying motivation for the current system. This system arose not out of some noble desire to relieve taxpayers of the "unfairness" of double taxation or even at the bequest of the lobbyists of those taxpayers. It came out of a logical self-interest of various governments.

    With this background in mind, let's look at Twitter, Apple, Google and Starbucks (which are all under fire in the international media for their tax planning).

    -Many US politicians and citizens want these companies to pay US tax on its WORLDWIDE income, including income earned from foreign customers. They argue that while this may not be legally correct, it is MORALLY correct because all three companies were a) Founded, IPOed (or will in the case of Twitter) and has their headquarters in the US; AND b) The citizens of the US are suffering in a financial downturn and "deserve" this money;

    -Many foreign politicians and citizens want these companies to pay more tax on the revenue generated from customers in their country. They argue that while this may not be legally correct, it is MORALLY correct because a) The company is deriving income from tax resident individuals and corporations; AND b) The citizens of these countries are suffering in a financial downturn and "deserve" this money;

    -All four companies want to maximize their net revenues ("gross revenues" minus "expenses including tax" equals "net revenue"). Each company used the tax treaty network and international structuring regime to minimize their global tax burden. As part of this structure they may have to set up operations in places like Ireland; or assigned intellectual property rights to places like the Netherlands. However there are important differences between these companies;

    -Starbucks needs to respond to this "Moral but not legal" obligation demand because a) It has physical facilities which could be picketed or damaged reducing sales; and b) There are many competitors who could easily service customer needs and decrease gross revenues. As a result, it is logical that Starbucks may consider paying more tax in the foreign country or the US than legally obligated in order to maintain gross revenues and thereby maximize net revenue. In fact they already did volunteer to pay more than their legal tax requirements to the UK government for exactly this reason.

    -Twitter and Google are different in that a) They do not have or need physical facilities in a given country to deliver its service; b) You can't picket everyone's smartphone, tablet and computer to ensure that no one is not boycotting their services; and c) With all due respect to other search engines, Google is not really realistically worried today about losing customers to its competitors. Same thing with Twitter's lock on "tweets". Therefore, the current controversy is unlikely to significantly reduce people from using their products and services. As a result, it is logical that they will not consider paying more tax anywhere than legally obligated;

    -Apple derives gross revenues from various products (hardware and software) which has competitors. Some of the sales of their products and services derive from physical retail outlets and some does not. The big question is whether Apple products (with their hardware and software integrated) is unique enough to avoid a drop in revenues. Obviously, Mr. Cook has decided that for the time being Apple will NOT pay more than legally obligated in taxes. I am sure the people at Apple are watching their sales very closely to determine if consumer anger with their tax planning is having any significant effect on revenues.

    In summary, Starbucks sells a standard physical commodity which is readily available from other competitors and is clearly subject to pressure. "Search" and "Tweeting" are not a standard physical commodities today and whether through perception or reality, both are far and away market leaders. As a result, neither Twitter or Google are motivated by self interest to pay more tax to maintain gross revenues. Where Apple considers itself (closer to a standard replaceable commodity or a unique product) in the long run will determine where they will respond and volunteer to pay more tax anywhere than they are legally obligated.

    It is also worth understanding that revising the current international legal tax planning regime for individuals and corporations is not simple. First it requires that each country think about all of the possible/ probable reactions of corporations and individuals to any changes that come into being. Increasing a tax rate or taxable amount could result in the individual or corporation moving all or part of its operations/holdings outside of that jurisdiction. This means that not only is the anticipated additional tax revenue never materializing but jobs, VAT, and other economic activity associated with that taxpayer also disappear.

    Second, as explained above, the current matrix of tax treaties and domestic laws was developed over the better part of a century. Domestic tax policy was put in place by local politicians acting in what they thought was the best interest of that country. Tax treaties were negotiated, signed, updated when both countries perceived a win-win for each of their countries.

    The major problem in trying to achieve achieve changes that will increase tax revenue (that groups like Oxfam, Tax Justice Network and ActionAid are calling for) is that you need to change not only domestic rules but also the intertwining tax treaty network for each and every country in the world. Given the "Prisoner's Dilemma", it is HIGHLY unlikely that we will ever see a global "tax level playing field". Each country will continually claim special circumstances or financial emergencies as to why they are not immediately changing current policies.

    In addition, as explained above taxing regimes do not have the same "leverage" over all corporations or individuals. With "global citizens" (i.e. Golden Geese who do not need to be in the country of their birth or naturalization to make and maintain their wealth/income), cloud computing, and the pending revolution in 3D printers (which will turn more current tangible goods into intangible services/programs delivered on-line direct to the consumer), you will see more and more taxpayers who are more like Google than Starbucks.
  • So, let's get this straight...

    Our tech giants have operations all over the world, they get huge tax incentives and they also are outposts of our NSA. Sounds like the government is getting plenty for the tax breaks...
    Tony Burzio
    • Well Tom is on the class warfare kick lately

      Gotta stir people up...

      Unfortunately, he (like many people), fail to see that govt IS the big problem. Therefore, everything is a problem waiting for a govt solution or law.
  • Cap it at 10% like it should be for both corporate and

    personal rate and eliminate all deductions. The economy would mushroom, productivity would increase, revenue would come rolling in, and best of all government would shrink back towards what it should be restricted to.
    Johnny Vegas
    • whodunit

      Right, Johnny. To get it done you need your representatives running government, not someone else's representatives, and to get that to happen you need to hope and pray for support from those millions who voted for those idiots who are now in D.C.
  • wait, only tech companies avoid taxes???

    Nope, they all follow the same tax/accounting playbook.
  • The problem is with government, not businesses

    Parts of Washington DC is now one of the most expensive places to live and has the highest concentration of wealth in the US. That's a problem and the problem is corruption. But try telling this to the simpletons who think government should just keep getting bigger and run even more things. There are things the government HAD to run like the military, interstate commerce, etc. but the more we can reduce the size of government and bring more decisions as close to the local level as possible the better off we will all be.

    As far as lobbyist, remove direct access to them all. If a million people want to write their representative about a measure, then great. If a company or entity want to do the same, great.

    My only problem with companies like Apple is people seem to think they are somehow different then the greedy "Micro$oft" of the 90's but truth is, they are just as greedy in not more so since Bill Gates is giving away billions of Microsoft profits while Jobs was a self righteous a-hole and gave almost nothing away.
    Rann Xeroxx
  • Representation? You mean Dictation....

    Ahh...its the Corporate government supporter demanding more payment. Yes's the little secret that the "Those evil corps....They don't pay their Fair Share" people forget All government in the US describes ITSELF as corporate. Yep...ALL. And its the worst kind of corporate--a MONOPOLY corporate. The world's largest corporate [US and State of XYZ] licenses the little corporate's a share of immunity in exchange for taxation. The monopoly corporates control all in a scheme of "sovereign immunity" including the corporate courts and even the officers of the corporate courts [aka all lawyers] All you see is a TOKEN of representation hidden behind theft under color of law. Don't be fooled by the monopoly corporate, the various Presidents of the Monopoly corps [aka dubyah or Obozo], or the SHAM of representation: The plunder of the people has not diminished for over 200 years.