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Google is "flying a banner of doing no evil, and then they're perpetrating evil under our noses," says Abraham J. Briloff, a professor emeritus of accounting at Baruch College who has examined Google's tax disclosures.

Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes? I understand that governments might want to consider these as loopholes and seek to end the right of U.S. taxpayers to avail themselves of these tax-minimization strategies. But, as long as it is legal, why should a company voluntarily seek to expose itself to higher tax rates when it has the choice not to?

I guess when you as a company claim the high ground ("do no evil"), you will have people making their own judgments about what ethical standard ought to govern your conduct and this would explain this professor's remark. By that measure, though, one could argue that companies such as Google should seek to attribute all their revenues to California because that is where their main intellectual property development efforts have occurred and hence pay corporate tax rates at one of the highest rates around simply because they "owe" it to California.

I get this question all the time from web-based startups: why run our revenues through a high-tax state when we have the option of running them through all sorts of lower-tax venues and saving on taxes? The universal answer for smaller companies is "set your company up in a way that let's you pay the least tax you can legally."

Why should Google be held to a different standard on penalty of having its perfectly legal actions castigated as "evil"? Is it the view of some or many in the HN community, for example, that a private enterprise has a form of "social responsibility" to voluntarily subject itself to the tax rates of whatever domicile it happens to have its major operations in (in this case, California) when it legally has the option not to do so? That seems unwise by free enterprise standards and I am genuinely curious to know why refusing to do this would be called "evil."

> That seems absurd by free enterprise standards and I am genuinely curious to know why refusing to do this would be called "evil."

When taxes come up, it tends not to be a well-thought, cohesive, pros-and-cons thing. It tends to be an emotional/identity thing. Some people think and almost always argue it'd be a good thing if companies gave more money over to governments.

Me, I think it's very good for the world on every level for Google to pay less taxes. They're hiring the best people, acquiring companies and giving liquidity to founders, run amazing free services (search, Gmail, Google Earth, Google Maps, Google Finance, Google News, Google Voice, Google Reader, Feedburner, many many others). Also, they're internally investing in energy and robotics like the auto-driven cars thing, and their high level personnel seem to invest really well too (like in genetics research). Anyone who thinks that England would do a better job with the money than Google hasn't been to England, or hasn't thought this through very much.

Ethics aside, Google shouldn't seek to deprive nations of tax revenue because they benefit in no small part from that money. They hire employees educated with government money, buy research projects funded with government money, build data centers that depend upon public infrastructure, etc. Frankly, without government money, Google would not exist.

By gaming the tax systems, they're not only flipping the bird to the ladder they stood upon to create Google, but they're strangling the future pipeline for the very government products they depend upon.

And people only call Google out for crap like this because they insist on running around claiming they "Do No Evil". They set the bar higher for themselves. If they didn't want it there, they should shut up about it already.

I can't speak for others, but my alarm wasn't with Google. Instead it was with a tax system that allows these kinds of loopholes. When people talk of expiring the Bush tax cuts for those making over $250k, my jaded response is that it will probably only affect those that are well to do but not really rich. I think the really rich can afford tax lawyers that let them avoid substantial taxes via other loopholes.
Right on grellas. Every other company does this and there is a corporate tax industry around these loop holes.

Apple operates Braeburn Capital http://en.wikipedia.org/wiki/Braeburn_Capital Microsoft is known for borrowing its own money from foreign countries to avoid repatriating tax. Because borrowing is cheaper than paying repatriation tax. Broadcom is known for using R&D tax credits(for spending money in US for R&D) and Singapore and other lower tax states when it comes to selling goods and realizing income. Even Oil/financial companies are known to set up shops in overseas just to avoid paying higher taxes.

When someone's career is to find ways to reduce taxes, companies will find whatever way to achieve it.

The characterization of "evil" is too strong. The focus should not be on Google, but on the world's corporate tax system because it doesn't accomplish what it was set out to do. In terms of the level of fairness and for the purposes of generating domestic revenue, it is broken. A specific tax revenue distribution was intended, and that is why the particular tax levels were set, but instead the levels change dramatically for the most sophisticated participants.

