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Don’t Blame Google and Starbucks For Minimizing Their Tax Bills

| Thursday January 10th, 2013 | 3 Comments
Corporations cannot be expected to pay more taxes than legally required. To increase public revenue, governments must amend tax codes.

Corporations cannot be expected to pay more taxes than legally required. To increase public revenue, governments must update tax codes.

In a recent post on his blog, BusinessGreen, James Murray argues that Google’s and Starbucks’s use of “complex accounting techniques” to minimize their tax bill undermines their efforts to “position themselves as… environmentally and socially responsible businesses.”

Murray claims that despite Google’s investments in clean tech R&D and Starbucks’s success in sourcing ethically produced coffee, to name just two examples of the companies’ responsible activities, these companies “deserve the public condemnation that is coming their way” unless they pay more taxes than required by law.

Murray’s indignation notwithstanding, he missteps by assigning blame to actors obeying the rules of the system in which they operate, failing to identify the system itself as the proper target of scorn. Publicly traded companies like Google and Starbucks are fiduciarily beholden to their shareholders to maximize profits and minimize losses. Companies that fail to take advantage of tax loopholes made available by governmental tax codes are remiss in their financial duties and might even be subject to commensurate legal repercussions.

The most compelling corporate social responsibility (CSR) programs are as justifiable in business terms as they are in social and environmental ones. Shareholders and board members should embrace a company’s CSR initiatives with an enthusiasm greater than or equal to that of environmentalists and human rights advocates.

Indeed, the examples that Murray identifies — Google’s clean tech investments and Starbucks’s ethical sourcing — have strong business cases to be made for them. A similar business case cannot be made for paying more taxes than legally required.

To Murray’s credit, he does note that “it is the successive governments that failed to tackle blatant tax loopholes that must take the bulk of the blame for the current situation,” but assigning any blame at all to corporations that marshal their resources to maximize profits only serves to distract from the real issue.

A Starbucks in London begins offering Fair Trade certified coffee. The best CSR programs make compelling business sense, too.

A Starbucks in London begins offering Fair Trade certified coffee. The best CSR programs make compelling business sense, too.

The American Sustainable Business Council (ASBC), along with Business for Shared Prosperity and the Main Street Alliance, recently sent a letter to President Barack Obama and the U.S. Congress that blames federal tax law for the revenues forgone because of corporate tax loopholes. In doing so, the signatories properly identify the culprit of the lamentable corporate tax situation.

“The need for revenue highlights the importance of working toward revenue positive corporate tax reform, including closing the nearly $1 trillion offshore tax haven loophole,” said ASBC in a statment. “America’s small businesses want large corporations to pay their fair share of taxes. Any corporate tax reform must end the rigged corporate tax system that has corporations paying the lowest share of taxes in half a century at the same time as their profits have risen to 50-year highs.”

The letter points out that the corporate tax share of federal government receipts has fallen from 32 percent in 1952 to just 9 percent now. Moreover, the current corporate tax code creates perverse incentives for companies to shift jobs and investment overseas.

Such faulty tax codes operate on the state level as well. As a case in point, Shell recently admitted that its ill-fated attempt to move an offshore oil rig from Alaska to Washington state in the waning days of 2012 was a direct result of Alaskan state taxes that incentivized the moving of the rig. “It’s fair to say that the current tax structure related to vessels of the type influenced the timing of our departure,” said a Shell spokesman.

Ultimately, publicly traded companies cannot and should not be expected to change their approach to paying taxes. If governments hope to raise additional revenue from corporations operating within their borders, they will have to alter their tax codes accordingly.

[Image credit: 401(K) 2013, Flickr]
[Image credit: kafka4prez, Flickr]


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  • Tim D

    But this argument cuts both ways. If the sole reason for Starbucks’ existence is to make a profit for it’s shareholders, then kicking up a fuss about them not paying tax has the potential to drive customers away and so reducing profit for their shareholders. The shareholders don’t like this and so the board make a preemptive move to minimise the problem, by paying (a small amount of) tax.

  • Dave Shires

    I agree “paying more taxes than legally required” makes zero sense. The government is not a charity. I’m not going to get all Ronald Reagan about it, but the government can often be just as much of a problem as a solution!

  • Harry

    My colleague Raz Godelnik offers a fairly compelling counter-argument to the one I make above. For those who want to consider the other side of the coin, here’s the link: http://www.triplepundit.com/2013/01/corporate-tax-fairness-be-part-csr-agenda/