Google and the rent is too damn high

Bloomberg published a story this week titled “Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes“.  The premise here is that Google is somehow cheating the US Government out of its “fair share” of the Google profits.  That premise is misleading is and even downright wrong.

A company like Google with customers all over the world cannot pay taxes in 50, 60 or 100 countries.  Given that, a company has to establish some roots somewhere so it may as well do the smartest thing possible as long as it is legal to improve shareholder value and minimize its expenses.

Many (not all) governments have this notion that companies that intelligently structure their organization are somehow stealing something from the citizenry of a country by denying them the tax revenue that would otherwise be there if the company structure was not as tax efficient.  This is flawed logic – as if somehow the tax burden of this has been moved on to the citizens of the nations because this tax revenue never made it to the government.

Google employs about 20,000 people.  This article, instead of trying to make the case that Google is robbing the government of $60 Billion could just as easily have read that thanks to smart tax structure Google can afford to expand it tax paying work force and has increase shareholder value tremendously.  If you own stock on Google, you certainly want to see it go up.   The money that Google saves by legally lowering its tax burden ultimately goes to people that either work for Google or the shareholders that own Google or into the pockets of all of the business that sells goods and services to Google – and all of these people and business pay taxes to the government in some form and at some point.  There need not be any whining from the government that they’re somehow getting screwed or that somehow the citizenry of America is hoisting this burden – the government is getting its taxes.

All the people that work at Google and all the people that own Google stock all pay taxes in one form or another because of that association with Google – either income tax or capital gains taxes if profits are made when stock is sold.  People make fun of the Google slogan “Don’t Be Evil:” and the article even quotes a guy saying that Google is being evil right under our noses.  No they’re not.  What is evil is a government putting the shakedown on a private or public company demanding far more in taxes that is reasonable.  For Google to set up its structure like this is in the end because most governments tax rate is too high.

Ask yourself this.  Why does someone start a company?  Is it with the dream of paying taxes?  Is it with the dream of employing people?  No. People start companies because they think that they can fill a need in the market that other people would be willing to pay for.  Look at your own company.  Is it there because the founders wanted to pay taxes?  Not quite.  Companies exist to make money and profits by servicing the needs of their fellow man.  If the need is there, and the company solves the need, and people are willing to pay for the solution, you have a business.

A side effect of that success is that people are employed and revenue (and hopefully) profits are made.  Last in line in the reasons for the existence of a company are to pay taxes to some government.    As we all know, and as is pointed out in the article, a company’s obligation is to its shareholders and part of that obligation is to increase shareholder value.  Minimizing its taxes and costs is a part of that.  There is a huge difference between tax evasion and tax avoidance.  The first is illegal and the second is not.

Clearly part of making a profit includes minimizing expenses – especially expesnes that provide absolutely no benefit.  All companies have expenses but spending money to make a business trip or on office space or on employees at least gets you something in return.  Spending money on taxes is just racking up empty calories as it were and a company is perfectly within its limits to look for ways to minimize this expense (not avoid – minimize).

In the end I think one of the main problems here is also that the internet has come about and grown so fast in the past 15 years, and especially in the past 5 years that legal systems worldwide simply cannot keep up.  When you have a company with customers all over the world, every country in the world where that company has some dealings would like to get a piece of the tax pie but that simply is not possible.  A company must figure out where it’s base is and then determine if it makes sense to use the perfectly legal and available tax structures to minimize its tax burden.  Ireland and Bermuda offer this to MNCs for a reason and MNCs flock to such places because it is in their best interests, and the best interests of the shareholders (and frankly also their employees) to do so.

Like Jimmy McMillan in the NY govenors debate said “The rent is too damn high




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