Maybe the answer is to make these tax management/arbitrage services more accessible to everyone and every business to allow the democratic/political/capital system put pressure on the issue. I imagine the overhead is great, but there should be a way consolidate or ease it, I am sure some innovative minds out there will find a way.

It's not just Google who is evil. They're just getting called out on it, because they've pledged not to be evil. It's rather expected of other corporations because we expect them to operate with out morals in search of maximum profit.

But any corporation that takes advantages of tax loop holes, legal or not, is doing evil. By doing that they are taking money out of the pockets of every day citizens in every country who's taxes they avoid paying. Because those citizens have to either make up the difference, or cut vital services such as education, infrastructure, health care and the social safety net. And those citizens can very ill afford to make up the difference.

There are exposes like this done once every few years decrying how low the real tax rate is for some large corporation or other or group there in. Really Google ought not have been singled out by this round. All corporations that do this are being evil. But Google's promised not to be evil -- and for the most part has upheld that -- so they are being targeted.

Really, the most moral course of action here would be to pay the taxes and lobby for the closing of the loopholes. And if they feel the tax rate is too high -- the lowering of the tax rate.

The answer in HN's context should be obvious: It is 'evil' because these techniques have nothing to do with making a superior product, and it is 'evil' because it puts newcomers to a market into an inferior position: they don't have the resources to use the same techniques.
I guess when you as a company claim the high ground ("do no evil")

The slogan wasn't "do no evil", which is impossible, but "don't be evil," which is much closer to being within reach; and its intended audience was Google employees, not people outside the company. Google probably should have aggressively refused to comment on rumors that this slogan was widespread, rather than publicly confirming it.

A cynic might argue that the constant press attacks on Google resulting from this slogan are from people who have resigned themselves to being evil and are angry that someone else has the courage to attempt otherwise.

> Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes?

It all comes down to ruining competition which is crucial for capitalism to improve the quality and decrease the cost of services for society. Do many startups have the money to hire a bunch of lawyers to find out the latest tax loophole and the money to setup multiple shell corporations?

I think not.

In Ireland, these kinds of tax breaks are one of the foundations of our economy. They aren't viewed as a way to give a hand out to the big companies, but as a way to create jobs. This article mentions that 2,000 people are employed in Google Dublin. Given Microsoft, Amazon, Intel, IBM and Sun also operate, there's easily 10,000+ people employed thanks to our low tax rate. There are only 1,000,000 people employed in Ireland (small country), so the loss of these 10,000+ jobs (~1%+ of all employees) would be massive.

Ireland has very little industry, very little traditional ways to grow the economy. We all know if it wasn't for the tax breaks these companies wouldn't be here, and that there'd be loads of people out of work.

(I do this stuff in my day job).

Leave aside the moral outrage and any sentence that has "should" in it. You're not being rigorous in your analysis.

Next, think of the tax code as a giant bucket of Lego pieces. Google - and many other multinationals (including very small startup tech companies of the type that spring from the loins of YC) - simply assemble the Lego pieces as they choose.

Looked at as a strictly engineering exercise? No big deal. Hire better engineers (people like me) and get better results (cooler tax-Lego structures).

OK, put on your moral outrage hats again. We are finished with the tax engineering. Let's move on to the social engineering. Because that is what we are talking about when we say "X _should_ pay more to support government functions.". Except for a few people we will have general consensus that a government is good and services need to be paid for. It's just a giant "Not out of my wallet!" game now. Sometimes logic, sometimes "Think of the children," sometimes whatever argument you can muster. All of these devices are used to deflect the tax collector's attention to someone else's wallet.

That is how I look at this topic. And from this perspective I derive two conclusions:

- if you don't like the way multinationals create their Lego structures, change what is in the bucket of Lego pieces. That is the job of Congress, not Google.

- if you plan to change the laws, expect the argument to devolve quickly to uninformed "think of the children" arguments because politics is purely that. No A/B testing is done. Statistical analysis is bent to prove a point, not looked at dispassionately to optimize decisions.

Two last points.

- Every dollar Google makes will eventually go out to employees, vendors, and the government. (At the moment they don't pay a dividend, so the shareholders do not get anything directly). A corporation is not some giant Jabba the Hutt that grows bigger to infinity. It is ultimately just a money collector and distributor.

