Shareholder Proposal Succeeds in Bringing Google to the Table to Talk about Corporate Taxes
May 23rd, 2014
The Oblates supported a shareholder proposal filed by Domini Social Investments with Internet giant, Google, seeking a responsible code of conduct on global tax strategies. Google has agreed to sit down with the investor group and discuss this issue, which is an important element in the conversation around the role of government and the revenue sources available to it to meet its responsibilities.
Adam Kanzer, Managing Director and General Counsel at Domini, wrote an Op Ed to explain the thinking behind the investor position that corporations need to pay their fair share of taxes. In it, he dispels a few myths about US corporate taxes, and argues that a deeper analysis shows that “Corporate tax minimization strategies present serious threats to long-term wealth creation and might pose greater risks than corporate taxation itself.”
He points out that “Perhaps the biggest myth of all is that fiduciary duty compels us to look the other way. Imagine a legal obligation, based on principles of prudence and loyalty, that compels us to condone behavior that stifles innovation, destroys local and national economies, and shifts heavy financial burdens to our own clients and beneficiaries. Fortunately, this obligation to minimize tax payments does not exist.”
He argues further that “Aggressive tax avoidance is not the norm, nor should it be. It is a short-sighted and risky strategy that harms investors and society. Corporate tax avoidance is a direct threat to government and rule of law, and, at a time of high unemployment and high government debt, tax-avoidance strategies have prompted many countries to fight back, including active work by the G20 group representing major economies and the Organization for Economic Co-Operation and Development. Reliance on aggressive tax strategies targeted for reform could result in financial shocks for investors. Google’s effective foreign income tax rate has been in the single digits for more than a decade even though most foreign countries it operates in have corporate tax rates in the mid-20s. Does anybody think this can go on forever? The U.K. House of Commons Public Accounts Committee published a report in June 2013 criticizing Google’s U.K. tax-minimization approach. The committee chair referred to these tax arrangements as “highly contrived,” “devious” and “unethical.” The French government just handed Google a tax bill for nearly $1.4 billion. If France is successful in collecting even a portion of this, we will see other aggrieved countries stepping up for their share.”
A particularly compelling argument is that “[c]orporations and investors depend upon government services funded by tax revenues, including law enforcement, market regulation, judicial systems, infrastructure maintenance, public education, poverty alleviation, environmental protection, national defense and scientific research. These indispensable services cannot be funded by corporate philanthropy or a rise in share price. Economist Joseph Stiglitz warns that corporate tax avoidance threatens the wellspring of “future innovation and growth.” Other economists have documented the critical and visionary role government has played in spurring scientific and technological innovation when private investors were unwilling to take the risk. Google and Apple Inc. might not exist today if it had not been for taxpayer funded research.
Background on corporate tax evasion:
The report, Dozens of Companies Admit Using Tax Havens: Hundreds More Likely Do the Same, Avoiding $550 Billion in Taxes, examines companies’ 2013 Securities and Exchange Commission filings. The report identified 28 corporations (including Apple, Bank of America, Wells Fargo, Microsoft, Nike and others) that disclosed the U.S. corporate income tax rate they would pay if they repatriated their profits. The report also found 243 companies that disclosed “permanently reinvested income” but do not report how much corporate income tax they would pay if they repatriated their profits.
“It’s time to have a conversation about the corporate income tax that goes beyond calls to lower the U.S. corporate income tax rate,” said Robert McIntyre, director of CTJ. “Multinational corporations have been abusing the U.S. tax system at the expense of ordinary taxpayers, and they should not be rewarded for their bad behavior.”
Some of the reports’ key findings and recommendations:
- Twenty-eight companies admit using tax havens. While Apple and Microsoft are the main offenders, a diverse array of companies are using offshore tax havens, including U.S. Steel, the pharmaceutical giant Eli Lilly, the clothing manufacturer Nike, the supermarket chain Safeway, the financial firm American Express, and banking giants Bank of America and Wells Fargo.
- 301 companies report holding nearly $2 trillion offshore. Most corporations do not report what they would pay in U.S. taxes if their profits were officially brought to the United States, but if corporations that do disclose are representative, then the Fortune 500 as a group is saving $550 billion by holding profits offshore.
- Companies already using tax havens are seeking other ways to avoid U.S. taxes. Use of tax havens is an important issue right now because some companies with the most reported offshore profits, such as Pfizer, are currently pursuing “inversions” that would effectively make the companies residents of other countries for tax purposes – and would make it easier for these companies to never pay U.S. taxes on the $2 trillion they officially hold offshore.
- Ending deferral is the best way to address this issue. Congress should pass a law to end “deferral,” the rule allowing American corporations to indefinitely avoid paying U.S. income tax on profits officially earned offshore until these profits are repatriated. Ending deferral would mean that all profits of U.S. corporations, whether generated in the United States or abroad, would be taxed by the United States in the year they are earned.
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