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  • Sep 18, 2014
  • Updated: 10:46pm
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Tax

Taxing technology

Some tech giants may be keeping one step ahead of the taxman, but they face a backlash that is hurting carefully crafted reputations

PUBLISHED : Thursday, 30 May, 2013, 12:00am
UPDATED : Thursday, 30 May, 2013, 4:33am

For the giants of Silicon Valley, the fall from freedom's children to social pariah has been something of a Shakespearean reversal of fortunes. Google, Apple and Facebook might be Lear, Othello and Macbeth in the suddenness and completeness of their fall from a grace that was bequeathed to them by the generations that found their technologies liberating, empowering and even beautiful.

These companies are nothing like the robber barons that were rebuked by the US government a century ago. They are not locking out workers or running sweatshops. On the contrary: They're hiring people. Led by Facebook founder Mark Zuckerberg's advocacy group FWD.us, they are agitating for immigration laws to be loosened so they can hire clever Chinese, Indian and other foreign citizens and pay them lots of money. Those lucky enough to get into their now-sprawling campuses gain access to a kind of gold-plated welfare state where choices of delicious food, health centres and dental clinics are theirs for the using.

The companies say transparency and freedom of speech are at the heart of all they do. Transparency is a Google "core value"; Facebook has signed up to the Global Network Initiative, dedicated to advancing freedom of expression to help "shed a spotlight on government practices that restrict expression and seek over-broad requests for user data".

Freedom and transparency make up one of the largest battlegrounds between states and citizens today, and the fact that the Silicon Valley companies put themselves on the side of citizens has attracted high-profile recruits to their offices. In Britain, two prominent journalists renounced their trade to work for Google: John Kampfner was editor of the leftist New Statesman and head of the NGO Index on Censorship. He is now an external adviser to Google on free expression and culture. Peter Barron edited the BBC's probing Newsnight programme and, while a reporter on the programme, won a 1995 award from the Royal Television Society for reports on the arms-to-Iraq scandal. He is now Google's head of external relations for Europe, Middle East and Africa.

As unlikely as it is that the rich, clever people behind these companies will lead their employers to tragic fates, they have a very large problem on their hands. Relative to their earnings, these companies pay very little taxes. This is not, it seems so far, a crime. But it may be worse than a crime; it is a product of their philosophies.

Last year, Facebook paid "negative taxes" - that is, US taxpayers paid the company US$429 million because Facebook had written off the value of the stock options awarded to Zuckerberg and other executives. The company received a tax deduction of US$16 billion. This is legal, but, as Senator Carl Levin said in in April, "As with so much of our tax code, it's not the law-breaking that shocks the conscience, it's the stuff that's allowed."

Levin's governmental affairs investigations subcommittee interviewed Apple chief executive Tim Cook and other top executives a few days after the release of a congressional report that claimed Apple uses a complex "highly questionable" tax-minimisation strategy. Part of this strategy involved the shift, more than 30 years ago, of a major part of the company's ostensible central control function to Ireland, where corporate taxes are very low. As Levin put it: "Folks, it's not right." After the hearing, even critical observers concluded that Cook wasn't really rattled.

In Britain, another feisty committee chairman, former Labour Party minister Margaret Hodge, also thinks it's not right. As Cook faced the senators, Google vice-president Matt Brittin was being warned that it was a serious offence to mislead Hodge's committee - an offence he might have committed when, last year, he argued that no sales transactions were done in Britain by Google but were routed through a subsidiary in Ireland. Google, like Apple, has a centre in Dublin that is nominally its European hub. Hodge said the committee was alerted to the discrepancy by a report by Reuters' Tom Bergin. Hodge said: "It was quite clear that the entire trading process and sales process took place in the UK."

Google's sales in Britain are worth £3.2 billion (HK$24.8 billion), but most are routed through Dublin. In 2011 it paid £6 million in British corporation tax.

The various executives of these companies don't exhibit much sense of guilt when confronted by irate lawmakers. The British technology writer Dick Pountain wrote in his blog that when Google chief Eric Schmidt came to the country this month, he "treated UK PM David Cameron with the amused air of a cheeky schoolboy talking to a nagging teacher, a mask for the fact that he now wields more power than a mere PM and knows it". Pountain also quotes former Facebook employee Katherine Losse from her book, The Boy Kings, that Schmidt's philosophy is: "If you want to change the world start a company. It's the best model for getting things done."

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