- the particular game they are playing in fact acts as a net revenue transfer mechanism from the US Treasury to the Irish government. I will have to find the article that describes this so clearly. I'm on my phone right now in downtown LA about to give a speech in a few minutes. I'll be back. (Heh. What a disappointment he turned out to be for California).

Of course, this pales in comparison to Ikea, the world's largest non-profit furniture retailer

http://en.wikipedia.org/wiki/IKEA

From the article:

"Google's practices are very similar to those at countless other global companies operating across a wide range of industries,"

So, why's the article about Google? Shouldn't the article be about "countless global companies" bilking us for billions? I'm astonished at the lack of outrage on this issue every time it comes up.

"The setup lowers Google's overseas tax bill, but it also affects U.S. tax revenues as the government struggles to close a projected $1.4 trillion budget gap."

It's a ridiculous notion that any single corporation's tax contribution will put even the slightest dent in the budget deficit. Government spending is like gas in a vacuum, it will expand to fill whatever space you give it.

I was going to leave a comment about corporate citizens not doing their fair share in America, but that got me thinking: should corporations pay tax? I'm not asking this rhetorically to make a point. Really, should they?

I would imagine that whatever profits are passed along to shareholders are taxed as capital gains. So, while it is a great headline to say Google pays 2.4% corporate tax, might it also be fair to say "Google shareholders pay 2.4% additional tax on top of the regular tax they pay on their income from capital ownership."?

Now, I'm not at all aware of how capital gains taxes and wage-style income taxes compare, and my inner liberal slant / desire for social justice inclines me to believe that those with the means should pay MORE than their "fair" share.

But I can't help but think that, at least at a theoretical level, there is someone, somewhere, who makes their living investing in corporations - lubricating the gears of capital society - but isn't phenomenally wealthy, and actually pays a total higher % of their "income" than a wage slave making a comparable amount of money. VCs? Angels? Wouldn't we as a society want to reward this behavior?

I can just as easily see the other side; maybe in theory this is right, but the reality is that capital gains are the domain of the ultra-wealthy, and corporations are frequently used as tax havens, pushing money around from holding company to holding company. If the corporation buys something and the owner uses it, that's an effective way to minimize your total "income" without losing the benefits of your wealthy lifestyle.

I would love to hear thoughts on this, particularly from anyone more familiar with tax law.

Ireland usually gets a bad rep from this but companies like Intel, Google and MS are the biggest employers in the country. If they were there for purely tax reasons you'd expect them to be shell companies, rather than having multiple fabs in the case of Intel or a few thousand employees in the case of Google.
Startup idea: Company that cheaply sets up individuals/small companies to evade taxes in the same way big corporations do. You pay a subscription fee or something and they fill out the returns and set up a PO Box in Bermuda or whatever.
I had a distinct Randroid phase where I thought it was almost a moral obligation to avoid taxation. Now things are fuzzier for me.

I make a truly decent wage. Not an earth-shattering one but a wage that beat the hell out of anything my mom made while I was growing up. I am a very fortunate man.

Heinlein wrote a thing about freedom:

"In terms of morals there is no such thing as a ‘state.’ Just men. Individuals. Each responsible for his own acts. I am free, no matter what rules surround me. If I find them tolerable, I tolerate them; if I find them too obnoxious, I break them. I am free, because I know that I alone am morally responsible for everything that I do."

In my case, I find taxation to be tolerable. It finances things like education for people with fewer advantages than I have right now. Ideally, a much bigger proportion of my taxes would go there. It also finances stupid things, like the TSA and DHS, and that's unfortunate. It financed military adventure in Iraq, which I find repugnant.

But I want to live in a society where you're not screwed based on the number you draw in the ovarian lottery. Where you can be taught useful skills to make the most of the opportunities you find. Where you don't have to pay for this privilege – until later, when you pay taxes. I'm not aware of any scalable solution to this that doesn't involve taxation of my earnings.

So I tolerate the imperfect because it's what I've got. Until there's a better way to ensure that the next generation isn't screwed by bad luck, I can't avoid that taxes are how I can do my part for the moment.

