Google Tax Avoidance and Global Responsibility

So Google avoids US and UK taxes among a host of other countries that it shorted--what a shocker! The company that has the motto "do no evil" has managed to pay only a fraction of the tax it owes. In the US it comes to about $3.1 billion the company has avoided and in the UK the amount is estimated to be more than a £100m. This practice of shipping money off-shore is common among the multi-nationals that feel they owe their shareholders the responsibility of maximizing profits ahead of tax obligations to any individual countries. The effective tax rate Google paid was 2.4 percent rather than the average of 20-25 percent that was really due. If we all enjoyed that rate what fun life would be. As Tapped, American Prospects' blog states

"It did so not just by taking advantage of tax breaks available to corporations for research and development, depreciation and the like, but also by more dubious techniques known as the "Double Irish" and the "Dutch Sandwich" -- “the sandwich leaves no tax behind to taste." These tactics involve shuttling earnings through various foreign subsidiaries with no business purpose other than tax evasion.

The American Prospect asks whether this action was "evil" and answers as follows:

"If Google's definition of not being evil is 'doing more than the average corporation to support the public interest,' then sure it is. It's one thing to take advantage of legitimate tax law, but exploiting these loopholes for the sole purpose of paying less tax violates the spirit of the law, if not the letter. That would be fine if Google was content as a typical business, relentlessly pursuing profit with no thought to the public interest. They simply shouldn't pretend they're somehow better than the Exxons and Goldman Sachs of the world."

The issue is symbolic of the uneasy relationship that exists between powerful multinational corporations and sovereign governments. As governments lose power and global corporations gain it becomes difficult for any single governmental entity to control their excesses. As Steve Pearlstein notes in today's Washington Post only a few days before:

"President Obama made an offer that no one in the business community seems to have picked up on. The "anti-business" president said he supported the idea of reducing the corporate tax rate to a more globally competitive level - 25 percent is the number frequently mentioned - but only as part of a package that tightened rules on inter-company transfers and eliminated enough corporate tax breaks so that there was no overall reduction in revenues or increase in the federal deficit."

Despite some bipartisan support there chances that this will occur are slim as Pearlstein notes reducing the rate down even by a few percentage points will  not win the support of companies as large as Google since their dodges are extremely lucrative;

"Right now, it's big global companies like Google that have the most to lose if rules are tightened and tax breaks eliminated, while smaller domestic firms would gain most from a reduction in the rate. Similarly, companies in the insurance, pharmaceutical and energy sectors probably benefit disproportionately from existing tax breaks that do little for profitable companies in retail, distribution, manufacturing and business services. If history is any guide, the odds are that certain losers will out-shout and out-lobby the potential winners.The conventional wisdom is that it will take presidential leadership to reform the tax code and balance the budget, but the reality is that it will require the support of the business community. Up to now, the refrain from the corporate sector has been almost exclusively, "What's good for business is good for America." Are there no leaders left in the boardroom who still believe it works the other way around?"

We badly need an informed debate about the role of global corporations which might lead to a code of ethical behavior that can be monitored carefully based on transparent information. The media at the moment show very little interest in this issue, this maybe due to the fact that so many of the large ones are owned by business conglomerates that are well versed in the tax dodges themselves.