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Wednesday, 30 January 2013

Google's Tax Evasion Policy

Did you know that Google's corporate motto is "Don't Be evil?"  Surprisingly altruistic, isn't it, considering that this is a company that has gone out of it's way to set up a filtering system for their revenue in order to funnel it into countries where it will be taxed at a lower rate.  The process, called 'tax sheltering,' means that in the case of Google, income from business conducted in the UK (and other countries), which are subject to paying the same percentage of business tax as any other company that conducts operations in the UK, is funneled first through a Dutch company which then routes it to a 'taxation address' in Bermuda where the tax rate is far lower.
 "By legally funneling profits from overseas subsidiaries into Bermuda, which doesn’t have a corporate income tax, Google cut its overall tax rate almost in half. The amount moved to Bermuda is equivalent to about 80 percent of Google’s total pretax profit in 2011," comments columnist Jesse Drucker on Bloomberg.com, an online Business, Financial, and Economic News site.  (You can read Drucker's article here )
Doesn't sound tooooooo shady, until you take into account that the Dutch 'company' in question has no actual employees or offices. It's just a loop programmed into their accounting software, and by 'routing' all their sales through it they create a so called company that only exists in cyberspace.  To me, this doesn't give them the right to avoid their obligation to pay the tax in the country where those ad sales took place, but that's exactly what they're doing.
Google's Chairman, Eric Schmidt, had this to say on the subject:  "I am very proud of the structure that we set up. It' called capitalism.  We are proudly capitalistic.  I'm not confused about this." (from The Daily Telegraph, available here ).  As you can see, Schmidt makes no bones about his company's shenanigans, commenting that Google wouldn't be getting away with it if it wasn't for the Governments of Nations having inadequate tax laws and enforcements.  He also points to the fact that in the UK Google employs over two thousand people and has been instrumental in helping to start up tons of new web-based businesses. 
I guess his justification lies in the fact that his two thousand UK employees, who all pay a portion of their income into taxes, contribute to their country's taxation income that way, thus the parent company, Google, doesn't have to.  The problem with that line of reasoning is that by altering their sales records to make it look like their income comes from Holland and Bermuda, Google effectively hamstrings the governments in the countries where they actually conduct the bulk of their business.  By depriving countries like the UK of the taxation income that they are owed, Google depletes that country's ablility to regulate the kind of shady goings-on that Chairman Schmidt himself acknowledges.  So while it's all very well and good for him to say that his company gets away with these maneuvres because governments have inadequate tax laws and enforcements, the reality is that companies like his are contributing to these governments' fiscal shortfalls by avoiding paying the taxes in the countries where they've earned their revenue.  What's more, by avoiding paying taxes they withhold funding to maintain the crumbling infrastructure that their own employees and other workers use to get to work.
In this manner, they are a classic example of what the very rich have always done.  Two thousand UK employees paying 25-30% of their income in taxes on a salary of less than $50,000 per year versus the parent corporation, Google, paying 3.2% of the ten billion that they earned in profit alone because they've routed all their income to Bermuda.
To clarify, that's ten billion in profit, over and above the costs of operating like employee salaries and overheads, just from the UK alone.  That's ten billion sitting in a pot somewhere that they have avoided paying the rightful amount of taxes on, or in other words, a classic example of the hoarding of resources by the super rich.  Good thing they adopted the motto of 'Don't Be Evil,' otherwise we'd really be in trouble!

Sandwiches Update
Total savings this week - $27.35, bringing the year-to-date total up to
$150.57

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