Nick Shaxson ■ Ethical shareholders call on Google to stop its tax abuses

google tax

Tax avoidance and tax evasion are forms of tax abuse, which are often hard to distinguish from one another

The Domini Social Equity Fund and its partners have submitted a shareholder proposal to Google for its annual meeting on May 14th urging it to do something about its systematic tax abuses. We just blogged a petition in support of this proposal, which we’d urge readers to sign.

The shareholder resolution, whose supporting documents contain a wealth of canny analysis, goes like this:

“Shareholders request the Board of Directors adopt a set of principles to address the impact of Google’s tax strategies on society, with particular focus on Google’s employees, customers and suppliers. In addition, the board should publish annual reports to shareholders, at reasonable cost, omitting proprietary information, discussing the implementation of these principles, beginning December 2014.

We recommend a vote FOR this proposal on the following grounds, for which we provide more detail below:

  1. The proposal asks Google to establish principles guiding its approach to tax– this is not a vote on tax reform, or on how much tax Google should pay.

  2. Corporate tax avoidance threatens economic growth and innovation.

  3. Even if they are within the law, aggressive tax minimization approaches pose regulatory, reputational and financial risks.

  4. Adoption of tax policy principles is a recommended responsible tax action.

  5. Other companies have adopted tax policy principles.

  6. Google’s tax strategy should be consistent with its stated objectives and policies on social and environmental sustainability.

One might think that arguing against against any of this would be rather opposing motherhood and apple pie. And Google’s response? It looks like this.

Google against

Google boss ‘very proud’ of tax abuses; says this is ‘just capitalism’

This reminds us of the time when Eric Schmidt said he was ‘very proud’ of the company’s tax abuses, arguing that this is ‘just capitalism’. Well, he’s right in one thing: this is what capitalism has come to. What he was saying, in effect, was that the corruption of capitalism is something that is just fine and dandy.

The supporting statement on the Google shareholder resolution contains further fascinating elements.

It begins by knocking down Google’s arguments against motherhood and apple pie, which focus on global tax reform in an effort to deflect attention away from itself. It notes:

“Google’s Statement in Opposition focuses on global tax reform. This is a red herring. The proposal does not address legal reforms of any kind. Rather, the proposal seeks a set of voluntary principles to guide Google’s tax strategies, regardless of the applicable legal regime. The proponents consider this to be a prudent approach for a multinational corporation that necessarily faces a wide variety of laws and legal interpretations around the world. As discussed below, this is an approach recommended by the OECD in its Guidelines for Multinational Enterprises.

Just as we would expect Google to follow consistent standards globally regarding bribery, child labor, greenhouse gas emissions and non-discrimination, we believe Google would benefit from a set of principles to help it navigate the complexity of local and national tax systems.”

Motherhood and apple pie again. These arguments are, in essence, unarguable. And here is another one:

“Aggressive tax strategies are being linked to poverty and human rights questions.”

Quite so: this is a relatively new area where interest is rising fast. Read more about the links between tax haven abuses and human rights here.

Now here’s something else, a little more subtle, but just as true, and crucially important.

“Google’s tax strategies exploit differences between national legal regimes, shifting profits from higher tax regions to low or no-tax regions. These tactics may not be illegal, but the proponents believe it is fair to describe them as “aggressive” and therefore risky.”

And here lies one of the great misunderstandings about tax avoidance by Google and others, which the shareholder resolution neatly sidesteps.

Frequently, companies set up tax structures which never get challenged by the tax authorities, and therefore don’t have a chance of getting overturned. Journalists, doubtless with libel lawyers breathing down their necks, will then write articles along the lines of “what the company did was perfectly legal” (or, even worse, ‘the company did nothing wrong’ or the truly godawful ‘the structure was perfectly legitimate.)

But this is bad journalism, because it is inaccurate. The absence of evidence of illegal behaviour is quite different from evidence of absence of this behaviour. As we notice in our FAQ on tax evasion and avoidance:

“A lot of what gets called ‘avoidance’ looks rather more like evasion: it involves pocketing tax money that legally should be paid. It’s just that they don’t get challenged or caught.”

So how big a problem is this? Well, in this context take a look at this  example (nothing to do with Google,) via Prem Sikka:

“Following a briefing from a former PwC insider the PAC [UK Public Accounts Committee] chairperson said (see page Ev4) that the firm “will approve a tax product if there is a 25% chance – a one-in-four chance – of it being upheld. That means that you are offering schemes to your clients where you have judged there is a 75% risk of it then being deemed unlawful”.

This is the game that is being played, day in, day out. And even the world’s best resourced tax authorities lack the resources to challenge these things except for in a precious few cases. Now over to David Quentin, to put this into context. Even if this takes some thinking about, it is of crucial importance, and helps push the tax avoidance debates forwards:

“What tax abusers do is deliberately create tax risk (whether it be by creating opportunities to adopt uncertain filing positions, or by plain under-declaration of income, or by whatever other means) so as to throw an enforcement burden onto the state. . . . funds remain in private hands which could be being applied to alleviate poverty, provide basic sanitation, or do whatever else is needful for the public good.
. . .
the deliberate creation of tax risk is effectively a mechanism for creating a reverse tax flow out of the public exchequer.”

This is tax abuse, plain and simple. Until challenged it is likely to be not legal or illegal: it is indeterminate. Read that article: Quentin, too, goes on to look at the human rights implications.

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