Meanwhile, Google is free to break or bend the rules, too. If they share my values on this subject, I'd hope they'd do their part in some other way. But that's up to them.

What this should signal, is that the US should lower its corporate tax rate. Even just making it competitive with other developed nations would probably generate more revenue for the government. And though it would still be higher than the effective rate many companies pay with all these transfer schemes, it would make the hassle less worthwhile.

However, what it will actually cause lawmakers to do is increase regulations to make income transfers like this illegal, and leave the corporate tax rate as is.

This story resonates because of the hypocrisy.

http://www.google.com/intl/zh-CN/corporate/responsibility_en...

"Look at how great we are" type giving: http://www.prnewswire.com/news-releases/the-brin-wojcicki-fo...

We hear corporate leaders (Gates, Brin, et al) lecture on social responsibility, yet they undercut the very structure of society by skirting tax laws.

How will we build universities, roads, public infrastructure without tax revenue?

Now the hacker in me says, knowing how corporations behave, how do we fix this? Do we have tax laws that encourage corps to pass along more earnings to share holders? Implement 0% corporate tax rate and then capture tax revenue out of individual capital gains and taxes on dividends?

It's one thing to rage about this, it's another to come up with a solution.

Am I one of the few who doesn't see a problem with this? If our tax structure is so f'd up that it allows for this, we need to change it. In the meantime, why wouldn't Google minimize its tax liability?

If you're an entrepreneur and are against this, I hope you voluntarily don't take the tax breaks afforded to you, or else you're a hypocrite. Lunch with business partners? Better not write that off. Your internet or cell-phone? Don't write that off either. Part of your apartment where you code for 5 hours a day? Don't write that off either.

Has anyone thought of or seen a startup designed to bring these kinds of tax advantages to average citizens?

There would be a real value in streamlining this legal process of creating shell companies or whatever is needed in some sort of mass market approach.

It seems like the only people this is available to are big companies or high net worth individuals who can afford expensive one-on-one consultation with accountants/lawyers.

Does Google not pay plenty in income tax on its employees, who in fact do generate that precious intellectual property? Looking only at taxed profits is misleading.
They follow the letter of the law. If the law is bad, change the law, don't bash Google for managing it's tax liability cost effectively and accuse them of being evil.
Are we missing something here, maybe? Google, as a legal entity, is really nothing more than a piece of paper in someone's filing cabinet. As a corporation, it is just a legal vehicle for shuffling around money and managing liability and ownership.

On the other hand, the people who work for Google are ... people. And I'm sure the great majority of them pay plenty of taxes (income, payroll, etc.) in whatever jurisdictions they live in.

One of the primary functions of Google-the-entity, is to get that money to the people. In doing so, Google-the-entity pays very little tax, but the people pay lots. So the money is taxed, government programs are supported, and all is well.

To put it a different way, Google's tax strategy can be considered as a way to minimize the effect of governments taxing their people twice.

Google will get taxed if it brings any of that cash back into the US (repatriates the money) to pay dividends or acquire domestic companies.

The same goes for Goldman, et al., unless congress passes another "repatriation holiday" in the name of stimulus.

I think it is a double standard that US companies get to avoid taxation worldwide while US individuals have to be taxed on worldwide earnings (regardless if it was earned in the US).

To me, it's insane that the US government feels that this is reasonable.

If Google thinks that they can more efficiently contribute to the public good by using the savings to provide services directly than by paying taxes, they have a moral obligation to minimize the taxes.
The most important part of this article is:

> The government has made halting steps to change the rules that let multinationals shift income overseas. In 2009 the Treasury Dept. proposed levying taxes on certain payments between U.S. companies' foreign subsidiaries, potentially including Google's transfers from Ireland to Bermuda. The idea was dropped after Congress and Treasury officials were lobbied by companies including General Electric (GE), Hewlett-Packard (HPQ), and Starbucks (SBUX), according to federal disclosures compiled by the nonprofit Center for Responsive Politics.

The issue is that the US (like many countries) has the best tax code money can buy. The US has the additional problem of dual sovereignty such that the states are competing with themselves to offer tax breaks to lure in companies and thus jobs.

