Tax Accounting Evil at Google? 261
theodp writes "In its annual report, Google said it's done no tax-accounting evil, but the search giant acknowledged that both the IRS and SEC are taking a look at the way in which it accounts for income tax. Google is one of a number of U.S. companies that have come under fire for allegedly practicing 'profit laundering', i.e., moving book profits offshore to evade millions and even billions in taxes to the country where it really operates. In past SEC filings, Google has credited its Irish subsidiary for reducing its effective tax rate."
Google no differnt than the rest (Score:3, Insightful)
Here in Denmark we have this huge shipping company Mærsk or A.P. Møller as it also known.
They have lots of other activities also, the company has always been somehow very attached to Denmark and many Danes are proud that Mærsk is a Danish company.
The thing is that the government here in Denmark have been proposing to change how the taxing system works for companies. The general idea is to lower the tax rate but to remove many of the things that companies can withdraw from their incomes when taxes are to be calculated, in part to prevent what Google is being accused of doing here, namely putting all their income in countries where they have lot's of losses and expenses also.
Mærsk have been threatening the Danish government that if these tax changes are done as proposed then they may be forced to move many of their activities to other countries. I see no evil in this, companies have to look at the bottom line and for most businesses generating income for their shareholders or who ever gets the money in the end.
I would not consider Google to be evil if they did something similar to this, they would just be acting like pretty much any other multinational company does these days.
I feel pretty sure the Irish doesn't see Googles way of doing their accounting as evil
If something has to be done about this, it can't be done at the national level, I guess that is also what some of these movements like Attack (spelled?) and other have been talking about. I doubt there is ever going to be any real changes in this any time soon, there are far to big interests at stake for countries and big companies.
definitions (Score:4, Insightful)
Unlawful, certainly. But evil?
Re:definitions (Score:5, Insightful)
Because the taxes that cash-rich google doesn't pay are paid for by the rest of us.
Re:definitions (Score:2, Insightful)
Perhaps evil is a contentious word, but if you approve of the uses to which at least some tax money is put - education, welfare, trading standards, hospitals, public transport etc then by deliberately evading that simply to make a bigger profit could be argued to be immoral. On the other hand, not paying taxes to some governments could be seen as the only moral thing to do, given their poor track record of sponsoring terrorism, for instance.
Re:definitions (Score:3, Insightful)
As far as I can tell, what the government calls "Profit laundering" is perfectly legal. It's no different than my corporation paying out year end bonuses so we don't have to report a profit. (It's not my fault if the bonus getters want to reinvest that in the company.)
If the US wants to keep its tax revenue they're going to have to be more competitive. The only thing that's keeping many large American companies from moving offshore is social pressure. If the government keeps ratcheting up the pressure they'll go anyway.
Re:definitions (Score:5, Insightful)
This is perfectly normal (Score:5, Insightful)
Google isnt evil for using a perfectly legal accounting system that works within the bounds of the law to pay as little taxes as they can.
Everyone takes as many deductions as they are legally allowed on their tax returns. Would we think that people claiming an exemption for having a kid are 'evil'? Really not much difference.
Re:Google no differnt than the rest (Score:3, Insightful)
You hit the fundamental problem with tax systems on the head. Their complicated nature and rules allows the system to be gamed (or, in a sense, bugs to be exploited). Perhaps this is not by intent, just like complexity in code makes bugs harder to find. Under US law it is perfectly legal to interprit and use the tax law to your advantage. (If the IRS differs - they *might* let you know if you're one of the precious few that get audited.) In fact, if you don't exploit the law you're not doing all you can to protect your shareholders' interests and therefore violating your fiduciary obligation to the shareholders. (There's a debate about weather or not this narrow definition of interests of the shareholders is actually in the best interests of the shareholders or the public at large - but let's put that aside for now).
On a side note: I'm tired of companies and individuals of claiming that they'll go "somewhere else" if there's a tax hike in their country. In the US we have a very low tax rate over-all, so I'm not exactly sure where these companies or individuals would go. In addition, people in the NYC area pay a sum total of Federal, State and County taxes that are higher than almost anywhere else in the US, yet they have not all moved out of the NY area to go live in Alaska or Texas (where there is no state income tax). In fact, if a company like Maersk says "Gee - the taxes are so high we'll move elsewhere," say - fine, splash it all over the papers and raise taxes. I'll bet you Maersk will not move one inch.
