Saturday, November 22, 2014

Google: Tax Avoidance (2014)

Google Inc. logo
Avoiding taxes is becoming more common in bigger companies because of the amount of money that can be saved. Google has become one of the latest big companies that have been reported for avoiding taxes. The IRS had reportedly audited Google’s off-shoring strategies in that they were saving $1 billion in taxes per year by moving their profits through Ireland and the Netherlands to Bermuda. They also avoided paying $2 billion in global income taxes by moving $10 billion in revenue to Bermuda. With moving the money to Bermuda, a country that has a smaller tax on income money, they are able to save and avoid paying a lot of tax dollars. By not paying these taxes, it costs countries over a trillion dollars a year. Google is not denying that it is avoiding taxes either. Schmidt, Google's executive chairmen, stated that they are proud that they are able to keep the amount of money they can by doing so. He also states that capitalism is the way to operate, which is the path they are taking. It was shown that Google generated around $2.5 billion in sales in the UK last year but only paid $6 million in corporation tax as an example.

Since Google is such a large company, the stakeholders consist of varying groups. The Users that Google has consist of the largest group being over a billion people. These users test out the features and products that Google has to offer. The second group is the investors. As an investor, you expect the company you put money into to do well. The employees are also stakeholders for Google. These employees help make Google a profitable company as well as help get their products of the line. The developers of Google also hold a portion of the stakeholder group. If it were not for the developers of Google, Android as well as Google would not be as successful as it is. The last group consists of the advertisers. This group plays a big role because without advertising, it is hard to spread the word of new products or even the business in general.

Sundar Pachai, CEO of Google Inc.

Individualism according to the economic theory is just egoism and rights based constraints together. This is exactly what Google is following with their tax evasion guidelines. Google is being egotistical because they are trying to keep as much money that they made by shipping it to countries that have few rules on taxes. For example, they earn $1 billion in England, if they ship most of that money to Bermuda, then England can only tax them on part of the money earned even though all of it was made in England. Since this is not illegal, Google has every right to do what they are doing, but it just comes off as selfish. According to Friedman’s Individualism, the only goal of business is to profit, so the only obligation that the business person has is to maximize profit for the owner or the stakeholders. Google is getting the maximum profit they can by avoiding as much tax money as they can which follows Friedman’s individualism.

Utilitarianism is a theory in ethics stating that the proper course of action is the one that maximizes utility, or maximizing the total benefit and reducing suffering or the negatives. The Google tax evasion case provides maximum profit for the company itself which in turn makes all the stakeholders happy, which utilitarian’s might see as what Google has done is for the greater good. Really the only negative portion of the tax evasion is that the countries where Google makes profit in lose money due to the tax evasion. But because Google is profiting for the greater good of themselves as well as increasing the happiness of the stakeholders, the goods outweigh the bad in their minds. The countries losing the amount of money they do from tax evasion would consider otherwise. The money the countries lose from tax evasion hurts the people of that country because it limits the amount of money put into things like agriculture, defense, social security, etc. This in a whole will effect people negatively compared to just the good coming from the people of Google. In this case, the bad outweighs the good.

Google Inc. headquarters in Mountain View, California

The tax evasion case on Google shows that the company was trying to exempt themselves from the rules of the countries that they made money in by avoiding those countries tax rules by moving money to countries with less strict rules. Although this is not illegal, it really is not acting rationally because Google did not make the money they moved in the country where the money was moved. Google is also not being a good model to other companies by avoiding taxes because it makes countries lose a considerable amount of money nor is is it respecting people other than their own stakeholders by avoiding taxes. Google is really just trying to maximize their profit no matter the cost, even if it is the right thing to do based on what they think they deserve, it is not the right thing to do for the greater good of everyone involved. According to the formula of humanity, “Act in such a way that you treat humanity, whether in your own person or in the person of another, always at the same time as an end and never simply as a means,” Google is being egotistical by only caring about their own profit, rather than the other smaller parts involved as well. A Kantian would not agree with what Google is doing.

Virtue Theory
The four main virtues in business are: Courage: risk-taking and willingness to take a stand for the right ideas and actions. Honesty: in agreements, hiring and treatment of employees, customers and other companies. Temperance: “reasonable expectations and desires.” Justice: hard work, quality products, good ideas, and fair practices. Courage is something Google follows half-heartily. They are taking a stand on the high tax that would be put onto the profit they make if not for evading them, but also by doing so, is not following the right ideas of how countries make their money for the greater good of the people living in them. Again, the honesty portion Google follows pretty closely by making their stakeholders happy and giving the employees good working conditions, but one of their major customers are the countries they do business in. By paying less to the countries by avoiding taxes, it really isn't an honest way to handle the profits made in that country. Google does show good temperance even after the case. The company desires greater profit and by doing so, finds a loop hole by being able to legally avoid taxes to maintain profit. It is a fair desire and expectation to have as a company. Justice in this case, is only faltered by the fair practices portion. In all, virtue theorists would not agree with what Google is doing.

"Raunak Haldipur." : Google's Stakeholders. Web. 18 Oct. 2014.

Salazar, H. (2011). Business Ethics and Economics and Individualism. Powerpoint.

Salazar, H. (2011). Business Ethis and Virtue. Powerpoint.

Salazar, H. (2011). Kantian Business Ethics. Powerpoint.

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