Companies are like water: they seek the lowest level. They're not immoral, they're amoral.

A hideously complicated tax code is going to have holes in it so simplify, simplify, simplify.

I'm glad google keeps it's money and invests in developing google maps, streetview, and gmail. The government would (and does) pay billions to IT consultants to build much shitter systems.

In the UK our government has sunk billions into the Royal Mail, but we still have to pay thousands a year for just a fraction of the functionality of google's geocoding.

LOL Google Ad irony: http://api.markup.io/v/1qy21z5axxkv
The first thing that popped into my head after reading this was "That is straight up gangsta" . Honestly I don't fault them for doing the most allowable under the law. Hat-tip to google's army of accountants and CFOs for figuring out these massively profitable loopholes.
"Apple (AAPL), Oracle (ORCL), Microsoft (MSFT), and IBM (IBM)"

Those companies all sell hardware. Apple can't say 'lets book those Palo Alto store sales in Bermuda'. Ads served are a total volatile good (their value is the time they spend rendered on a screen infront of a user). Google has a huge advantage because of this (and it also makes the ad trade ideal for money laundering).

To relate this to startups :

If you are a startup and you are accepting foreign money and you are bringing it straight into the US and paying tax on it, then you are doing it wrong. A merchant account in Bermuda is easy to setup and is completely legal. If you are not doing all you can to minimize your tax obligation then you are not doing your job properly.

As entrepreneurs in the US are trying to create jobs and companies we pay 30%+, just not fair.
Irving H. Plotkin, a senior managing director at PricewaterhouseCoopers' national tax practice in Boston, says that "a company's obligation to its shareholders is to try to minimize its taxes and all costs, but to do so legally."

This is a pet peeve of mine: company directors are not obligated to minimize costs or maximize profits.

http://crookedtimber.org/2008/07/25/what-obligation-maximise... http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1013744

I see this story delivering a full dose of irony that will be lost on so many people. Google is a company that chose to affiliate with progressive causes and personalities almost from the start. And one of the central tenants of progressivism is business and the wealthy should pay their fair share of taxes (meaning a proportionally higher share). But this state of affairs can never really be reached. (Please give me a pass on this assertion, the argument is long. Doesn't this story provide an iota of supporting evidence?) Ultimately people pay taxes, and there are many more poor and middle class than rich.
As always, Google did an excellent job making money left and right. You gotta give them credit for that.

On the other hand, they are a bit "disingenuous" (Jobs' favorite word to describe Google) about their mantra, as ultimately this profit is made at the expense of American citizens (lower tax revenue). Why does it matter? Well it matters because they (tangibly and intangibly) benefited greatly then and now from the "Do No Evil" mantra, and they should accept that it comes at the price of people holding them to a higher standard. It is "Do No Evil", not "Do Less Evil" or "Do No Evil When Convenient".

Wow, these popups are unbearable.
If this scheme saves them that much money on overseas corporate taxes, why send your sales revenues to Ireland, and then jump through these hoops to avoid taxes on them, in the first place?

Why not move that part of the company, that collects all international ad revenue and whatnot, to the Netherlands or Bermuda, and just skip the tricky step of getting the money out of Ireland?

Google is smart and they are not alone in running their businesses like this. Pros and Cons -- sure the gov't misses out on some revenue but also many of those savings are reinvested into hiring and generating jobs and even more profits, which in the end, can still generate revenue for uncle sam.
What was my tax rate again? Oh yes, somewhere around 40%... Nice to see that everyone is doing their share.
I really don't understand why we allow these things. Letter vs. Intention of law should matter, right? I don't think a lot of the tax code and business rules were written with the idea that a company would actually span continents or maybe not even have a physical presence.
Big companies think & act in terms of priorities and not what is right or wrong.
Am I the only one who believes that taxes are evil? I can't wait until I can afford lawyers to help me get out of paying taxes. If if I break even I'd rather see my money going to a professional than a government,.
Who cares. I would rather Google keep the money and buy a startup or two rather than the government spending it to buy another battleship or aircraft carrier.
That's odd. Since when has Business Week had "TL;DR" summaries at the end of the article?