Actually we should be thanking Google. (Score:2, Insightful)
The problem is that Google claims to be different (Score:3, Insightful)
That's part of their schtick. They aren't like other corporations, or so they say.
Turns out when money is on the line, oh yes they are just like other corporations.
So if they're like everybody else, why do they deserve geek community support?
Re:definitions (Score:5, Insightful)
Okay, all of this is paid for by incoming taxes. If the taxes aren't sufficient to cover the expenses, then we borrow, adding to the debt. So, the amount we pay in interest on the debt goes up, further reducing the ability we have to make decisions about how much money to spend on which program. Eventually, if there's no fiscal discipline and companies are allowed to avoid paying taxes, the rest of us will have to pitch in more money. So, in the short run, you're right in that your taxes are not a function of Google's taxes. However, in the long run, the more companies game the system to avoid paying taxes, the more likely we will have to raise taxes on individuals in order to meet payment on the debt and obligatory expenditures. In addition, these companies benefit from operating in the US. They are protected by our military, when their CEO has a heart attack the ambulance comes an picks him up, and the police stop the "G-8 protesters" from throwing trashcans through their plate glass windows. They use the same public services we all use, shouldn't they pay their fair share?
2 logical fallacies and one red herring (Score:3, Insightful)
This is a double logical fallacy, and a red herring. First, you are presuming that the government isn't already trying to get the maximum amount of taxes from us anyhow. Second, you are presuming that the government would actually spend that money to our benefit. Finally, "cash rich", is a red herring. The government never has taxed net-worth and never will, they tax income. That means that the business man who busts his ass to create 20 jobs and earn a million bucks will get his balls ripped off while the person sitting on a 10 billion dollar stockpile of cash will never notice at all no matter how high the tax rate is. People whose battle cry is "tax the rich" are stupid, and are killing opportunities for themselves more than anyone else.
Re:Actually we should be thanking Google. (Score:2, Insightful)
I'm open to correction, but my guess is that the bulk of Google's people, physical facilities, and customer base is located in the U.S. That means Google enjoys a considerable set of benefits provided by local, state, and federal governments. Police protect it from being robbed; firefighters protect it from burning down; various agencies pave roads, provide power, etc., etc. Those governments also provide an educated workforce and help secure a style of living that tempts folks to come and stay in the areas surrounding Google. Those are likely among the reasons why Google *isn't* HQ'd in the Bahamas as you suggest.
If the bulk of their work is being done here, they should pay for those benefits. The linked Merck article provides an egregious example: all activities done in the U.S., but parent transfered IP as a sham to a foreign subsidiary, to whom the parent paid massive "royalties," zeroing its taxable revenue. That doesn't sound quite as bad as what Google's doing (their Irish sub actually has employees), but it sounds as though the SEC feels that Google isn't paying in proportion to the work that gets done here.
Widespread doesn't mean correct (Score:1, Insightful)
Yeah, that's a horrible idea. (Score:3, Insightful)
First, the income tax is progressive. This would be impossible to achieve with sales tax. The only people that would benefit from a "flat" tax (sales or income) are those at the highest tax brackets. In order to replace the income lost from dropping taxes on the top 5%, taxes would have to be raised on the bottom 50%.
Second, a sales tax puts a disproportionate burden on the lowest income families. Those with low incomes--even up to $50k/yr for a single man--spend a very large proportion of their income. The lower your income, the higher percentage of it is spent. People making minimum wage are spending 100% of their pay checks.
Those making $1MM a year, on the other hand, may spend only a small fraction of their income.
And you can say that you would simply not charge sales tax on the things that poor people are spending their money on -- food, shelter and utilities -- but doing so would drastically reduce tax receipts. It would be impossible to exempt those things and the suggestion that it is possible is just used by proponents to try to sell their plan.
Furthermore, this is about Google. Corporations pay a pitifully small percentage of taxes in America. The percentage of taxes paid by corporations has dropped dramatically since the 1950's. Your notion that double taxation is a serious problem is just plain wrong. The tax code currently incentivizes businesses to invest in capital expenditures, R&D, etc.
In summary, the only people that want a sales tax are those that don't understand it's implications and those that could pay less taxes by shifting the tax burden more on the lower & middle classes.
The notion that there is tax injustice because the top minority of Americans pays the majority of taxes is absurd. The people at the top of the food chain reap the highest rewards of our society. Without our national infrastructure, they wouldn't be able to make and horde millions or billions of dollars. They SHOULD pay a tax burden that more closely resembles their share of the US pie, not necessarily their share of the US Population.
Re:Google no differnt than the rest (Score:3, Insightful)
The Rochester area sounds like it was faced both by a change in technology and the effect of globalization. If the state of NY had slashed taxes paid by Kodak, I don't see how it would have materially changed the outcome. US workers are still paid 100's of times more than some of their Asian counter-parts. States like South Carolina are loosing jobs to overseas factories not because of South Carolina's high taxes and generous benefits (they have neither), but because the same t-shirt can be produced overseas cheaper. I'm sure Rochester could give Kodak a 99 year tax holiday but still wouldn't be attractive compared to sub-contracting all film cutting, spooling and packaging to a factory overseas where your health benefits are a cab ride home if you cut off a finger.
And as someone who has owned businesses or been in business for himself for about half my working life, state and local taxes have never entered into my calculation of weather or not something was profitable. If it makes money, I pay taxes and that's a fact of life. If it doesn't make money, I don't have to pay taxes. But, if I can't get past the cost of county business license, state incorporation fee, a couple of hours with an attorney or accountant, then it probably wasn't a good idea to begin with.
Re:FairTax! (Score:3, Insightful)
While this is true, the FairTax goes a step further (as far as progressive taxing goes) - if you are below the poverty line (or if your spending on new items is below the poverty line), you actually end up with cash in your pocket from the FairTax.
Personally, I'm not in favor of most government-ran welfare, as it can often provide incentives to _not_ work. Doing better financially typically results in less eligibility for financial programs (student aid, welfare, etc). In addition, many tax plans provide disincentives for working harder due to diminishing returns. As an example of this, I had a subcontractor that wouldn't pick up extra projects in the current tax year because the added tax liability made it not worthwhile (he was not in the US).
The FairTax program avoids both of these issues - you get the exact same prebate, whether you're an unemployed college student, or a multi-billionaire. While it may seem silly, it means a lot less to the billionare, and they both come out of his taxes anyway. You'll end up paying more than the prebate the first Hummer you buy. In addition, there is no longer any incentive whatsoever not to work - your taxes scale linearly with spending, and you are not penalized for making money.
For those who say "but the rich don't have to spend their money" - why are they rich? If they are rich (and not spending like crazy and getting taxed), it's probably because they use sense or discretion with regards to wealth. If that's the case, they aren't hiding it under a mattress somewhere - it's invested, or saved in a bank. Money that sits there doesn't keep up with inflation, and you're being effectively taxed anyway.
So what happens when you leave your money just sitting in the bank? Banks make money by loaning money to people, and charging interest. Suppose they loan the money to a new "homeowner" (I use the term lightly - those who never build equity or suck it out are just renting from the bank)? The homeowner buys a home. Ok, the money's been taxed.
So, the money gets loaned to an evil, tax-avoiding company - what happens next? Well, the company needs facilities and equipment. Buy it in the US? It gets taxed. Buy it overseas? It probably still gets taxed. Next, they need employees, who (of course) want money for their troubles. Under the FairTax, this income isn't taxed... yet. Have to make that mortgage payment (the loan was already taxed in advance, so no "new" tax revenue here; however, the money used for the loan will be taxed again the next time it's loaned out - it still gets taxed). Ok, the kids need new books and shoes for school - more taxes. The family has to eat - more taxes.
The FairTax is a radically simplified system that is largely revenue neutral, avoids the I.R.S and all the invasive, unconstitutional stuff that goes with it, lowers the tax burden on the poor (achieving revenue neutrality and lowering the tax burden on the poor is largely made possible by avoiding the overhead associated with the I.R.S), and based on spending (which is done in public), rather than earning (which is often done in private). For those who dislike illegal aliens, the aliens get no prebate, and pay the same taxes as everyone else - resulting in a higher tax burden for illegal aliens than any citizen). What's not to like?
Google THIS. (Score:2, Insightful)
or not.
When driving to the "Googleplex", Google's employees drive on public roads. They drive on roads made safer by law enforcement. They're defended by a brave group of Americans that volunteered to give their lives when necessary. If they have an employee that's been in a car accident, many time a city/county EMS unit will take them to the tax-funded public hospital. If there's a fire at the Googleplex, the local fire department will respond.
When Google is ready to handle the cost of maintaining the public resources it wants/needs/uses, then allow it to dodge taxes. Until then, my opinion is that Google should hold buying their execs new platinum-stitched whaleskin hubcap covers at a lower priority than paying the cops, firemen, soldiers, and other tax-funded folks upon whom they rely.